Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-18-03549/USCOURTS-ca3-18-03549-0/pdf.json

Parties Involved:
Steven Fishoff
Appellant
United States of America
Appellee

Document Text:

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 18-3549

____________

UNITED STATES OF AMERICA

v.

STEVEN FISHOFF,

 Appellant

On Appeal from the United States District Court 

for the District of New Jersey

(D. C. Criminal No. 3-15-cr-00586-001)

District Judge: Honorable Michael A. Shipp 

 

 

Submitted under Third Circuit LAR 34.1(a)

on July 8, 2019 

Before: MCKEE, ROTH and RENDELL, Circuit Judges

(Opinion filed: January 30, 2020)

Daniel T. Brown

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2

Murphy & McGonigle

1001 G Street, NW

Seventh Floor

Washington, DC 20001

Counsel for Appellant

Mark E. Coyne

John F. Romano

Office of United States Attorney

970 Broad Street

Room 700

Newark, NJ 07102

Counsel for Appellee

O P I N I ON 

ROTH, Circuit Judge:

Under Section 32 of the Securities Exchange Act, a 

defendant who violates a Security and Exchange Commission

(SEC) rule or regulation but proves that he “had no 

knowledge of such rule or regulation” is not subject to

imprisonment.

1

 The rule is intended to protect laypersons 

 1 15 U.S.C. § 78ff(a). 

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3

who commit technical violations.2 This case requires us to

determine the precise burden on a defendant who wishes to 

use the so-called “non-imprisonment defense.” We hold that 

a defendant can establish lack of knowledge and avoid 

imprisonment if he demonstrates, by a preponderance of the 

evidence, that he did not know the substance of the rule or 

regulation that he violated. Because appellant Steven Fishoff 

did not establish a lack of knowledge of the rule that he pled 

guilty to violating and because his other procedural 

arguments fail, we will affirm the judgment of the District 

Court. 

I

Fishoff began trading securities in the early 1990s. He

was a skilled trader and eventually quit his job in the clothing 

manufacturing sector to trade full-time. He initially traded in 

partnership with a “backer,” i.e., an investor who provided the 

capital for his trading activity. By 2009, he had earned 

enough money to set up his own firm, Featherwood Capital,

Inc. At Featherwood, he had one full-time employee and also

worked with several independent contractors. He controlled 

accounts that yielded profits between $2 and $5 million per 

year. Despite his successes, Fishoff neither had any formal 

training in nor took any courses on the securities markets, 

regulations, or compliance. Nor did he ever hold a securities

or other professional license. He operated Featherwood 

without any expert legal or regulatory advice. 

 2 See United States v. Lilley, 291 F. Supp. 989, 992 (S.D. Tex. 

1968) (citing Report of the Joint Conference Committee, 78 

Cong. Rec. 10263 (1934)); see also 78 Cong. Rec. 8295-96 

(1934) (statement of Sen. Steiwer). 

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One of Fishoff’s practices was short-selling a 

company’s stock in anticipation of the company making a 

secondary offering. Short-selling is the sale of a security that

the seller has borrowed with the belief that the price of the 

security will drop. This enables the seller to make a profit by 

buying back the stock at a lower price before returning it. 

Secondary offerings, i.e., when a public company issues and

sells new shares to raise money, can cause the company’s 

share price to decrease because the new shares dilute the

value of existing shares. Not surprisingly, many traders and

market researchers try to predict when a company will make a 

secondary offering by, for example, forecasting when a

company will need an influx of cash. In order to make such a

forecast, a trader will use public financial disclosures or 

watch for updated shelf registration statements.3

 

Although secondary offerings are confidential, a 

company, through its underwriter, may contact potential 

buyers to assess interest in the offering. Different investment 

banks, acting as underwriters, take different approaches in 

authorizing their salespeople to describe the subject company 

and its market capitalization. However, when a salesperson 

provides confidential information, such as the name of the 

 3 Short-selling can artificially depress a stock’s price. To 

ensure that secondary offerings reflect market forces, the SEC 

issued Rule 105 of Regulation M, 17 C.F.R. § 242.105, which 

generally prohibits the purchase of securities in secondary 

offerings if the purchaser engaged in short-selling of that 

stock within a five-day period before the offering. Although 

Rule 105 is not at issue here, it is the subject of certain claims 

in a related SEC case. SEC v. Fishoff, No. 13-cv-3725-MASDEA (D.N.J.) (filed June 3, 2015). 

