In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 05-1091

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

RYAN D. EVANS,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 03 CR 928-2—Milton I. Shadur, Judge.

____________

ARGUED MAY 2, 2006—DECIDED MAY 15, 2007

____________

Before CUDAHY, RIPPLE, and WOOD, Circuit Judges.

WOOD, Circuit Judge. Paul Gianamore was a financial

analyst at Credit Suisse First Boston, an investment

banking firm. He gave information to his friend, Ryan

Evans, who traded on that information very lucratively.

For their efforts, both men wound up being charged in an

eight-count indictment with violations of the federal

securities laws. The first time the case went to trial, the

jury acquitted Gianamore on all counts, including one

that accused him of conspiring with Evans to violate the

anti-fraud provisions of the securities laws. The jury also

found that Evans was not guilty on the conspiracy charge,

but it deadlocked on the substantive securities laws

violations. The district court rejected Evans’ motion for
2 No. 05-1091

acquittal and retried him. The second time around, the

jury convicted him on the seven substantive violations of

federal securities laws, four of which involved insider

trading and three of which charged fraud in connection

with a tender offer.

On appeal, Evans argues that as Gianamore’s tippee he

cannot be convicted because Gianamore (the tipper) was

acquitted. He also asserts that the district court gave an

erroneous jury instruction on the insider trading counts,

that evidence was erroneously admitted, and that without

the insider trading convictions his tender offer convictions cannot stand. We conclude that his conviction must

be affirmed: Gianamore’s acquittal did not foreclose

Evans’s own liability as a matter of law, and the district

court acted within its discretion with respect to its evidentiary rulings and instructions.

I

Following his graduation from college, Gianamore

worked at Credit Suisse First Boston from October 1999

through October 2000, first in Chicago and later in San

Francisco. As a financial analyst, he had access not only

to his own work but to that of other analysts. In this way,

he was privy to information about tender offers and

proposed mergers. Tender offers are essentially offers to

the shareholders of a targeted company to buy some or all

of their stock at a particular price. Credit Suisse helped

both buyers and targets to gather information, including

nonpublic information, to determine either what price to

offer or whether to accept the offered price. Because

Gianamore began working at Credit Suisse in the

month of October, which was not the company’s regular

start time for new analysts, he received an abbreviated

form of the orientation required for new analysts. As part

of that process, he was shown a videotape that covered the
No. 05-1091 3

topics of confidentiality and insider trading, and he signed

statements on the day he started acknowledging that he

had received and reviewed the Credit Suisse Compliance

Policy Manual.

Gianamore and Evans were friends. They met as college

freshmen at DePaul University in Chicago, although

Gianamore moved to New York to attend Cornell after

his freshman year. When Gianamore moved back to

Chicago, the two resumed their friendship; they talked

daily via email or phone and saw each other frequently.

Friends of both men testified that Gianamore talked about

work, but that his comments were of a general nature.

During the first trial, Gianamore’s former roommate Mark

Hauber also testified that Gianamore talked “in detail”

about his work, including specific transactions, and even

showed Hauber confidential documents. At the government’s urging, the district court excluded Hauber’s testimony from the second trial, finding it immaterial to how

much information Gianamore shared with Evans and

Gianamore’s motive for his revelations.

While Gianamore worked at Credit Suisse, Evans traded

on three tender offers and one merger in which Credit

Suisse was involved between December 1999 and August

2000. Evans used his online brokerage account to make

the trades. The first trade involved Jostens, Inc., which

hired Credit Suisse to help evaluate a merger offer from

Investcorp, SA, a privately held company. In December

1999, Gianamore was assigned to work on this potential

transaction. A few days later, Evans bought the maximum amount of Jostens stock he could afford; he raised

the funds by selling all of the other securities in his

brokerage account. Six days later—the first day of trading

after the merger was announced—he sold the shares,

making a profit of almost $8,000. This was the smallest of

the four trades identified in the indictment, although all

four followed the same pattern.
4 No. 05-1091

The second trade involved Lincoln Electric Company, a

longstanding client of Credit Suisse. During the spring

of 2000, Lincoln Electric made a cash tender offer for the

outstanding shares of Charter PLC. Although Gianamore

himself did not work on this transaction, the analyst on

the deal recalled alerting Gianamore to the date on which

the press release announcing the tender offer would be

issued. Evans bought Charter stock on the very day that

the company’s board of directors approved the deal and

sold it the next day, right after it was announced to the

public. In total, Evans made about $244,000 in profit. In

the third transaction, Hussman International hired

Credit Suisse in April 2000 to evaluate Ingersoll-Rand’s

offer to buy Hussman’s stock. Again, an analyst other than

Gianamore had responsibility for the deal. Again, Evans

bought his stock on the day the Hussman board of directors met to approve the transaction, and sold it the next

