are you ready to push the i am your honor you may please the court to uphold kelly lose key and in this case will require a subtle but very significant increase in the scope of insider trading laws of the united states all of which are judge made the court will be required to stretch the definition of materiality as handed down by the united priem court in the basic decision to reach internal corporate rumors that contain neither the actual nature of the transaction nor the timing of the transaction nor the ultimate terms of the transaction and so this court will be in effect saying you can be a mid level d line staff employee and hear corporate rumors and be prosecuted for insider trading based on those rumors alone that the judge charge simon had more important yes he did and a rumor passed on by an insider can have more importance it can unquestionably under a line of cases following basic there's no there's no question but that if a an if an insider with other added facts that give that rumor specificity and reliability that can constitute insider information but what we're missing in this case your and james mcmahon offered any evidence on the very critical issue on the threshold issue of whether kelly lindh was in possession of material nonpublic information others like bryan ferry only the c pierce they could speculate about what kelly lou might of known but they could not say in fact bryan ferry only specifically said i don't know what kelly lou knew were there rumors within show at the time of the buyout absolutely that something was in the works unquestionably was kelly lou aware of those were rumors certainly that's what she told the f b i we heard the talk in shock that's what she told the f b i when she was interviewed is clear starting with basic and moving through q so motto and an entire line of cases that rumors within a company cannot alone constitute material information the supreme court defined material information as in for i'm asian in basic that a reasonable would investor would view as significantly altering the total mix of information available now here's the catch to that i mean the relevant material information is just that there would be a merger correct no that's not correct your honor the the the rumors were that there a transaction pending and i got it what she's charged with is having given a tip to her boyfriend that companies would merge that's what she's charged with but that's not what the evidence show  i thought this is it correct or is it not correct that the government put witnesses on that said she was present when there were conversations about the upcoming merger she was present when their conversations but where i'm questioning your honor is the term merger because they didn't know and rebecca wallace mcmahon and good grief all testified i don't remember a tremendous amount of detail at this point this is rebecca wallace but i know that there was a deal going on what do you mean by a deal a deal a merger and acquisition a transaction later rebecca wallace a merger and acquisition you know call it what you want but some type of deal involving shaw and the reason i'm stressing that point is because it makes a huge difference the government's own expert dr becker who works for the securities and exchange commission said whether the company is a target or whether the company is the acquiring company makes a huge difference if a company is a target the price of the stock on average goes up twenty percent at the time of the acquisition if the company isn't acquiring company the price of the stock goes down one percent so a reasonable investor would want to know what's the deal and nobody ever knew it the case that says that distinction itself can they gauge whether or not it's so right those three cases were just to court opinions so that the challenge here is a properly instructed jury made the inferences and i don't see a circuit case that reverses a jury verdict having made the inferences of materiality i don't see one either your honor but i also don't see a circuit case that expands all we have is rumors right but if it's an expansion argument that's really an attack on the jury instructions and no i think it's an attack on the sufficiency your hon because under a properly under a proper definition and the jury was given a definition i know that they struggle because this was the st insider trading case or one of the the shaw group presented the  insider trading prosecutions in the th circuit and a considerable amount of time and they were struggling with how do we define materiality and how do we convey these concepts to a jury and how do we conveyed to a jury that this is what they need to find beyond a reasonable distance about who was struggling you said they were struggling was that the court own that the parties i think were struggling with the proper definition of would absolutely be interested in the fact that something was going on but the reasonable investor and that's the standard would be i'm absolutely interested in whether schorr group which was constantly in play there was evidence at trial that shaw had been the subject of i think four or five previous potential acquisitions by another company and as rebecca wallace testified shaw was constantly in play it was constantly buying small companies that was acquiring things things were constantly in motion a chart and everybody a troll i knew that the reasonable investor that would have wanted to know will it show buying or if you're a reasonable investor do you do you go buy options now because you don't know whether shaw is going to be bought or sold and if shaw is going to be buying it's the price of the stocks going to go down in your options are worthless and that's where that innocent explanation is just rumors that are of no value could at least from the jury standpoint be rude but they could infer from the worry of calls and buys in the simon canadian poll that that it's not just coincidence about in metairie ality this is a valuable piece of information and then the buys right but there's no proof and that's that's where the problem is you have there lies the content of the conversations but they just offered that there were a huge number of internal calls same thing with the ip address that's just a lot of coincidence that the jury may not have believed there is a lot of coincidence but the problem with these cases and the problem with every insider trading case is that we're always constructing them in hindsight what we do is we take the fact of the trade and then we look back and the question and the