2014 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-14-2014

USA v. Timothy McGee

Precedential or Non-Precedential: Precedential

Docket No. 13-3183

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

__________

No. 13-3183

__________

UNITED STATES OF AMERICA

v.

TIMOTHY MCGEE,

 Appellant

__________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Criminal No. 2-12-cr-00236-001)

District Judge: Honorable Timothy J. Savage

__________

Argued on February 12, 2014

Before: CHAGARES, SHWARTZ and ALDISERT, 

Circuit Judges

(Filed: August 14, 2014)
2

John C. Grugan, Esq. (ARGUED)

Christine R. O’Neil, Esq.

Ballard Spahr

1735 Market Street

51st Floor

Philadelphia, PA 19103

Counsel for Appellant

Jay M. Feinschil, Esq.

433 Green Lane

Philadelphia, PA 19128-0000

Counsel for Amicus Appellant

Zane D. Memeger, Esq.

Frank R. Costello, Jr., Esq.

Bernadette A. McKeon, Esq. (ARGUED)

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Counsel for Appellee

__________

OPINION OF THE COURT

__________

ALDISERT, Circuit Judge.

Timothy McGee appeals his convictions for 

(1) securities fraud under the misappropriation theory of 

insider trading pursuant to 15 U.S.C. §§ 78j(b) and 78ff, and 

Securities and Exchange Commission (“SEC”) Rules 10b-5 

and 10b5-2(b)(2), and (2) perjury pursuant to 18 U.S.C. 
3

§ 1621. McGee raises several issues on appeal. He first 

challenges his securities fraud conviction, arguing that Rule 

10b5-2(b)(2) is invalid because it allows for misappropriation 

liability absent a fiduciary relationship between a 

misappropriator of inside information and its source. McGee 

contends also that there is insufficient evidence to sustain his 

convictions, and that the District Court exceeded its discretion 

in denying his motion for a new trial based on newly 

discovered evidence. For the reasons that follow, we will 

affirm.1

I.

Between June and July 2008, McGee obtained material 

nonpublic information about the impending sale of 

Philadelphia Consolidated Holding Corporation (“PHLY”), a 

publicly traded company, from Christopher Maguire, a PHLY 

insider. Before this information became public, McGee 

borrowed approximately $226,000 at 6.875% interest to 

partially finance the purchase of 10,750 PHLY shares. 

Shortly after the public announcement of PHLY’s sale, 

McGee sold his shares, resulting in a $292,128 profit.

A financial advisor with more than twenty years of 

experience, McGee first met Maguire between 1999 and 2001 

while attending Alcoholics Anonymous (“AA”) meetings. 

AA is a fellowship of recovering alcoholics who share a 

desire to stop drinking. AA members are encouraged to seek 

 

1 The District Court for the Eastern District of Pennsylvania 

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

jurisdiction under 28 U.S.C § 1291. We review the facts in 

the “light most favorable to the prosecution.” Jackson v. 

Virginia, 443 U.S. 307, 319 (1979).
4

support from other members in their efforts to stay sober. As 

a newcomer to AA, Maguire sought support from McGee, 

who shared similar interests and had successfully achieved 

sobriety for many years. 

For the better part of a decade, McGee informally 

mentored Maguire in AA. Though the two biked and 

competed in triathlons together, sobriety was “the primary 

purpose” of their relationship. J.A. 109-110. To achieve this 

purpose, they shared intimate details about their lives to 

alleviate stress and prevent relapses. Given the sensitive 

nature of their communications, McGee assured Maguire that 

their conversations were going to remain private. Likewise, 

Maguire never repeated information that McGee entrusted to 

him. This comported to the general practice in AA, where a 

“newcomer can turn . . . with the assurance that no newfound 

friends will violate confidences relating to his or her drinking 

problem.” Amicus Curiae Br. Supporting Appellant at 12 

(quoting Alcoholics Anonymous World Servs., Inc., 44 

Questions 11 (2008)). McGee encouraged Maguire to use his 

services as an investment adviser, telling Maguire, “I know 

everything about what you’re going through from an alcohol 

perspective. You can keep your trust in me.” J.A. 112. 