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issuing company and the pricing and timing of the offering, 

the recipient of this information is considered to be “over the 

wall” or “OTW” and is barred by relevant law, including the

SEC’s Rule 10b-5-2, from trading the issuer’s securities or 

disclosing the information to anyone else before the offering 

is publicly announced. Otherwise, the recipient will have an 

unfair advantage and be able to profit from the inside 

information, for example by short-selling the stock and 

repurchasing it after the announcement of the secondary 

offering, assuming the price has indeed dropped. 

The criminal insider trading activity at issue in this 

case relates to Featherwood’s practice of receiving 

confidential information about impending secondary 

offerings, i.e. being brought over the wall, and short-selling 

based on that inside information. Two of Fishoff’s associates, 

Ronald Chernin and Steven Constantin, opened accounts at 

investment banking firms and cultivated relationships with 

investment bankers in order to receive solicitations to invest 

in secondary offerings. Chernin and Constantin learned about 

specific secondary offerings from the investment banks and 

agreed to keep the information confidential. They then 

telephoned Fishoff and told him they were “OTW” and had 

learned when a certain company was planning a secondary 

offering. Fishoff would short-sell the company’s shares, later 

profiting by purchasing the shares after the announcement of 

the secondary offering, when the price had fallen. Fishoff 

also shared the inside information with Paul Petrello, a longtime business associate, personal friend, and former colleague 

at Worldwide Capital, one of Fishoff’s early backers. Petrello 

similarly used the inside information to short-sell, and he and 

Fishoff split the trading profits. Petrello testified at his own 

plea hearing that Fishoff would send the first two letters of 

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the company’s stock trading symbol by text message and then 

tell him the last two letters by phone.

4

 

In November 2015, Fishoff was charged in a fivecount Indictment including one count of conspiracy to 

commit securities fraud and four separate counts of securities 

fraud. He eventually pled guilty to Count 4, securities fraud

in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 

240.10b-5 (Rule 10b-5), and 18 U.S.C. § 2. His plea related 

to the trading of stock in Synergy Pharmaceuticals, Inc. As 

described in the plea agreement, in the government’s 

sentencing memorandum, and at the plea hearing, Chernin 

was solicited by phone to participate in Synergy’s

confidentially marketed secondary offering and brought over 

the wall on April 30, 2012. He called Fishoff a few minutes 

later. Featherwood started short-selling Synergy stock later 

the same morning via Fishoff’s online trading account. The 

secondary offering was publicly announced on May 3, 2012. 

 4 The government in its brief refers to Fishoff’s use of “coded 

language” to pass along the confidential information to 

others. The government cites to the portion of the sentencing 

hearing transcript where the prosecution discussed Fishoff’s 

and Petrello’s use of coded language, including the 

transmittal of stock symbols in fragments. Fishoff objected at

the sentencing hearing that Petrello’s plea was not part of the

record. However, because Fishoff did not object in his reply 

brief to the government’s mention of the same evidence (and 

in fact refers to Petrello’s testimony on other issues), he has 

waived any objection to our consideration of that evidence.

See United States v. Shaw, 891 F.3d 441, 455 n.17 (3d Cir. 

2018); Suarez-Valenzuela v. Holder, 714 F.3d 241, 248-49 

(4th Cir. 2013). 