distinction that the courts make is is the the cases are built with hindsight the question is whether the cases are built on hindsight it is very easy if you're if somebody buys a lottery ticket and they win to look back prospect of retroactively and say look that was inevitable even though at the time they bought the ticket the odds were one dollar twenty five cents or whatever and so what were the dangers of looking back and using these conversations and the timing of the conversations is that we can construct retroactively scenarios that make people look guilty and it distracts us from the critical questions of what was known at that time how did they can vary it and why is it you have to go back to the timeline on july this deal with with chicago bridge and iron did not come into existence until july th everything prior to that was toshiba and every executive who testified on the point said that the toshiba c b n i deal fell apart somewhere near the end of june that your answer to that question is good juries statement is incredible as a matter of law that's correct and i'll tell you original agreement the one that's just a continuation of that st do you know what i have to wrong no actually it wasn't because it required different terms of financing and it required it was different parties and there was going to be different operations it was a new deal from the perspective of bankers from the perspective of lawyers and from the perspective of investors in fact what tells you that it was a new deal is that as it turns out  apparently didn't have enough money to close the deal and was requiring parish an input of cash from shaw group to even complete the transaction most of the people internally at shaw didn't believe the deal was going to go through bryan ferry only wasn't even in town the weekend who's the chief financial officer the weekend the deal was ultimately consummated and so what we have here is is there a lot of coincidence or is there a lot of simultaneity telephone calls things of that nature can you retroactively construct a fairly persuasive argument d that there was something going on here sure but that's why the cases compel us to look at what people said what they knew at that time and what would what kelly lou could have conveyed to rd parties assuming that there's any evidence that she actually conveyed it both of the co defendants in this case testified and that's a factor pusa mana looks to well did the tipi say that they were a lot to prove materiality did the tip piece say that they relied on the information provided by the insider both of the people in this case said i didn't give any information from kelly low or your time runs out was that you have any single best authority that it was reversible error not to sever the two in a or do you let rest on the brief on that point my best authority would be the pharaoh and mcrae those two decisions i think that both of those you're in a case what the supreme court and the nd circuit decisions tell us over and over and over is that in these cases facts matter that that's what we look to in the analysis and we look to st where the what were the facts that would have been material after this time here's the charge it's all the same nucleus absolutely what were the facts that would have been material at this time in terms of the deal well the facts would back on materiality you're not pressing this severance argument at all were were pressing it as an alternative but we believe that the materiality argument obviously is the strongest argument and what it does is it illustrates the need for a severance in this case because the facts these turn on very very subtle distinctions in this  case the facts are are in a really delicate balance and when you get to the nd part of the basic test that's where this case falls down for the government because you don't have the probability that this transaction was going to occur even though you may have the significance of the transaction for the corporation as a whole and i see that i'm out of time involved thank you  well thank you your honor may i please the court and good morning my name is trisha jones and i represent the united states in this case the problem with the defendant sufficiency arguments is that she is ignoring the standard of review here she asked you to disregard the testimony misc injury she asked you to take as true the defendant's own testimony she completely overlooks the testimony of more than half a dozen witnesses as to the materiality of the information we're talking about and she asked you to draw no inferences whatsoever from these extremely suspicious volume and timing of phone calls between the players in this case when this court is reviewing a verdict for sufficiency that's not how it works this court doesn't really evaluate the credibility of witnesses it doesn't ignore the government evidence and it doesn't refuse to draw reasonable from the evidence rather no cure sir if you're a stand out and you know your honor the jury did send out notes but i don't recall what they were i honestly do not remember what the actually not even a real issue at trial not one of the defense attorneys mentioned it in the rule twenty nine arguments and mr lou's counsel did not mention materiality in our closing argument the only defense attorney who mentioned it at all was mr holmes counsel and he devoted three sentences to it basically saying there's no evidence that mr ho knew about the date and the price and our expert says that's enough and that's an element that was it this was not a real issue and the reason is because the information that mr lew had was clearly material to a reasonable investor there was testimony from general counsel dinar freo that rumors of a b it's a thirteen day trial thirty four witnesses at what point would you say that miss lou did have material specific information instead of sort of atmosphere except one point when your hon i think she had it at the very latest on may th when she received the whole company due diligence list from krag peers that was a twenty two page document asking for everything about the  company every line of business all of that information mr ferial he said that is not the kind of information that the company would give out to anyone is the kind of information that you give to a buyer of the kind of in from the government might but don't let me put words in your mouth did did did the government show that she gained a lot from this what was her monetary gain the united states did not show up there was there was some evidence that she may have had a two