Maguire repeatedly declined McGee’s offers.

In early 2008, Maguire was closely involved in 

negotiations to sell PHLY. During this time, Maguire 

experienced sporadic alcohol relapses, culminating in a 

drinking episode a week or two after June 21-22, 2008 at a 

weekend golf event. Shortly after the golf event, Maguire 

recommenced his regular AA attendance. McGee saw 

Maguire after a meeting and inquired about his frequent 

absences. In response, Maguire “blurted out” the inside 
5

information about PHLY’s imminent sale. J.A. 133. He told 

McGee, “Listen, we’re selling the company. . . . for three 

times book [value]. We are selling it for 61.50. [T]here’s a lot 

of pressure. There’s just a lot of things going on, and I’m not 

dealing with it well.” J.A. 133. He testified that he expected 

McGee to keep this information confidential. At the time, the 

sale had not been publicly announced and Maguire “had not 

said a word to anybody.” J.A. 135. He believed he could trust 

McGee with the information given their long history of 

sharing confidences related to sobriety. 

After this conversation, McGee purchased a substantial 

amount of PHLY stock on borrowed funds without disclosing 

to Maguire his intent to use the inside information: 

On June 30, 2008, PHLY stock represented onetenth of McGee’s stock portfolio. Less than a 

month later, it constituted 60% of his holdings. 

In the interim period, McGee made the following 

purchases: July 15, 2008, 1,000 shares at $33 per 

share; July 17, 2008, 8,250 shares at $33 per 

share; July 18, 2008, 1,000 shares at $34 per 

share; and July 22, 2008, 500 shares at $35 per 

share. On July 23, 2008, after the announcement 

of the sale, the stock price rose to $58 per 

share. . . . To finance his purchase of the 8,250 

shares on July 17, 2008, he borrowed 

approximately $226,000, at 6.875% interest.

United States v. McGee, 955 F. Supp. 2d 466, 472 (E.D. Pa. 

2013) (footnotes omitted). 

Shortly after the sale was publicly announced, the SEC 

commenced an investigation into McGee’s unusually high 
6

volume of trades in PHLY stock. On September 16, 2009, 

McGee gave sworn testimony before the SEC stating that he 

“knew nothing” about the impending sale of PHLY before he 

purchased the stock in July 2008. J.A. 53-54, 1630-1633. On 

May 10, 2012, a grand jury returned a two-count indictment 

charging McGee with (1) securities fraud under the 

misappropriation theory of insider trading in violation of 

§ 10(b) of the Securities Exchange Act of 1934, SEC Rules

10b-5 and 10b5-2(b)(1)-(2), and (2) perjury in violation of 18 

U.S.C. § 1621. McGee moved to dismiss the indictment

contending that Rule 10b5-2(b)(1)-(2) is invalid. He argued 

that the rule conflicts with Supreme Court precedent because 

it allows for misappropriation liability absent a fiduciary 

relationship between a misappropriator and his source. The 

District Court denied his motion, holding that Supreme Court 

precedent does not conflict with or unambiguously foreclose 

Rule 10b5-2(b)(1)-(2).

On November 15, 2012, a jury found McGee guilty of 

both counts. As to the securities fraud count, the jury found 

that his trades violated a relationship of trust or confidence 

with Maguire based on their “history, pattern, or practice of 

sharing confidences” pursuant to Rule 10b5-2(b)(2).

2 17 

C.F.R. § 240.10b5-2(b)(2). McGee moved for a judgment of 

acquittal or a new trial, challenging the sufficiency of the 

evidence as to both convictions. He filed also a supplemental 

motion for a new trial based on newly discovered evidence. 

The District Court denied both motions. McGee timely 

appeals.

 

2 Although the indictment charged McGee under both

subsections (b)(1) and (b)(2), the District Court only 

instructed the jury as to subsection (b)(2). J.A. 446-450.
7

McGee renews his arguments on appeal, first 

contending that Rule 10b5-2(b)(2) exceeds the SEC’s 

rulemaking authority under § 10(b). Second, he argues that 

there is insufficient evidence to support his convictions for

securities fraud and perjury. Finally, he argues that the 

District Court exceeded its discretion in denying his motion 

for a new trial based on newly discovered evidence. We will 

address each argument in turn. Because we determine none to 

be persuasive, we will affirm. 