day, again following the public announcement. This time

Evans made nearly $136,000. Finally, in July 2000, Burns

International hired Credit Suisse to evaluate Securitas’s

tender offer. Gianamore was assigned the project. As

before, Evans purchased Burns stock on August 2, 2000,

the day the board met and approved the transaction;

Evans sold his stock the next day, making $74,714

in profit.

As we noted, the jury at the first trial acquitted

Gianamore on all counts and acquitted Evans of conspiracy

but not of the substantive offenses. In light of this

result, Evans asked the district court to dismiss the

insider trading charges against him as well, arguing that

he was entitled to prevail as a matter of law in light of the

jury’s conclusion that neither man had been engaged in a

conspiracy. The district court denied that motion and tried

Evans a second time. During the second trial, in addition

to excluding Hauber’s testimony, the district court altered

the jury instructions from the first trial, largely because
No. 05-1091 5

Gianamore was not a defendant in the second trial. The

second jury found Evans guilty of four counts of insider

trading in violation of § 10(b) of the Securities Exchange

Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R.

§ 240.10b-5, and three counts of fraud in connection

with a tender offer in violation of § 14(e) of the Exchange

Act, 15 U.S.C. § 78n(e) (the Williams Act), and Rule 14e-3,

17 C.F.R. § 240.14e-3. Evans was sentenced to 21 months

in prison on each count, to run concurrently, as well as

a fine of $7,500 and a term of supervised release of three

years. He appeals.

II

We begin with the insider trading violations. Evans’s

arguments here focus on the legal requirements for a

conviction, and thus our review is de novo. We must

consider what is necessary to convict a person who receives

confidential, inside information from someone else and

trades upon it—in other words, a tippee. Evans contends

that following the acquittal of Gianamore, the alleged

tipper, and his own acquittal for conspiring with

Gianamore, he cannot possibly be guilty as a tippee. In

essence, he argues that the government is estopped from

prosecuting him again because the first trial necessarily

decided issues that preclude his convictions. He also

contends that the jury instructions in his second trial are

improper because they fail to require that the tipper have

personally benefitted from giving the tippee the information.

Before turning to Evans’s individual arguments, it is

helpful to review the fundamentals of tippee liability. In

Dirks v. SEC, 463 U.S. 646 (1983), the government prosecuted an officer of a New York broker-dealer firm who

investigated and publicized allegations that Equity

Funding of America, a diversified corporation, had vastly
6 No. 05-1091

overstated its assets. Neither Dirks nor his firm traded on

the information about Equity Funding, but others to

whom Dirks spoke during the course of his investigation

did. The corporation’s stock price fell, leading to a complaint against Equity Funding by the SEC. Id. at 649-50.

Although Dirks’s investigation had brought massive

fraud to light and he himself had not traded on insider

information, an administrative law judge nevertheless

found that he had aided and abetted insider trading. Id. at

650-51. Because of his role in bringing far greater misdeeds to light, he was merely censured, but he nonetheless sought review.

In examining the question of tippee liability, the Supreme Court pointed out that insider trading is a crime

because of the relation between the insider and the

corporation. Id. at 653-55 (discussing Chiarella v. United

States, 445 U.S. 222 (1980)). For this purpose, insiders

include corporate officers, directors, or controlling stockholders, all of whom have a fiduciary relation with the

corporation. See Chiarella, 445 U.S. at 227 (citing Cady,

Roberts & Co., 40 S.E.C. 907, 911 (1961)). An insider

violates Rule 10b-5 when two elements are established: “(i)

the existence of a relationship affording access to inside

information intended to be available only for a corporate

purpose, and (ii) the unfairness of allowing a corporate

insider to take advantage of that information by trading

without disclosure.” Dirks, 463 U.S. at 653-54 (quoting

Chiarella, 445 U.S. at 227). In Chiarella, the Court had

concluded “that there is no general duty to disclose before trading on material nonpublic information, and held

that ‘a duty to disclose under § 10(b) does not arise from

the mere possession of nonpublic market information.’ ”

Dirks, 463 U.S. at 654 (quoting Chiarella, 445 U.S. at 235).