thousand five hundred dollars gain from mr hope putting money down on a ski house and mr home may not have been introduced but i confess your honor that it's not clear  sufficiently proved that that money wasn't paid back to mr hope so at the personal benefit in this case was in providing a gift to a very close friend somebody that she vacations with somebody that she's in business with has a business relationship with and in fact is going to have a big part in a real estate deal without putting up any money and only putting up sweat equity so her benefit was in providing something to to somebody she's closely related to financially and personally the car no room for the ski trip and your honor that's what i was referring to mr ho did put that money down and some of it was paid back we could not conclusively show that none of it was paid back at least there's no evidence of it all being paid back but we couldn't prove that there was a cash given or something like that i think the jury could infer perhaps that there was and there was a benefit surely in the money being put down essentially loaned to miss lou for one of her obligations so there was that financial benefit it was not to show that she benefited the parin was enough to prove the entire case against yes your honor as far as personal benefit the supreme court held in the soundman case that giving confidential information to a trading relative or friend is a sufficient personal benefit to constitute a related to that just you have circle of forty it clearly is different as opposing counsel began his or commit that this is a middle level person who might not have access to information most of these cases do seem to be the people with the direct access you have circuit authority where insider trading attaches to mid level person who may just be in the locks of the your honor i think are our best case on on that is the the lead case from the nd circuit where i'm not exactly sure where in the corporate structure he fell but he was some sort of employee of a t n t there was a wall street journal article published that eighteen t was perhaps going to be engaged in some sort of  deal with another company although it wasn't clear what and mr the defendant in that case had done a feasibility study or one potential buyout of a company that had the same sort of vital statistics as the company mentioned in the wall street journal article and his boss came into his office and said i don't want to talk about that wall street journal article which was odd from that alone the defendant concluded this wall street journal article must be correct he called up his friend he said guess what i believe that the information the wall street journal article is correct and i believe that eighteen is going to be attempting to buy out this other company so the information was the same kind of information we have here information from work from the discussion was offered in that case you're just like he kept the government may be overcome by the jury verdict is no one knew what the content of the conversations were right it's just lots of calls that's correct your honor and and then you have it and this is something important as far as mr russo is concerned and i need to correct something at page twenty five of the reply brief the defendant asserts that the grand jury testimony of mrs russo was offered only as impeachment and therefore cannot be considered as supporting the verdict in this case but that is not correct it was specifically can be cross examined and at page nine hundred and seventy five of the record that is exactly how i offered the evidence as substantive evidence there was no objection the issue had been briefed ahead of trial and it's it is extremely important because miss russo's testimony was very powerful exhibit forty five a which is that tab one of our record excerpts she describes what information she was given by her son sammy about why  wanted to buy shaw stop and this is what she said there was a rumor that they were going to be bought out now so it's not just oh there's some big transaction they are going to be bought out and some other company kelly would be working for another company and this this buyout could possibly be beneficial to him buying some stock and i'm not sure what who the company was or what it was and that's absolutely all that i know she went on there was another grand jury excerpt admitted which is forty five dollars see also at tab one of the record excerpts and in that excerpt she describes a conversation she had with miss lu after the investigation began and miss lou admitted to her that there was a rumor at shaw that there was going to be a buyout she passed the rumor on to c m e and then sami wanted to buy the stock so this is not just completely they get information as the defense would have you believe additionally miss lou had substantially more information than just rumors she had the actual due diligence list for the whole company in her possession as of may th of two thousand and twelve she knew that the maggie model was being updated out of sight in may and in june she knew that she was participating in the due diligence process which according to mr ferial it was at a frantic pace after july th of two thousand and twelve she was involved in conversations with investment bankers that used the term the other side that asked about the financial modeling and then asked about evidence she participated in conversations with her  colleagues who had come to the conclusion that show was being sold according to ms guidry she was at a meeting when this when rebecca wallace informed them that the company was going to be sold and that  and i was the buyer and let me address the idea of miscarries testimony being incredible as a matter of law i don't see any basis for that misgives we testified that in march and april they were called into a meeting and at that point the information was that shaw was looking to sell itself and was exploring various different buyers so she didn't say oh i know all of knew all about to she even c b and i back in march and april she said that there was a meeting that they were they were that's not correct they were involved in the deal from the beginning mr reggae is the from c from c b and i is the person who came up with the idea of the transaction they were involved from beginning to the end so there's no there's no reason to believe that she could not have been informed of c b and i's interest in purchasing shaw prior to leaving in july this is just another example of the defense wanting you not to believe the