II.

A.

To determine whether Rule 10b5-2(b)(2) exceeds the 

SEC’s rulemaking authority, we begin with the language of 

the enabling statute. Section 10(b) of the Exchange Act of 

1934 provides:

It shall be unlawful for any person, directly or 

indirectly, by the use of any means or 

instrumentality of interstate commerce or of the 

mails, or of any facility of any national 

securities exchange--

. . .

(b) [t]o use or employ, in connection with the 

purchase or sale of any security . . . any 

manipulative or deceptive device or contrivance 

in contravention of such rules and regulations as 

the [SEC] may prescribe as necessary or 

appropriate in the public interest or for the 

protection of investors. 
8

15 U.S.C. § 78j (emphasis added). The SEC acted on this 

broad delegation of rulemaking authority by promulgating

Rule 10b-5, which makes it unlawful for any person, in 

connection with the purchase or sale of any security, to 

“employ any device, scheme, or artifice to defraud,” or to 

“engage in any act, practice, or course of business which 

operates or would operate as a fraud or deceit upon any 

person.” 17 C.F.R. § 240.10b-5. The Supreme Court has 

recognized two complementary theories of insider trading 

liability under § 10(b) and Rule 10b-5: the “traditional” and 

“misappropriation” theories.

Traditional insider trading occurs “when a corporate 

insider trades in the securities of his corporation on the basis 

of material, nonpublic information.” United States v. 

O’Hagan, 521 U.S. 642, 651-652 (1997). Such trading 

constitutes a deceptive device under § 10(b) because the

insider violates a “relationship of trust and confidence” with 

his shareholders by trading on nonpublic information learned 

as a company insider. Chiarella v. United States, 445 U.S. 

222, 228 (1980). The insider’s position imposes a duty to

either abstain from trading or disclose the inside information 

to the investors with whom he trades. Id.

In contrast, misappropriation focuses on deceptive 

trading by outsiders who owe no duty to shareholders. It 

occurs when a person “misappropriates confidential 

information for securities trading purposes, in breach of a 

duty [to disclose] owed to the source of the information.” 

O’Hagan, 521 U.S. at 652 (emphasis added). If the trader 

discloses to the source his intent to trade, there is no 

deception and no § 10(b) liability. Id. at 655. The Court first 

recognized the misappropriation theory in O’Hagan, in which
9

a lawyer traded in a company’s securities after learning that 

his firm’s client was planning a takeover of the company. 521 

U.S. at 652. Because he was an outsider to the target 

company, the lawyer could not be liable for traditional insider 

trading. Id. at 653 n.5. He could nevertheless be held liable 

for misappropriation because he violated a duty to disclose to 

his client and firm, the sources of the information. Id. at 655, 

659. 

Deception through nondisclosure, therefore, is the crux 

of insider trading liability. Id. at 654. In two seminal 

traditional insider trading cases, the Supreme Court rejected 

what is known as the parity-of-information rule, which would 

impose “a general duty between all participants in market 

transactions to forgo actions based on material, nonpublic 

information.” Chiarella, 445 U.S. at 233; see also Dirks v. 

SEC, 463 U.S. 646, 657 (1983).

3 These cases emphasized that 

a duty to disclose is premised on “a specific relationship 

between two parties” rather than on the mere possession of 

inside information. Chiarella, 445 U.S. at 233; Dirks, 463 

U.S. at 657-658. Accordingly, under either theory, “there can 

be no fraud absent a duty to speak,” and the duty to speak 

 

3

In Chiarella, the Court reversed the conviction of a printshop employee who traded securities of takeover targets he 

deduced from print materials because he did not share a 

fiduciary or similar relationship with the targets’ 

shareholders. 445 U.S. at 224-225, 235. Similarly, in Dirks, 

an investment analyst was not liable for tipping his clients 

about a company’s fraud because “[t]here was no expectation 

by [the analyst’s inside] sources that he would keep their 

information in confidence.” 463 U.S. at 665.
10

arises from a “relationship of trust and confidence.” Chiarella, 

445 U.S. at 230, 235. 

The Supreme Court has provided limited guidance on 

which relationships between a trader and his source give rise 

to a duty to disclose for misappropriation. In O’Hagan, the 

Court suggested that only “recognized dut[ies]” will suffice.

