PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 22
- 1157

UNITED STATES SECURITIES AND EXCHANGE COMMISSION , Plaintiff

– Appellant ,

v. CHRISTOPHER CLARK , Defendant

– Appellee , and
W ILLIAM WRIGHT, Defendant.
Appeal from the United States District Court for the Eastern District of Virginia , at Alexandria. C laude M. Hilton , Senior District Judge. ( 1:20

– cv

– 01529

– CMH

– JFA )
Argued : December 7, 2022 D ecided: February 23, 2023

Before AGEE, DIAZ , and QUATTLEBAUM , Circuit Judges.

Reversed and remanded by published opinion

. Judge Quattlebaum wrote the opinion in which Judge Agee and Judge Diaz joined.

ARGUED: David Lisitza, UNITED STATES SECURITIES & EXCHANGE COMMISSION, Washington, D.C. , for Appellant. M ark Davis Cummings, SHER, CUMMINGS & ELLIS, PLLC, Arlington, Virginia, for Appellee. O N BRIEF: Dan M. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 1 of 152 Berkovitz, General Counsel, Michael A. Conley, Dominick V. Freda, Assistant General Counsel, UNITED STATES SECURITIES & EXCHANGE COMMIS SION, Washington, D.C., for Appellant. D avid E. Sher, SHER, CUMMINGS & ELLIS, PLLC, Arlington, Virginia, for Appellee. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 2 of 153 QUATTLEBAUM , Circuit Judge: The Securities and Exchange Commission sued Christopher Clark for trading Corporate Executive Board, Inc. ( “ CEB ” ) stock using inside information

. The Commission alleged that Clark aggressively traded CEB stock after he received inside information about a potential merger from William Wright , Clark’s brother

- in

- law and C EB’s Corporate Controller. At t rial, Clark moved for judgment as a matter of law under Rule 50(a) 1 at the conclusion of the Commission’s case. He argu ed the C ommission failed to present evidence that Wright possessed inside information about the merger at the time Clark began the relevant trading. And if Wright had no such information at that time , Clark contended, Wright could not have passed it on to Clark. The district court agreed and granted judgment for Clark. In this appeal, the C ommission insists that the evidence presented would permit a reasonable jury to conclude that Wright possessed the inside information and that Clark traded CEB stock after receiving it from Wright. Construing the evidence and all reasonable inferences from it in th e light most favorable to the Commission , we agree. Thus, we reverse the district court’s order granting judgment as a matter of law to Clark and remand for further proceedings consistent with this opinion

.

1 Prior to 1991, instead of the phrase “judgment as a matter of law,” Rule 50(a) used the phrases “directed verdict” and “judgment notwithstanding the verdict.” A 1993 Amendment note on Rule 50(a) emphasizes that the “judgment as a matter of law” language was amende d in only a stylistic manner and does not change the standard under which Rule 50(a) motions should be granted. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 3 of 154 I. The Commission alleged Clark began trading CEB stock using inside information from Wright on December 9, 2016. This appeal’s critical issue is whether the Commission presented evidence from which a reasonable jury could conclude that Wright possessed inside information about CEB’s merger

— wh ich he then could have passed on to Clark

— by that date. 2
A.
I n August 2016, CEB announced that it s C hief Executive Officer and Chairman Tom Monahan would be stepping down

. After that announcement , but while Monahan was still CEO and Chairman, several co mpanies contacted him about the possibility of merging with or acquiring CEB

. One was Gartner, Inc. In October 2016 , the chief executive officer of Gartner asked if CEB would be interested in merging. O n November 1 and 2, Monahan discussed Gartner’s interest with the CEB board of directors and a select few employees . The board decided that merging with Gartn er was not in CEB’s best interest s at that time

. So , Monahan relayed that information to Gartner. On November 3, Wrigh t communicated by email with Barron Anschutz , CEB’s Chief Accounting Officer. Wright and Anschutz were not just co

- workers; they were close

2 There is no dispute that Wright had inside information by mid

- December 2016. Likewise, there is no question that Clark continued trading CEB stock after mid