Instead, the duty arises from the combination of a fiduciary duty and some kind of manipulation or deception. Id.

As an alternative, the insider always has the option of

refraining from trading. Id.
No. 05-1091 7

Tippees, of course, are not insiders themselves, and so

the question has arisen how far the duty either to disclose or to refrain from trading extends to them. This was

the subject of the Supreme Court’s decision in Dirks,

where the Court found that “[t]he need for a ban on some

tippee trading is clear.” 463 U.S. at 659. Critically for

Evans’s case, it held that “the tippee’s duty to disclose or

abstain is derivative from that of the insider’s duty.” Id.

The Court decided that before tippee liability can exist,

there must have been a breach of the insider’s fiduciary

duty. The test “is whether the insider personally will

benefit, directly or indirectly, from his disclosure.” Id. at

662. “Absent some personal gain,” the Court continued,

“there has been no breach of duty to stockholders. And

absent a breach by the insider, there is no derivative

breach.” Id. at 662. In determining whether there was

a breach, the proper focus is on “objective criteria, i.e.,

whether the insider receives a direct or indirect benefit

from the disclosure, such as a pecuniary gain or a

reputational benefit that will translate into future earnings.” Id. at 663. As Dirks illustrates, however, the concept

of gain is a broad one, which can include a “gift of confidential information to a trading relative or friend.” Id. at

664 (“The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”). Because Dirks was only a tippee and his insidertippers were motivated not by a desire for personal gain

(or even to give a gift) but by a desire to expose fraud, the

Court found no liability. Id. at 665-67.

The final ingredient of the Dirks test focuses on the

tippee. As Chiarella and Dirks itself demonstrate, not all

tippees will be liable, no matter how unfaithful the

tipper was. Instead, as the Court put it in Dirks:

[A] tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic
8 No. 05-1091

information only when the insider has breached his

fiduciary duty to the shareholders by disclosing the

information to the tippee and the tippee knows or

should know that there has been a breach.

463 U.S. at 660 (emphasis added). See also SEC v. Maio,

51 F.3d 623, 632 (7th Cir. 1995); United States v. Falcone,

257 F.3d 226, 231-32 (2d Cir. 2001).

Tipper liability (and the tippee liability derived from it),

the Supreme Court noted in United States v. O’Hagen, 521

U.S. 642 (1997), is a species of the “misappropriation”

theory of liability under § 10(b) and Rule 10b-5. See 521

U.S. at 652. Under this theory, “a fiduciary’s undisclosed,

self-serving use of a principal’s information to purchase or

sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that

information.” Id. O’Hagen held that criminal liability

under § 10(b) “may be predicated on the misappropriation theory.” 521 U.S. at 650.

With these general principles in mind, we turn to Evans’s estoppel argument. We begin with a reminder that

it is well established that “[i]nconsistent verdicts in a

criminal case are not a basis for reversal of a conviction or the granting of a new trial.” United States v.

Reyes, 270 F.3d 1158, 1168 (7th Cir. 2001) (collecting

authority). This is because the Supreme Court has

recognized that inconsistent jury verdicts may occur

for various reasons, including mistake, compromise, or

lenity. See United States v. Powell, 469 U.S. 57, 65,

105 S.Ct. 471, 83 L.Ed.2d 461 (1984).

United States v. Askew, 403 F.3d 496, 501 (7th Cir. 2005).

We do not know why the jury in the first trial was not

convinced beyond a reasonable doubt that Evans and

Gianamore had conspired with one another, or why it

chose to acquit Gianamore on the substantive counts. The
No. 05-1091 9

important point here is that those acquittals did not

prevent a properly instructed second jury from finding

both that Gianamore’s tips were unlawful and that Evans,

by knowingly trading on that information, violated the

law. The Supreme Court’s decision in Standefer v. United

States, 447 U.S. 10, 25 (1980), all but forecloses Evans’s

argument: there the Court held that a defendant accused

of aiding and abetting in the commission of a federal

offense (making gifts to a public official in violation of 18

U.S.C. § 201(f)) may be convicted after the named principal

has been acquitted of the offense.