521 U.S. at 666. However, the Court did not otherwise limit 

or define the contours of such relationships. See id. at 652-

655; SEC v. Cuban, 620 F.3d 551, 555 (5th Cir. 2010).

Accordingly, after O’Hagan, it remained unclear which 

nonfiduciary relationships carried a duty to disclose to the 

source. SEC v. Yun, 327 F.3d 1263, 1271 (11th Cir. 2003). 

Prompted by inconsistent treatment among lower courts,

4

the

SEC promulgated Rule 10b5-2 “to clarify and enhance” the 

misappropriation theory in light of O’Hagan. Proposed Rule, 

Selective Disclosure and Insider Trading, 64 Fed. Reg. 

72,590, 72,590 (proposed Dec. 28, 1999) [hereinafter 

Proposed Rule] (codified as amended at 17 C.F.R. 

§ 240.10b5-2). Rule 10b5-2 identifies three nonexhaustive 

categories of relationships that give rise to a duty to disclose

for misappropriation liability:

 

4 Compare United States v. Kim, 184 F. Supp. 2d 1006 (N.D. 

Cal. 2002) (holding that there was no duty of confidentiality

between members of a social group of CEOs although club 

rules emphasized a need for confidentiality), with SEC v. 

Kirch, 263 F. Supp. 2d 1144 (N.D. Ill. 2003) (holding such 

duties existed between members of a group of software 

executives because the need for confidentiality was 

understood).
11

[A] “duty of trust or confidence” exists in the 

following circumstances, among others:

(1) Whenever a person agrees to maintain 

information in confidence;

(2) Whenever the person communicating the 

material nonpublic information and the person 

to whom it is communicated have a history, 

pattern, or practice of sharing confidences, such 

that the recipient of the information knows or 

reasonably should know that the person 

communicating the material nonpublic 

information expects that the recipient will 

maintain its confidentiality; or

(3) Whenever a person receives or obtains 

material nonpublic information from his or her 

spouse, parent, child, or sibling; provided, 

however, that the person receiving or obtaining 

the information may demonstrate that no duty 

of trust or confidence existed with respect to the 

information . . . .

17 C.F.R. § 240.10b5-2(b).

Because McGee’s conviction stems only from 

subsection (b)(2), we will discuss solely that portion of the 

rule. As a matter of first impression, we decide whether Rule 

10b5-2(b)(2) exceeds the SEC’s rulemaking authority under 

§ 10(b).

B.
12

We exercise plenary review over the District Court’s 

legal conclusions. United States v. Huet, 665 F.3d 588, 594 

(3d Cir. 2012). We review the validity of Rule 10b5-2(b)(2)

under the familiar two-step Chevron deference framework.

See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc.,

467 U.S. 837, 842-843 (1984). At step one, we ask if “the 

[enabling] statute is silent or ambiguous” on “the precise 

question at issue.” Id. at 843. If we answer in the affirmative,

we turn to step two and uphold the rule if it is “based on a 

permissible construction of the statute.” Id.

The Supreme Court has clarified that a “prior judicial 

construction of a statute trumps [a later] agency construction 

otherwise entitled to Chevron deference only if the prior court 

decision holds that its construction follows from the 

unambiguous terms of the statute and thus leaves no room for 

agency discretion.” Nat’l Cable & Telecomms. Ass’n v. 

Brand X Internet Servs., 545 U.S. 967, 982 (2005). We 

thereby “hold judicial interpretations contained in precedents 

to the same demanding Chevron step one standard that 

applies if the court is reviewing the agency’s construction on 

a blank slate.” Id.

McGee argues that we are foreclosed from applying

the teachings of Chevron to Rule 10b5-2(b)(2). He first 

contends that § 10(b) unambiguously requires deception. 