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Fishoff stipulated that he and his associates made between 

$1.5 and $3.5 million by short-selling Synergy stock based on 

the confidential information regarding the upcoming 

secondary offering. Fishoff also stipulated that he had 

breached the duty of confidentiality and trust owed to the 

source of the inside information and agreed that he had done 

so “willfully.”5

Fishoff’s sentencing took place on November 5, 2018. 

In his sentencing memorandum, Fishoff claimed that he had 

no knowledge of SEC Rule 10b5-2 and was entitled to the 

affirmative defense against imprisonment pursuant to Section 

32 of the Securities Exchange Act. The government, in its 

sentencing memorandum, requested a sentence within the 

Guidelines range of 46 to 57 months. At the sentencing

hearing, the court asked whether the parties had nonGuidelines objections to the Pre-Sentence Report. Fishoff’s 

attorney clarified that the court was not referring to the 

affirmative defense of Section 32, and the court agreed and 

said it would hear about that “separate[ly].”6

 The court 

proceeded to calculate the Guidelines range of Fishoff’s 

sentence, denied Fishoff’s request for a departure, and heard 

Fishoff’s allocution. The court also heard argument from 

Fishoff’s counsel that a sentence of home confinement would 

be appropriate. Following a break, the court asked the parties 

if there were any clarifications for the record. Hearing none,

the court proceeded to discuss the factors it needed to 

consider under 18 U.S.C. § 3553(a), granted a variance 

downward, and sentenced Fishoff to 30 months’ 

imprisonment. The government then moved to dismiss the 

 5 S.A. 21 (Plea Hearing Tr. 21:11-12).

6 A131. 

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remaining counts, which the Court granted. 

After the District Court announced the sentence and 

dismissed the remaining counts, Fishoff’s attorney reminded 

the court that it had not addressed its Section 32 argument on 

the non-imprisonment defense. The court responded that it 

had “addressed all of the steps necessary for sentencing,” and 

when Fishoff’s attorney responded with an explanation of the 

affirmative defense and pointed to the relevant portion of the

sentencing submission, the court stated for the record that 

“[a]ny motion pursuant to Section 32 of the Securities 

Exchange Act prohibiting imprisonment is hereby denied in 

its entirety.”7

 Fishoff did not object. The next day, on

November 6, the court issued a written order “for the sake of 

clarity” explaining that Fishoff had failed to establish that he

was a layperson and failed to present evidence supporting his 

argument that he lacked knowledge of Rule 10b5-2.8

 

 7 A184. 

8 A18. Rule 10b5-2 sets forth “a non-exclusive definition of 

circumstances” in which the misappropriation theory of Rule 

10b-5 would apply. Under that theory, the defendant is not an 

insider but an outsider who possesses inside information and 

owes a fiduciary duty to the source. Rule 10b5-2, which the 

SEC promulgated in 2000 to codify the Supreme Court’s 

decision in United States v. O’Hagan, provides guidance on 

such cases. United States v. McPhail, 831 F.3d 1, 5 (1st Cir. 

2016) (citing United States v. O’Hagan, 521 U.S. 642 

(1997)). Fishoff refers to Rule 10b5-2 in his briefs, as does 

the District Court in its order, while the government refers to 

Rule 10b-5. Section 78ff(a) makes clear that a defendant 

must demonstrate a lack of knowledge of the rule he violated

in order to avail himself of the affirmative defense. Because

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This appeal followed. Fishoff raises three main 

arguments. First, he argues that the District Court violated 

Federal Rule of Criminal Procedure 32 by failing to make 

factual findings at sentencing and improperly curtailing his 

argument on the affirmative defense. Second, he argues that 

the government may not oppose his request on appeal because 

it was silent with respect to the affirmative defense in the 

course of the proceedings below. Third, he urges us to 

overturn the District Court’s ruling that he did not 

demonstrate a lack of knowledge of the rule he violated. We 

discuss each in turn.