- December

. Thus, one might question why Clark’s continued trading with potential inside information does not create liability , whether or not he had inside information from Wright on December 9. But at oral argument, the Commission expressly abandoned that theory of liability. So, we do not consider it. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 4 of 155 friends. They talked daily, ate lunch together regularly, co - owned a vacation house and were in a weekly poker game. In the emails, Wright and Anschutz discussed the effect of a change in control of CEB

— which a merger would be

— on unvested employee stock options

— which they both had

. The C ommission presented no direct evidence that , in early November, either Anschutz or W right knew that CEB’s board considered Gartner’s merger inquiries. But the emails about the effect of a change of control on their stock options took place just one day after the board discussed that topic

. Gartner continued to pursue a merge r with CEB. On November 7, it sent a confidential letter to Monahan outlining a non

- binding proposal to acquire CEB for $68 per share. O n November 18, t he CEB b oard de cline d the offer

. On November 21, Gartner increased its offer to $73 per share. But CEB’s board rejected it as well. 3 CEB and Gartner continued discussion s over the next few weeks with Gartner continu ing to increase its offer price

. On December 7, Gartner increased its offer to $77 per share. Finally, o n December 9, the CEB board agreed with t h at proposed per share price and decided to move forward with due diligence and to negotiate a definitive merger agreement. During the time Gartner’s offers were increasing, CEB informed more of its senior management about the negotiations. CEB referred t o these communications as being “brought under the tent.” J.A. 812:21

– 22. Anschutz testified that CEB brought him under the tent around Thanksgiving.

3 To compare how the prices Gar t ner offered related to the market price of CEB stock, on November 1 CEB ’s stock price was $48 per share. O n November 30 , it was $58.95 per share

. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 5 of 156 Throughout November and December, Wright was in almost constant contact with Anschutz. Wright was also in regular communication with Clark. And i n December, Wright began reaching out to employment recruiters. He spoke to one employment recruiter on the phone on December 8 , and Wright sent a thank you email to that recruiter the next day.
O n December 9, the day CEB’s board decided to proceed with the merger, Clark began the aggressive trading in CEB stock

. Clark liquidated $4,000 from his wife’s retirement account to purchase 40 CEB call options

. C all options allow investors to profit on sha re prices going up by permitting the owner of the call option to buy shares at an agreed price

— called a strike price

. I f the market value of the stock rises above the strike price, the investor can profit by buy ing shares at the strike price

— even though th e market value is higher. See generally Put and Call Options Under Section 16 of the Securities Exchange Act , 69 Yale L.J. 868, 869

– 70 (1960)

. But the risk in call options

— absen t inside information

— is the uncertain t y of whether the company’s stock price will in fact increase above the strike price

. See generally id. at 8 68

– 71

. Before December 9, Clark had only purchased CEB call options once before, in April 2008

. Clark purchased the CEB call options with strike prices of $65 and $70 per share and expiration dates in January, February and March. He bought more call options on December 12, 13, 14, 15, 20, 22, 27, and 29 a nd on January 3 and 5 . To finance these trades, Clark took out a line of credit at a 9% interest rate a nd borrowed against his car. Clark told his son to make similar purchases during the same period. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 6 of 157 Anschutz and Wright left for a business trip to London on December 11. Anschutz said he brought Wright under the tent while they were on the trip. CEB and Gartner continued with due diligence in December. O n January 4, they approved the merger and then announced it the next morning

. After this announcement, CEB’s stock price increased. Durin g December , CEB s hares traded between $5 7.70 and $6 0.60 . But o n January 5, 2017, the price of CEB stock closed at $7 4.85

. On January 5 , Clark and his son began to exercise their call options. Since their strike prices were now less than the market price o f the CEB stock, they made a lot of money. All told, by spending $33,050 , Clark cleared $245,230 in profit . A nd by spending $5,300 , his son profited $53,050

. During this time, Wright continued email communications with employment recruiters. In emails from January, Wright told the recruiters that he was working on the
merger on December 8

— the day before Clark’s trading began

. In another email from January , he s tated that he had been working on the merger “ [ f ] or the last few months.” J.A.
9 19. On January 12 , the Financial Industry Regulatory Authority (“FINRA”) began an investigation related to the CEB/Gartner merger. 4 Clark and Wright had a 47

- minute phone call three days l a ter.