McGee then argues that, under Supreme Court precedent, 

deception through nondisclosure requires the breach of a 

fiduciary duty, leaving no room for Rule 10b5-2(b)(2). We 

disagree and hold that Rule 10b5-2(b)(2) is valid and entitled 

to Chevron deference because it (1) has not been 

congressionally or judicially foreclosed, and (2) is based on a 

permissible reading of § 10(b). We address each step in turn.
13

1.

At Chevron step one, we decide that § 10(b) is 

ambiguous and expressly delegates broad rulemaking 

authority to the SEC. Section 10(b) acts as a catch-all 

provision and authorizes the SEC to “prescribe [regulations] 

as necessary or appropriate” to prevent the use of 

“manipulative or deceptive device[s]” in connection with 

trading securities. 15 U.S.C. § 78j(b). McGee’s contention 

that § 10(b) “unambiguously requires deception” misses the 

point. Appellant’s Br. at 25. The statute is ambiguous because 

Congress declined to define the amorphous term “deceptive 

device.” Moreover, Congress did not speak to the “precise 

question at issue” because § 10(b) does not mention insider 

trading at all, much less misappropriation or relationships 

required for liability. This congressional omission constitutes 

a delegation of authority to the SEC to “fill the statutory gap 

in reasonable fashion.” Brand X, 545 U.S. at 980. The SEC 

filled this gap with Rule 10b5-2. 

Having identified the gap in § 10(b), we turn to 

McGee’s argument that Supreme Court precedent forecloses 

us from applying Chevron’s framework to Rule 10b5-2(b)(2).

We do not accept this argument. The Court has recognized 

that “allowing a judicial precedent to foreclose an agency 

from interpreting an ambiguous statute . . . would allow a 

court’s interpretation to override an agency’s.” Id. at 982. 

“Chevron’s premise is that it is for agencies, not courts, to fill 

statutory gaps.” Id. Hence, it bears reemphasis that “[o]nly a 

judicial precedent holding that the statute unambiguously 

forecloses the agency’s interpretation, and therefore contains 

no gap for the agency to fill, displaces a conflicting agency 
14

construction.” Id. at 982-983. Our review of insider trading 

case law reveals no such authority. 

First, we reject McGee’s contention that Rule 10b5-

2(b)(2) conflicts with the Supreme Court’s insider trading

jurisprudence. According to McGee, O’Hagan expressly 

requires a fiduciary relationship between a misappropriator 

and the source of inside information for liability.5 McGee 

further argues that O’Hagan cannot be read in a vacuum, but 

is constrained by virtue of the Court’s earlier traditional 

insider trading cases. McGee contends that Chiarella and its 

progeny require a fiduciary relationship for both theories of 

§ 10(b) nondisclosure liability. Because Rule 10b5-2(b)(2) 

requires only a “history, pattern, or practice of sharing 

confidences,” McGee argues that it impermissibly expands

the Supreme Court’s insider trading doctrine. We are 

unpersuaded. 

Contrary to McGee’s contention, Supreme Court

precedent does not unequivocally require a fiduciary duty for

all § 10(b) nondisclosure liability. In O’Hagan, though the 

defendant’s duty to disclose undoubtedly arose from his 

position as a fiduciary, the Court stressed that 

misappropriation liability extends to “those who breach a 

recognized duty.” 521 U.S. at 645, 666. The Court did not 

 

5

In McGee’s motion to dismiss the indictment, he conceded 

that O’Hagan “did not elaborate on the requisite relationship 

giving rise to the duty and deception.” United States v. 

McGee, 892 F. Supp. 2d 726, 732 (E.D. Pa. 2012) (quoting

McGee Mem. at 6). On appeal, McGee changes course, 

insisting that O’Hagan requires a fiduciary duty. 
15

unambiguously define recognized duties or cabin such duties 

to fiduciary relationships. The Court painted with a broader 

brush, referring to the requisite relationship as a “fiduciary or 

other similar relationship,” an “agency or other fiduciary 

relationship,” a “duty of loyalty and confidentiality,” and a 

“duty of trust and confidence.” See id. at 652-661 (citations 

omitted). We will not assign a meaning to “recognized 

dut[ies]” that the Court did not acknowledge. We therefore 

perceive no conflict between O’Hagan’s language and Rule 

10b5-2(b)(2).