 

Fishoff pled guilty to violating Rule 10b-5, the relevant rule 

in this case is Rule 10b-5. In any event, Rule 10b5-2 does not 

stand alone as a source of liability; as a special case of insider 

trading, it assumes the other relevant elements of that charge 

are present. See 17 C.F.R. § 240.10b5-2(a) (“This section 

shall apply to any violation of . . . § 240.10b-5 . . . .”); see 

also United States v. Knueppel, 293 F. Supp. 2d 199, 204

(E.D.N.Y. 2003) (“Whether or not defendants knew that they 

faced potential prosecution under a theory labeled by lawyers 

as the ‘misappropriation theory,’ they pled guilty to

[conspiracy to commit securities fraud].”). For that reason, 

defendants in misappropriation cases are simply charged with 

violating Rule 10b-5, e.g., United States v. Parigian, 824 F.3d 

5, 8 (1st Cir. 2016), or sometimes both Rule 10b-5 and Rule 

10b5-2, e.g., United States v. Gansman, 657 F.3d 85, 90 (2d 

Cir. 2011). To the extent that Fishoff believed he needed to

demonstrate only a lack of knowledge of the misappropriation 

theory, he was mistaken, and to the extent that the District 

Court erred in this regard, any error is harmless. 

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II9

A

We first address Fishoff’s argument that the District 

Court violated Rule 32. The purpose of Rule 32 is “threefold: 

(1) to allow the defendant to present mitigating 

circumstances, (2) to permit the defendant to present personal

characteristics to enable the sentencing court to craft an 

individualized sentence, and (3) to preserve the appearance of 

fairness in the criminal justice system.”10

Fishoff relies on two separate subsections of this rule. 

First, Fishoff argues that the District Court failed to make 

factual findings on the record in violation of Rule 32(i)(3)(B), 

which requires the sentencing court, “for any . . . controverted 

matter,” to “rule on the dispute or determine that a ruling is

unnecessary either because the matter will not affect 

sentencing, or because the court will not consider the matter 

in sentencing.” The rule is “strictly enforced” and requires 

the court to make express findings on disputed facts or to 

disclaim reliance upon disputed facts.11 

Here, the District Court did not violate Rule 

 9 The District Court had jurisdiction pursuant to 18 U.S.C. § 

3231. We have jurisdiction pursuant to 18 U.S.C. §§ 1291

and 3742(a). 

10 United States v. Moreno, 809 F.3d 766, 777 (3d Cir. 2016)

(internal quotation marks omitted).

11 United States v. Electrodyne Sys. Corp., 147 F.3d 250, 255 

(3d Cir. 1998).

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32(i)(3)(B) by failing to rule on the affirmative defense.

12

First of all, the Court did issue a clear ruling in response to 

Fishoff’s objection,

13 unlike in United States v. Electrodyne

Systems Corp., cited by Fishoff, where the record was “[a]t 

best . . . ambiguous as to the district court’s reliance upon the 

disputed matters.”14 Fishoff also relies on United States v. 

Metro, but in that case, the court did not resolve a dispute 

about the defendant’s role in the scheme because it

mistakenly considered the factual dispute to be moot, when it 

was in fact “very much alive.”15 Here, the Court made no 

 12 Our review of the District Court’s adherence to Rule 32 is 

plenary. United States v. Ward, 732 F.3d 175, 180 n.4 (3d 

Cir. 2013). The government urges us to apply plain error 

review. We are not persuaded. The government relies on

United States v. Flores-Mejia, 759 F.3d 253, 257 (3d Cir. 

2014), in which we held that a defendant must raise any 

procedural objection to his sentence (such as a court’s failure 

to give meaningful consideration to the defendant’s 

substantive argument) after the sentence is pronounced. In 

that case, the parties argued for and against a variance but the 

court did not rule on it. The court then announced its 

sentence, at which point defense counsel did not object to the 

court’s failure to rule on the variance issue. Here, the District 

Court announced its sentence, Fishoff objected that the court 

had not addressed Section 32, and the court ruled on the

objection. In this manner, then, the court ruled on the 

affirmative defense.