4 In response to questions from FINRA, Wright acknowledged Clark was his brother

- in

- law and that he saw Clark at holiday events. But he said that between September 29, 2016, and January 4, 2017, they only spoke every month or two. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 7 of 158 Pursuant to FINRA’s investigation, CEB reported that Anschutz learned of the potential merger on November 1

. A fter the FINRA investigation, the FBI questioned Clark and his son about their parallel trading pattern s of CEB stock

. Clark an d his son told the FBI that they never discussed those CEB transactions with each other

. B oth admitted at trial that those statements were not true.
B

. The C ommission sued Wright for providing insider information and Clark for trading on that information . J ust before trial, Wright settled without making any admission of wrongdoing. T he case proceeded to trial as to Clark . The C ommission presented evidence consistent with the facts described above. After the C ommission ’s case in chief, Clark moved for judgment as a matter of law under Rule 50(a). Clark maintained that the
C ommission presented only speculative evidence that Wright had the insider information before December 9 , the day his recent flurry of CEB stock trading began

. A ccording to Clark, th e Government’s evidence was insufficient to show that Wright possessed inside information about CEB’s merger

. A nd if there was insufficient evidence that Wright had inside informat ion on or before December 9, Clark argued, Wright could not have passed it on to him

. The district court granted Clark’s motion from the bench. The C ommission in turn timely appealed the district court’s order granting judgment as a matter of law

. 5

5 We have jurisdiction t o hear this appeal under 28 U.S.C. § 1291

. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 8 of 159 II. In considering the Commission’s appeal, we begin with our standard of review. 6
Then we will review the applicable law to inside r trading claims like the ones pressed by the Commission here before analyzing the evidence presented by the Commission.
A. Under Rule 50(a), a motion f or j udgment as a matter of law is appropriate when “ a party has been fully heard

. . . and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party.” Fed. R. Civ. P. 50(a)(1). We review orders grant ing judgment as a matter of law de novo, viewing the facts and drawing all reasonable inferences from them in favor of the nonmoving party. Towler v. Sayles , 76 F.3d 579, 581 (4th Cir. 1996)

. Court s must not weigh evidence, determine witness credibility “or substitute [] judgment of the facts for that of the jury.” Lust v. Clark Equip. Co., Inc. , 792 F.2d 436 , 438 (4th Cir. 1986). Even so, to defeat the motion for judgment as a matter of law, the nonmovant must present more than a scintilla of evidence to support its claim

. Trandes Corp. v. Guy F. Atkinson Co. , 996 F.2d 655, 66 0

– 6 1 (4th Cir. 1993).
B

. Before applying that standard, we briefly r eview the law pertaining to the
C ommission ’s civil claim against Clark. Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission’s corresponding Rule 10b

- 5 prohibit

6 “ Like offensive linemen on a football team, standards of review lack glamour but are often decisively important. ” Portillo

- Flores v. Barr , 3 F.4th 615, 649 n.11 (4th Cir. 2021) (en banc) (Quattlebaum, J., dissenting). USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 9 of 1510 persons under a duty of trust and confidence from se cretly using inside corporate information that is not disclosed to the public for personal advantage. 15 U.S.C. § 78j(b);
17 C.F.R. § 240.10b

- 5. This duty of trust and confidence that requires abstention from trading extends to a tippee when he acquires th e information from a tipper. Salmon v. United States , 137 S. Ct. 420, 423 (2016). To impose liability, the C ommission must
prove

— by a preponderance of the evidence

— that the tippee knew “the information was disclosed in breach of the tipper’s duty, and the tippee

. . . trad[ed] in disregard of that knowledge.” Id. The Supreme Court has ruled that a “tippee’s liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information.” Id. (citing Dirks v. SEC , 463 U.S. 646, 664 (1983) ). B ut b ecause a defendant or interested party rarely makes a statement or reveals information that amounts to direct evidence of imp ermissible trading based on confidential insider information, the
C ommission may present circumstantial evidence to meet its burden of proof. Dirks , 463
U.S. at 663