The Court’s holding in Standefer that nonmutual

estoppel does not apply against the government in criminal

cases means, at a minimum, that there was no bar to

Evans’s second trial on the basis of claim preclusion. We

have recognized, however, a narrow version of issue

preclusion that may still apply in criminal cases. “[T]he

defendants have the burden of proving, based on the

indictment, evidence, instructions, and verdict, that the

jury’s acquittals necessarily determined issues which, on

retrial, must be proven beyond a reasonable doubt.” United

States v. Bailin, 977 F.2d 270, 280-81 (7th Cir. 1992). See

also United States v. Salerno, 108 F.3d 730, 740-41 (7th

Cir. 1997). In Salerno and Bailin, this court identified

three rules governing the application of issue preclusion

in criminal cases: (1) the court cannot engage in

hyper-technicality, but rather must examine the pleadings,

evidence, charge, and other relevant material to determine

whether a rational jury could have based its verdict on a

different issue; (2) “issue preclusion only applies when a

relevant issue in a subsequent prosecution is an ‘ultimate

issue,’ i.e., an issue that must be proven beyond a reasonable doubt”; (3) the defendant bears the burden of proof

in proving that the ultimate issue was “necessarily determined by the prior jury.” Salerno, 108 F.3d at 741; see

Bailin, 977 F.2d at 280.
10 No. 05-1091

Gianamore was acquitted of both conspiracy and substantive violations of the securities laws. To convict on

conspiracy, the jury had to find an agreement between the

two men and a substantive step in furtherance of the

agreement. See United States v. Soy, 454 F.3d 766, 768

(7th Cir. 2006); see generally Whitfield v. United States,

543 U.S. 209, 214 (2005) (noting that 18 U.S.C. § 371, the

general federal conspiracy statute, includes an overt act

requirement). Because Evans was also acquitted of conspiracy, we can deduce that the jury either found that the

government failed to prove an agreement, or that the

government failed to prove that he took the requisite

substantive step to implement the alleged agreement.

For the substantive securities law violations, the jury

was required to find (1) that Gianamore had a relationship of trust with Credit Suisse or its clients, (2) that he

breached it by communicating material nonpublic information to Evans in violation of his duty of confidentiality,

and (3) that he received a direct or indirect personal

benefit, including even a gift. The jury was further required to find that Gianamore acted willfully. Reviewing

the jury’s verdict and the evidence at trial, one possibility

is that the jury concluded that Gianamore had a duty of

confidentiality as a corporate insider (derivatively through

Credit Suisse), breached it by giving Evans the information as a gift, but did not act with the requisite level of

intent nor enter into an actual agreement with Evans.

Alternatively, the jury might have found that Gianamore

did not receive any benefit from giving out the information,

even the benefit of a gift, if he did not think that he was

violating clients’ confidentiality.

Unlike Dirks, Gianamore was not a whistleblower.

Instead, he was an insider acting either carelessly or

negligently by giving his friend material insider information that the friend then traded on. It is possible that

Gianamore acted without the requisite level of intent to
No. 05-1091 11

hold him responsible under the criminal laws and yet that

he nevertheless breached the duty of confidentiality he

had to Credit Suisse and its clients. From the victim’s

perspective, the breach is equally damaging whether

Gianamore acted willfully or negligently. Where an insider

is duped into breaching her duty of confidentiality and the

tippee who induces that breach willfully trades on the

information, knowing its disclosure to be improper, there

is still liability. See 18 U.S.C. § 2(b) (“Whoever willfully

causes an act to be done which if directly performed by

him or another would be an offense against the United

States, is punishable as a principal.”).

It may be the rare case where the tipper is acquitted and

yet the relationship between the tipper and the tippee

is such that the tippee may yet be prosecuted for acting

upon the tipper’s breach. Nonetheless, it is not essential

that the tipper know that his disclosure was improper.

Where the tippee has a relationship with the insider and

the tippee knows the breach to be improper, the tippee

may be liable for trading on the ill-gotten information.

Thus, where a tippee, for example, induces a tipper to

breach her corporate duty, even if the tipper does not do

so knowingly or willfully, the tippee can still be liable

for trading on the improperly provided information.

Evans bears the burden of demonstrating that the

acquittals in the first trial necessarily decided in his favor

an issue that was ultimately required to convict him in

the second. In our view, he has not done so. The elements

of tipper and tippee liability are not the same, as we

have already explained. We conclude that the earlier

acquittals did not necessarily resolve the question of

Evans’s liability on the substantive securities law charges.

Next, we turn to Evans’s argument that the jury instructions were improper. This court reviews a district

court’s jury instructions de novo. See United States v.