13 A184 (“Any motion pursuant to Section 32 of the 

Securities Exchange Act prohibiting imprisonment is hereby 

denied in its entirety.”). 

14 147 F.3d 250, 255 (3d Cir. 1998). 15 882 F.3d 431, 442 (3d Cir. 2018).

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such mistake.

Moreover, to the extent the Rule requires express

findings on the viability of the affirmative defense, we find a 

clear statement of the court’s findings in its rejection of the 

defense. As the Ninth Circuit held in United States v. 

Laurienti, by rejecting the affirmative defense without 

providing specific reasons, the court “necessarily found he 

knew of the [SEC] rule” he was charged with violating.16 

Finally, even if there was error, it is evident from the court’s 

November 6 ruling that any further explanation on the part of 

the court would not have changed the sentence it imposed.

Thus, any error is harmless.

Second, Fishoff argues that the District Court 

improperly curtailed his argument on the affirmative nonimprisonment defense at sentencing in violation of Rule 

32(i)(4)(A). That subsection requires the court, “[b]efore 

imposing sentence,” to “provide the defendant’s attorney an 

opportunity to speak on the defendant’s behalf” and “address 

 16 731 F.3d 967, 972 (9th Cir. 2013); see also United States v. 

Campbell, 295 F.3d 398, 406 (3d Cir. 2002) (holding that the 

district court fulfilled its obligation to make factual findings 

on controverted matters by stating that the disputed portions 

of the presentence report were supported by a preponderance 

of the evidence); cf. United States v. Zehrung, 714 F.3d 628, 

632 (1st Cir. 2013) (sentencing court may “implicitly” resolve 

factual disputes when its statements and the sentence “show[] 

that the facts were decided in a particular way” as long as 

both the findings and the basis for the findings are clear 

enough “to permit effective appellate review” (internal 

quotation marks omitted)).

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the defendant personally in order to permit the defendant to 

speak or present any information to mitigate the sentence.” 

We see no plain error violation of this subsection of 

Rule 32.

17 As an initial matter, the sentencing court “has 

always retained the discretion to place certain restrictions on 

what may be presented during an allocution.”18 Here, Fishoff

submitted an extensive sentencing memorandum, which 

included a section on the non-imprisonment defense, as well 

as 38 letters of support, a DVD, and a letter from Fishoff. At 

the hearing, the court heard lengthy arguments from Fishoff’s

counsel, who at several points requested a sentence of home 

confinement. The court addressed Fishoff personally and 

Fishoff himself spoke at length. This case is unlike those 

relied upon by Fishoff, such as United States v. Chapman, 

where the district court refused a continuance so that the 

defendant, who had mistakenly not been notified of the day of 

sentencing, could gather letters from family members and

prepare for allocution.19 This case is also unlike those in 

which we have found error because the sentencing court 

infringed on the right of the defendant to allocute.

20 Finally, 

 17 Fishoff did not object at sentencing that the court was 

interfering with his right to present information. We thus

review for plain error only. Moreno, 809 F.3d at 777. 18 Ward, 732 F.3d at 182; see also U.S.S.G. § 6A1.3 cmt.

(“When a dispute exists about any factor important to the 

sentencing determination, the court must ensure that the 

parties have an adequate opportunity to present relevant 

information. Written statements of counsel or affidavits of 

witnesses may be adequate under many circumstances.”). 

19 915 F.3d 139, 144-47 (3d Cir. 2019).

20 E.g., Moreno, 809 F.3d 766.

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it is clear from the November 6 order that oral argument on 

the affirmative defense would not have made a difference in 

Fishoff’s sentence. Thus, any error did not affect his

substantial rights.21

We do not condone the practice of telling defense 

counsel that they will be permitted to argue for an affirmative 

defense at sentencing and then denying the defense without 

oral argument. Nevertheless, Fishoff was able to present his 

defense adequately, and the court’s ruling on it was sufficient. 