The Supreme Court’s traditional insider trading 

precedent does not change this result. Chiarella and Dirks call 

for a “specific relationship between two parties.” Chiarella, 

445 U.S. at 233; Dirks, 463 U.S. at 657-658. Although these 

cases often referred to fiduciaries, they spoke also in broader 

terms. See Dirks, 463 U.S. at 654 (explaining that for 

traditional insider trading, there is no duty to disclose if the 

trader is not an agent, a fiduciary, or “a person in whom the 

sellers [of the securities] had placed their trust and 

confidence” (quoting Chiarella, 445 U.S. at 232)). Even 

assuming arguendo that Chiarella and Dirks require a strict 

fiduciary duty for traditional insider trading, neither case

considered the misappropriation theory. In O’Hagan, the

Court examined these cases and opted to extend 

misappropriation beyond solely fiduciaries. 521 U.S. at 645, 

666. We decline to infer from Chiarella and Dirks a 

restriction on misappropriation that the O’Hagan Court did 

not itself recognize. 

We join our sister circuits in recognizing that the 

Supreme Court “did not set the contours of a relationship of 

‘trust and confidence’ giving rise to the duty to disclose or 
16

abstain and misappropriation liability.” Cuban, 620 F.3d at 

555; see also Yun, 327 F.3d at 1271 (acknowledging that 

after O’Hagan and before Rule 10b5-2 “it [was] unsettled 

whether non-business relationships . . . provide the duty of 

loyalty and confidentiality necessary to satisfy the 

misappropriation theory”). Accordingly, the imposition of a 

duty to disclose under Rule 10b5-2(b)(2) when parties have a 

history, pattern or practice of sharing confidences does not 

conflict with Supreme Court precedent.6

Moreover, even if the rule were to conflict with the

Court’s interpretation of deceptive devices, the Court “did not 

purport to adopt or apply the unambiguous meaning” of § 10. 

See Swallows Holding, Ltd. v. Comm’r, 515 F.3d 162, 170 

n.11 (3d Cir. 2008); Brand X, 545 U.S. at 982 (holding that to 

foreclose a conflicting agency interpretation, a “prior court 

 

6 We recognize that some courts have more narrowly defined 

duty-bearing relationships than others. Before O’Hagan, the

Court of Appeals for the Second Circuit held that 

misappropriation requires a fiduciary relationship or its 

“functional equivalent,” which the court narrowly defined as 

a relationship sharing “the essential characteristics of a 

fiduciary association.” United States v. Chestman, 947 F.2d 

551, 568 (2d Cir. 1991) (en banc, 5-4 decision). However,

after O’Hagan, both the SEC and the Court of Appeals for the 

Eleventh Circuit explicitly rejected Chestman’s narrow 

holding because it did not “sufficiently protect investors,” 

Proposed Rule, 64 Fed. Reg. at 72,602, and it “too narrowly 

defined the circumstances in which a duty . . . is created,” 

Yun, 327 F.3d at 1272. As we hold here, deference is owed to 

the SEC’s interpretation. 
17

decision [must hold] that its construction follows from the 

unambiguous terms of the statute”). Indeed, the Supreme 

Court has recognized that the text of § 10(b) is ambiguous. 

See, e.g., Chiarella, 445 U.S. at 226 (“[Section] 10(b) does 

not state whether [or when] silence may constitute a 

manipulative or deceptive device. . . . [and] neither the 

legislative history nor the statute itself affords specific 

guidance . . . .”). In short, the Supreme Court simply has not

held that misappropriation requires a fiduciary relationship or 

that its interpretation follows from the unambiguous terms of 

§ 10(b).7 Accordingly, we turn to step two of Chevron.

2.

“Under step two of the Chevron framework, we 

consider whether the [SEC’s] interpretation is reasonable in 

light of the language, policies, and legislative history” of 

§ 10(b) and the Exchange Act of 1934 as a whole. GenOn 

REMA, LLC v. EPA, 722 F.3d 513, 522 (3d Cir. 2013)

 

7 McGee’s reliance on United States v. Home Concrete & 

Supply, LLC, 132 S. Ct. 1836 (2012), is also misplaced. 