– 64

. Circumstantial evidence, i f it meets all the other criteria of admissibility, “is not only sufficient, but may also be more certain, satisfying and persuasive than dire ct evidence.” Desert Palace, Inc. v. Costa , 539 U.S. 90, 100 (2003) (quoting Rogers v. Missouri Pacific R. Co. , 352 U.S. 500, 508, n.17 (1957) ). That said , conjecture and speculation from the nonmovant are insufficient to overcome a motion for judgment as a matter of law

. See Moskos v. Hardee , 24 F.4th 289, 299 ( 4th Cir. 2022)

. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 10 of 1511 C

. With our standard of review and the legal requirements for an insider trading claim in hand, we return to the question presented by this appeal : C ould a reasonable jury infer, based on the evidence the Commission presented during its case in chief, that Clark engaged in insider trading based on insider information from Wright ? The district court determined the answer was no. It explained that Anschutz

“ testified that he didn’t tell Wright until [] in December when he came back from England” and that the court was “having troubl e . . . coming up with any circumstantial evidence that would justify a finding that Mr. Clark got insider information and took some action on it.”
J.A. 854 : 11

– 13 ; 855 : 22

– 24. The cour t also noted that Clark had trad ed CEB options “long before [the Commission ] alleged he got some insider information.” J.A. 856 : 8

– 9. 7 And it

7 Clark actively traded CEB put options between 2008 and 2016. While a call option bets on a company’s share price going up, a put option bets on it going down. See Put and Cal l Options Under Section 16 of the Securities Exchange Act , supra , at 869

– 70

. If an investor purchases a put option for a company’s stock, the put allows the investor to sell that stock at a certain price

— called the strike price

— within a specified time peri od

. See generally i d. at 893. If the market price of the stock falls below the strike price, the owner of the put can buy the stock at the lower market price and make a profit by selling it at the higher strike price. See generally i d. At the time Clark bought put options for CEB stock, his brother

- in

- law Wright possessed inside information about the company’s quarterly financial results. And he and Clark were in regular communication. While the C ommission presented no direct evidence Wright passed the c onfidential information about CEB’s financial data to Clark , it would not be un reasonable to conclude that did occur because Clark purchased put options that always expired the month following the release of the CEB quarterly financial reports and always b et on the stock price to go down. And it almost always did. Out of 18 put transactions, the CEB stock price declined 15 times. In all but a few instances, the market price fell below the strike price , allowing Clark to make a profit. In one example from Ju ly 2015 , Wright learned that CEB would have disappointing quarterly earnings which would be made public in three days. He spoke to Clark on the phone within an hour of learning this information. Clark then opened a $15,000 line of USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 11 of 1512 said that Clark, other than the lies to the FBI about his son’s CEB trad es , “seemed perfectly honest

. . . about what he had done and what he didn’t do.” J.A. 860 : 2

– 3. A s for Clark’s financial situation, the court stated, “ t his wasn’t a man who was desperate for money. At all times during this entire situation and before, his assets far exceeded his liabilities.” J.A.
860 : 8

– 10. Thus, the court found nothing suspicious about Clark’s CEB stock transactions beginning December 9 and there was “no circumstantial evidence here that gives rise to an inference that he received the insider information, as has been alleged here.” J.A. 860 : 22

– 24. Because the C ommission ’s evidence did not give “ rise to an inference that he received the insider information , ” the district court held that it had the duty to grant Clar k’s motion for a judgment as a matter o f law

. J.A. 860

– 61.
But the district court failed to consider the evidence in the light most favorable to the Commission. In emails on November 3 , Anschutz and Wright discussed the effect of a transaction like a merger on unvested CEB stock, which they both had

. And Anschutz and Wright exchanged these emails just one day after CEB’s board responded to Gartner’s initial merger offer.
T hen , in early December, when the stock price Gartner offered in its merger
prop osal reached a price acceptable to CEB, Wright began ema iling employment recruiters.