Furthermore, as discussed below,22 Fishoff’s arguments that 

he was entitled to the defense are not persuasive. For those 

reasons we hold that the court did not violate Rule 32.

B

We next address Fishoff’s argument that the 

government was silent in the face of his affirmative defense 

below and therefore should, on appeal, not be permitted to 

argue against it. Fishoff points out that the government 

responded to other portions of his sentencing memorandum, 

thereby demonstrating “that it was fully capable of advising” 

the court on matters affecting sentencing, but that it failed to 

do so with respect to his affirmative non-imprisonment 

defense. His argument fails for two reasons. 

First, by requesting a sentence of imprisonment within 

the Guidelines range of 46 to 57 months, the government was 

necessarily opposing Fishoff’s argument that he should not be 

sentenced to prison. As the government points out, it

 21 See Fed. R. Crim. P. 52(b).

22 Infra Part II.C.

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submitted its sentencing memorandum before Fishoff 

submitted his; the court did not require or permit 

supplemental briefing before sentencing, merely the filing of 

supplemental documents. Nor did the court elicit the 

government’s views on the matter at sentencing. To be sure, 

the government could have volunteered its position at the 

hearing. But even if the government did not provide its 

explicit view on the matter, its request for a sentence of 

imprisonment clearly demonstrated its position—that Fishoff 

was not entitled to the defense.23 

Second, as other circuits have made clear, when a 

criminal defendant appeals, the government is “tasked, in 

effect, with defending the district court’s judgment.”24 This

is so even when the government agreed to a sentencing 

adjustment that the district court did not award.25 Although 

we have not addressed this exact issue, we held in United 

States v. Griswold that the government may defend the 

 23 The cases cited by Fishoff do not require a contrary result. 

In United States v. Weatherspoon, 696 F.3d 416, 421-22 (3d 

Cir. 2012), we held that the government was barred from 

arguing for the first time on appeal that a defendant could not 

file a second motion pursuant to 18 U.S.C. § 3582(c)(2). 

Here, by contrast, the government necessarily opposed the 

motion. The second case, United States v. Schiff, 602 F.3d 

152 (3d Cir. 2010), is distinguishable because the government 

in that case took a position on appeal that contradicted several 

express statements it made below. There were no such 

express statements here.

24 United States v. Carbajal-Valdez, 874 F.3d 778, 786 (1st 

Cir. 2017). 

25 Huff v. United States, 734 F.3d 600, 610 (6th Cir. 2013).

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district court’s factual finding with respect to a defendant’s

offense level even if the government stipulated to contrary 

facts in the plea negotiation.

26 Here, the plea agreement

explicitly reserved the government’s right (and Fishoff’s 

right) to take any position on appeal.

27 Moreover, the 

government never agreed that the non-imprisonment defense 

applied. 

For these reasons, Fishoff’s preclusion argument lacks 

merit. 

C

We turn, last, to Fishoff’s argument that the District 

Court erred in finding that he did not meet his burden of 

demonstrating a lack of knowledge of the substantive SEC 

Rule he pled guilty to violating. We review the District 

Court’s factual findings for clear error.

28 In doing so, we do 

not find clear error simply because “there are two permissible 

views of the evidence.”29

We have not previously had occasion to interpret the 

non-imprisonment defense of Section 32. Other circuits have

done so and we find their analyses helpful, especially the

 26 57 F.3d 291, 298-99 (3d Cir. 1995).

27 Except that neither side could argue on appeal that the

sentencing court erred in accepting the factual stipulations. 

28 United States v. Grier, 475 F.3d 556, 561 (3d Cir. 2007) 

(en banc).

29 Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574 

(1985).

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reasoning of the Eighth Circuit in United States v. Behrens.