Stewart, 411 F.3d 825, 827 (7th Cir. 2005).
12 No. 05-1091

The court’s instructions to the jury must be correct

statements of the law that are supported by the

evidence. This court reviews instructions in their

entirety and considers “whether the jury was misled

in any way and whether it had understanding of the

issues and [of] its duty to determine those issues.” We

give deference to the district court’s discretion concerning the specific wording of the instructions, as

long as the essential elements of the offenses charged

are covered by the instructions given.

United States v. Perez, 43 F.3d 1131, 1137 (7th Cir. 1994)

(internal citation omitted). Evans contends that the

district court’s jury instruction “eliminated the crucial

element that in a tipper-tippee case the tipper must

commit a violation of Rule 10b-5.”

The jury instruction read as follows:

In considering the element of a “device, scheme or

artifice to defraud” for purposes of any of Counts One

through Four, then, you must first consider whether

Paul Gianamore had a relationship of trust and

confidence with Credit Suisse First Boston or its client

referred to in the count you are considering, or both. If

you so find, then you must next consider whether

Gianamore breached that duty by communicating

material, nonpublic information to Ryan Evans, in

breach of Gianamore’s duty to keep such information

confidential.

To find that Evans was forbidden to buy or sell the

securities in question, you must find that he knowingly

participated in such a breach of trust or confidence by

the person to whom material, nonpublic, confidential

information had been entrusted. Here the government

must establish not only that the person from whom

Evans allegedly received the information—alleged to

have been Paul Gianamore—breached his fiduciary
No. 05-1091 13

duty to keep the material, nonpublic information

confidential by having disclosed the information to

Evans but also that Evans knew or should have known

that the person from whom he received the confidential information had breached his fiduciary duty of

nondisclosure.

Although this instruction required the jury to find that

Evans acted willfully or with knowledge, it did not require the same finding with respect to Gianamore. In

addition, this instruction did not ask the jury to consider

why Gianamore gave Evans the information. Another part

of the instruction, however, explained that “[t]he elements

of fiduciary duty and exploitation of nonpublic information also may exist when a person who has insider status

as to a corporation makes a gift of material, confidential

nonpublic information to a trading relative or friend.” This

reflects the requirement in Maio that, in order to be liable,

a tippee must have a derivative duty not to trade on

material nonpublic information because the insider’s

disclosure was improper and the tippee knew or should

have known that it was improper. Moreover, this instruction draws a line between an improper disclosure by an

insider and a disclosure that is made both willfully and

with the expectation of a benefit—both of which must be

shown in order for the insider herself to be liable. What

this means is that, despite the derivative nature of tippee

liability, the elements for tipper and tippee liability differ.

Because a tippee can be liable even where the tipper did

not act willfully, so long as the tippee knows that the

information was provided in violation of a duty of confidentiality, these jury instructions did not mislead the jury

and did not eliminate any element necessary for tippee

liability.

Finally, we turn to Evans’s argument that the district

court erred in excluding the testimony of Gianamore’s

former roommate, Mark Hauber, from the second trial. We
14 No. 05-1091

review the decision to admit or exclude evidence for an

abuse of discretion. See United States v. Seals, 419 F.3d

600, 606 (7th Cir. 2005). Hauber testified at the first trial

that Gianamore shared a great deal of confidential information with him and that, for all practical purposes,

Gianamore did not understand the nature of confidentiality. The district court excluded Hauber’s testimony because it did not shed light on why Gianamore gave Evans

confidential information or on Evans’s state of mind. The

district court reasoned that the fact that Gianamore may

have breached his confidential relationship more than once

did not make each indiscretion less of a breach. The fact

that Gianamore may not have acted willfully or criminally

does not necessarily mean that Evans failed to appreciate

that this information was material and nonpublic, that

Gianamore was violating his duty of confidentiality, and

consequently that Evans himself had to refrain from

trading on the information. Hauber’s evidence at most

shed light on Gianamore’s state of mind, not Evans’s, and

therefore we cannot find that the district court abused

its discretion in excluding it. Furthermore, even if the

district court had abused its discretion, any error would

have been harmless; in the broader picture, this testimony would have had little impact on the jury.

Evans’s challenges to his tender offer convictions are

based on the assumption that his insider trading convictions were flawed and must be overturned. Since we have

rejected that argument, we do not need to discuss the

tender offer convictions any further.

* * *

The judgment of the district court is AFFIRMED.
No. 05-1091 15

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—5-15-07