credit the next day to fu nd a purchase of $27,000 CEB put options set to expire in August. After the two spoke on the phone the next morning, Clark purchased more of the same trades. CEB stock price fell 11% after it released its quarterly earnings and Clark made a profit of $82,8 80 when he exercised his put options. On e way of viewing this evidence is the way the district court did

— that Clark had a history before December 9 of speculating in call/put type transactions. Another way is that the evidence shows an opportunity and patt ern of trading CEB with inside information from Wright. Cf. Fed. R. Evid. 404(b). USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 12 of 1513 In later emails, he said that he had been working on the merger with Gartner when the recruiters first contacted him

— which was before December 9. In another email in Janua ry , Wright told recruiters he had been working on the merger for months. Finally, while there is a dispute about when Anschutz learned about the merger negotiations, Anschutz testified that he at least knew by Thanksgiving

— before Clark began the trades a t issue here. And Anschutz and Wright were close frie nds who saw each other frequently and communicated by text and phone daily throughout November and December

. From th is evidence , a jury could have reasonably concluded that Wright had inside informatio n about the merger before Clark began buying call options on December 9

— the very day that the Board approved the merger . In fact, Wright corroborated that inference in the January emails with recruiters. True, Clark insists the emails to recruiters were ju st

“ puffer y” designed to make Wright a more attractive candidate. J.A. 2007

– 08. T rue, the November 3 emails were before CEB accepted Gartner’s offer and before the share price Gartner offered reached a level that was acceptable to CEB. And true, there was no direct evidence that Anschutz told Wright about the merger before December 9. But our job in reviewing an order granting a motion for judgment as a matter of law is not to decide whether Wright in fact possessed inside information before December 9; it is to decide whether there was evidence from which a reasonable jury could have c oncluded that he had such information. And there was. There was also evidence from which a reasonable jury could have concluded that Wright passed inside information about the merger to Clark before December 9

. First, the USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 13 of 1514 trades began on December 9, the v ery day CEB accepted Gartner’s offer. Second, until th ose transactions, Clark had only once before traded in CEB call options , nearly a decade earlier . Instead, he had always bought put options , which bet on the company’s value to go down. Third, he did no t just bet on CEB’s share price to go up ; Clark went to extraordinary measures to buy the call options. He emptied his wife’s retirement account, borrowed money at a 9% interest rate , and took out a loan secured by his car to fund the purchase s
. In total, h e bought call options ten times in less than a month. Fourth, he advised his son to make similar purchases and later lied to the FBI about whether he had done so. 8 A nd fifth, his trades proved remarkably lucrative. The $245,230 he made in profit from purchases o f $33,050 represented a return on investment of over 700% . A jury considering all of this evidence could reasonably infer that Clark received inside information from Wright and used it to aggressively trade in a way that would be reckless if he did not have inside information.
In reversing the district court’s order, we are not suggesting Clark is liable for insider trading. A jury could reasonably decide that Wright did not have any inside information about the merger by December 9 . As th e district court noted, Clark had speculated on CEB stock for many years. And he professed to have an investment strategy that explained his December 9 transactions. But to repeat, in considering a motion for a

8 The district court stated that Clark seemed to be honest. But credibility determinations are not appropriate in considering a motion for a judgment as a matter of law and should be left to a jury

. Reeves v. Sanderson Plumbing Prod., Inc. , 530 U.S. 133, 150 (2000). That is particularly true here when we know Clark had lied to federal authorities. USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 14 of 1515 judgment as a matter of law, our task is only to decide whether there is evidence from which a reasonable jury could have decided that Clark was liable

.

I II

. The right to a trial by jury is enshrined by the Seventh Amendment. And the Federal Rules of Civil Procedure require that juries, not ju dges, decide cases so long as there is evidence from which a reasonable decision can be made. Here, evidence existed from which a reasonable jury could infer that Clark engaged in prohibited insider trading beginning on December 9, 2016 . We , therefore , reverse the district court ’s order granting Clark’s motion for judgment as a matter of law a nd remand for proceedings consistent with this opinion

. R EVERSED A ND R EMANDED USCA4 Appeal: 22-1157 Doc: 37 Filed: 02/23/2023 Pg: 15 of 15