government's evidence and that's not where we are right now that would be an argument for the jury it is not an argument for this court i would also disagree with this explanation of the law as requiring certain specificity the basic case does not say that information must be specific what basic says is that a reasonable investor must find the information to be significant in the decision whether to invest and basic specifically said that it can be speculative and contingent information basic also specifically said there's not any one factor or event that is required before information can be can be material it is what is in the mind  reasonable investor the basic court went further and said that the only evidence the only information that's really excluded from the materiality test is essentially useless information the information that miss lou had was not essentially useless and as examples of that consider that mr ho testified that he traded based on a rumor around morgan city that something big w happening at shop that's it that led him to buy eight thousand dollars worth of the most risky options available and show he was the most confident investor in shaw in the entire world on july th of two thousand and twelve and yet the defense would have you believe that the information he claimed to rely on there's something big going to happen at shah is not material that information is absolutely material mr denorfia the general counsel of c b s excuse me of shaw testified at trial that negotiations are extremely material that he notified the board of directors that information regarding the negotiations was material that he also said that rumors are material he said that you don't need timing date and price  said she acknowledged that that mergers were were material nonpublic information in her it that was part of her training it was part of the policy of the company that that negotiations about business combinations are absolutely material nonpublic information even the defense's expert dr mason while he testified on direct that information without certainty of event price and date is useless on cross examination he completely capitulated he said that uncertain information is used all the time to trade he said that if kelly lou had informed mr russo and mr ho that shah was about to be sold that that would be important information for an investor to have that's the end of the bog that's their own expert you had our expert who testified that rumors if published lead to a six percent increase in the price of the stock showing that even rumors can be material nonpublic information and of course kelly lou knew far more than rumors in this case  further evidence about mr ho possessing material nonpublic of information about the buyout is the testimony of his own witness jack smith and this was not mentioned in our brief but i wanted to point it out to the court rumor that shah was being bought out he testified also that mr holt told him a big company was going to buy so this is not just some vague information this is information that he had that he told his good friend and defense witness mr smith given that i can see there's no doubt that there was material nonpublic information given to mr ho the government just made the statement that kelly lu knew far more than rumors what she had no dates she didn't know parties she did know transactions she didn't know the nature of the transaction she didn't know any of that may th letter doesn't tell her anything about that because it relates to a deal that fell through the only information that is relevant in this case to what kelly lew knew in terms of the materiality in this case has to come after july th because that's the new deal so the may th letter while it was a deep dive as described into the financial information of the company takes the government nowhere because st it doesn't reveal the names of the parties everything is coded and nd as rebecca d wallace testified and james mcmahon testified requests for extensive amounts of information were routine at sha shaw was always in play what do you say to counter the argument that this wasn't raised at trial that these statements that this information was immaterial the the that doesn't bind this court in terms of determining the sufficiency of the evidence they may not have argued it because i don't think quite frankly that they were fully aware of the significance of materiality in this case the government talks about the basic decision but they leave out the nd half of the analysis in the mayhew decision which both we cite and the government cites the  circuit specifically says in the context of a merger where information can be speculative and tenuous the materiality standard may be difficult to apply yes it absolutely is but then it goes on to say a violation of the securities laws will not be found when the disclosed information is so general that the recipient thereof is still undertaking a substantial economic risk that is tempting target will prove to be a white elephant and that's what we were left with here to respond to your question judge davis about the real estate in the we stipulated in our brief we conceded that under supreme court jurisprudence a benefit has to be found the real estate deal never came to fruition and it was born and died in a couple of phone calls all of which occurred before any of this happened so it's a non issue the same is absolutely true with the ski trip there was a spreadsheet in this case introduced into evidence that basically demonstrated that everybody got their money back this had nothing to do with a payback for inside information the net economic benefit to kelly lou in this case was not a nickel not a nickel and so what we're looking at is a prosecution of kelly lu for potentially discussing rumors with friends who then may have decided to trade on her information and now she's in prison for it that's what the court is actually looking at in this case and to get to that point we have to stretch the definition of materiality completely beyond recognition that's where we are the government testified that six or eight witnesses testified that these things were material witnesses shouldn't be testifying about what's material that's a decision of law for the court a line employee in a small division of a company and he indicated that a t m t was going to be attempting to acquire in c r that's pretty specific information it tells you who the target company is and it tells you what the nature of the transaction is you can go back through all of the testimony of mayhew i'm sorry not me you of