30 

In that case, the Eighth Circuit rejected the defendant’s view

that the non-imprisonment defense is available to one who 

shows that he did not know that the rule in question applied to 

his conduct (even if he was aware of the rule).31 The court 

also rejected the government’s view that the nonimprisonment defense is only available to a defendant who 

can show “a complete absence of knowledge” of the rule’s 

“very existence.”32 The court instead drew a middle line, 

based on the plain language of the statute, and held that 

defendants must show by a preponderance of the evidence

“that they did not know the substance of the SEC rule or 

regulation they allegedly violated, regardless of whether they 

understood its particular application to their conduct.”33 By 

requiring the defendant to demonstrate a lack of knowledge of 

the substance of the rule, the defense marks only a minor 

departure from the traditional principle that ignorance of the 

law is no excuse.34

 30 713 F.3d 926 (8th Cir. 2013). 31 The Eighth Circuit found that such an interpretation would 

create a specific intent mens rea more appropriate for, e.g.,

criminal tax cases, which run a higher risk of “convicting 

individuals engaged in apparently innocent activity.” Id. at

931 (quoting Bryan v. United States, 524 U.S. 184, 195

(1998)). 

32 713 F.3d at 929.

33 Id. at 930, 932. 34 Id. at 931 (“This rule protects from imprisonment 

individuals who truly are unaware of the substance of an SEC 

rule or regulation, but it does not go so far as to completely 

vitiate the principle that ignorance of the law is no defense.”); 

id. at 931-32 (“The purpose of the no-knowledge provision is 

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We agree with the Eighth Circuit’s reasoning in 

Behrens that a defendant who wishes to qualify for the nonimprisonment defense must demonstrate, by a preponderance 

of the evidence, that he did not know the substance of the rule 

that he violated. It is immaterial that a defendant does not 

know the exact number of the rule, and immaterial that the 

defendant did not specifically intend to violate the rule.35

Applying this construction of the defense to the case 

before us, we find that Fishoff did not meet his burden. He 

offers four main pieces of evidence.

First, he maintains that “there can be no presumption 

that [he] would generally have knowledge of the SEC’s 

technical rules,” and that “[n]o layperson would generally 

know of Rule 10b5-2.”36 But Fishoff was a full-time trader 

who made his living by trading stocks. Even assuming a true 

layperson would not be aware that insider trading is

prohibited, which is a dubious proposition, we cannot credit 

his claim to be a layperson. He was an experienced trader 

 

certainly to ‘soften[] the impact of the common-law 

presumption’ that ‘mistake of law is no defense’ . . . .”

(quoting Cheek v. United States, 498 U.S. 192, 199, (1991))

(alterations in original)). 35 Cf. Lilley, 291 F. Supp. at 993 (holding that it is irrelevant 

that the defendant does not know “the precise number or 

common name of the rule, the book and page where it was to 

be found, or the date upon which it was promulgated”). 36 As explained above, the rule in question is the rule to which 

Fishoff pled guilty to violating, which here is Rule 10b-5 and 

not the rule setting forth the misappropriation theory (Rule 

10b5-2). See supra n.8.

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with years in the business. He had performed hundreds of 

thousands of trades.

37 We recognize that the illicit trades 

constituted a tiny fraction of the trades completed by 

Featherwood. But the sheer volume of normal, non-violative 

trading activity carried out or overseen by Fishoff merely 

throws into sharper relief the few trades that relied on 

confidential inside information. Based on his trading activity, 

Fishoff cannot plausibly claim, without more, that he was not 

a professional trader. Thus, he does not benefit from any

presumption that he was unaware of insider trading rules.

Second, Fishoff points out that he has never held a 

securities license, worked as a registered broker/dealer, 

studied for any securities licensing exam, or received training 

in the securities laws. This evidence is an extension of his 

claimed non-professional status. We find it unpersuasive for

the same reasons. His lack of licensure or training carries less 

weight in light of the fact that he made his living by trading 

securities; it is implausible that a professional trader like 

Fishoff would not know about Rule 10b-5.38 We find no 

clear error in the District Court’s decision that this evidence 

does not meet the preponderance standard.

Third, Fishoff refers to the emails he and his associates 

 37 United States v. D’Honau, 459 F.2d 73, 75 (9th Cir. 1972) 

(“Appellant was experienced in the stock market; it is a 

remote possibility that he did not know the actions prohibited 

by 17 C.F.R. 240.10b-5 were contrary to law.”). 

38 Other courts have similarly denied the defense to 

individuals who claimed not to have “academic” or 

“professional” experience. See Knueppel, 293 F. Supp. 2d at

204-05.

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received from investment banks containing form 

confidentiality agreements and points out that these emails do 

not mention Rule 10b-5. This argument is meritless. The 

emails clearly stated that they contained confidential 

information, the use of which was restricted. If anything, 

these form confidentiality agreements should have been red 

flags for Fishoff that he was not permitted to trade based on 

the confidential information. They certainly do not 

demonstrate his lack of knowledge, much less meet the 

preponderance standard.

Fourth, Fishoff points out that he became aware of 

Rule 10539 in September 2013, after the SEC brought a case 

against 23 individuals based on that rule. The head of 

Featherwood’s introducing broker, Montecito, sent Fishoff 

copies of Rule 105 and Reg SHO on October 2, 2013 (over 

one year after the Synergy trades described in Count 4).

Once he became aware of Rule 105, he realized some of his 

short-selling had violated that rule and took efforts to ensure 

future compliance by directing his associates to stop shortselling after being solicited by underwriters. But Rule 105 is 

not at issue here. Fishoff claims that he did not know that the 

government would consider the short-selling to violate Rule 

10b-5 in addition to violating Rule 105, but that is not enough 

to qualify for the defense.

40 The fact that he learned of Rule

105, realized the SEC was able to enforce it, and sought to 

avoid such enforcement of that rule does not demonstrate that 

he did not know of Rule 10b-5. The best inference one could

draw from this evidence is that Fishoff lacked knowledge of 

 39 17 C.F.R. § 242.105, “Short selling in connection with a 

public offering.” 40 Behrens, 713 F.3d at 929-30.

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the substance of Rule 105 before October 2013. But neither 

his lack of knowledge of Rule 105 nor his attempts to avoid a 

Rule 105 enforcement action have any bearing on his 

knowledge of a separate rule. 

In short, none of Fishoff’s proffered evidence 

demonstrates his lack of knowledge by a preponderance of

the evidence. In addition, there is enough countervailing 

evidence on the other side of the equation to conclude that the 

District Court did not clearly err. First, there is the fact that 

he was an experienced professional, discussed above. 

Second, the government points out that Fishoff told his 

associates to notify him of the confidential information by 

phone and conveyed the same information to Petrello using a 

code. Fishoff does not dispute the government’s 

characterization of these communications. His attempts to 

conceal the scheme suggests that he was aware that it was 

wrong and could support an inference that he knew of a 

prohibition against trading on the confidential information.41 

Finally, his reluctance to hire compliance personnel, despite 

advice from friends who were securities professionals, 

indicates that on some level Fishoff was aware he was 

violating a securities rule—or at least risking a violation of a 

securities rule and choosing to disregard that risk. 

In sum, we hold that the District Court did not err in 

ruling that Fishoff did not establish by a preponderance of the 

 41 United States v. Reyes, 577 F.3d 1069, 1081-82 (9th Cir.

2009) (based on evidence of “conceal[ment]” and “directing 

employees to not communicate . . . over the phone or email,”

the district court appropriately found that the defendant had 

not met her burden of establishing lack of knowledge).

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evidence a lack of knowledge of Rule 10b-5.

III

We will affirm the judgment of sentence of the District 

Court.

Case: 18-3549 Document: 45 Page: 22 Date Filed: 01/30/2020