There, an agency’s interpretation of an ambiguous I.R.C. 

provision was not entitled to Chevron deference when a prior 

court had determined that Congress’s intent was clear and 

“decided the question definitively, leaving no room for the 

agency.” Id. at 1844. In contrast, O’Hagan did not definitively 

decide the question of relationships bearing a duty to disclose, 

leaving no room for the SEC. Unlike the I.R.C. provision in 

Home Concrete, § 10(b) and its legislative history 

demonstrate that the statute is flexible by design. S. Rep. 73-

792, at 5 (1934) (“[S]o delicate a mechanism as the modern 

stock exchange cannot be regulated efficiently under a rigid 

statutory program.”).
18

(citation omitted). We “need not conclude that the agency 

construction was the only one it permissibly could have 

adopted to uphold the construction, or even the reading the 

court would have reached.” Chevron, 467 U.S. at 843 n.11.

“Rules represent important policy decisions, and should not 

be disturbed if ‘this choice represents a reasonable 

accommodation of conflicting policies that were committed to 

the agency’s care by the statute . . . .’” Swallows, 515 F.3d at 

171 (quoting Chevron, 467 U.S. at 845). We are mindful that 

§ 10(b) should be “construed not technically and restrictively, 

but flexibly to effectuate its remedial purposes.” SEC v. 

Zandford, 535 U.S. 813, 819 (2002) (internal quotation marks 

and citation omitted).

Here, Congress implemented the Exchange Act “to 

insure the maintenance of fair and honest markets in 

[securities] transactions.” 15 U.S.C. § 78b. The legislative 

history demonstrates that § 10(b) was aimed at 

“any . . . manipulative or deceptive practices which [the SEC]

finds detrimental to the interests of the investor.” S. Rep. No. 

73-792, at 18 (1934) (emphasis added). Rule 10b5-2(b)(2)

targets a misappropriator who deceives his source by trading

on confidential information notwithstanding the parties’

“history, pattern, or practice of sharing confidences.” 17 

C.F.R. § 240.10b5-2(b). The SEC explained “that in some 

circumstances a past pattern of conduct between two parties 

will lead to a legitimate, reasonable expectation of 

confidentiality on the part of the confiding person.” Proposed 

Rule, 64 Fed. Reg. at 72,603.

We agree with the analysis in United States v. Corbin, 

which held that the SEC’s broader approach was reasonable 

and “buttressed by a thorough and careful 
19

consideration . . . of the ends of § 10(b), the state of the 

current insider trading case law” and “the need to protect 

investors and the market.” 729 F. Supp. 2d 607, 619 

(S.D.N.Y. 2010). Like misappropriation generally, subsection 

(b)(2) “trains on conduct involving manipulation or 

deception” and proscribes “feigning fidelity to the source of 

the information.” See O’Hagan, 521 U.S. at 655. A trader’s 

“undisclosed, self-serving use,” id. at 652, of confidential 

information notwithstanding the parties’ history of sharing

confidences chills market participation because it “‘stems 

from contrivance, not luck,’ and the informational 

disadvantage to other investors ‘cannot be overcome with 

research or skill.’” Proposed Rule, 64 Fed. Reg. at 72,603

(quoting O’Hagan, 521 U.S. at 658-659). Rule 10b5-2(b)(2) 

provides a basis to hold such misappropriators accountable. 

Subsection (b)(2) thus is “well tuned to an animating purpose 

of the Exchange Act: to insure honest securities markets and 

thereby promote investor confidence.” See O’Hagan, 521 

U.S. at 658 (citation omitted).

8

 

 

8 The SEC was emboldened by Congress’s enactment of “two 

separate laws providing enhanced penalties for insider 

trading,” which the SEC viewed as an endorsement of its 

regulatory efforts. Proposed Rule, 64 Fed. Reg. at 72,599-

72,600 (citations omitted). Likewise, we note that Rule 10b5-

2(b)(2) has been in effect since October 23, 2000. See Final 

Rule, Selective Disclosure and Insider Trading, 65 Fed. Reg. 

51,716, 51,716 (codified at 17 C.F.R. § 240.10b5-2(b)). In the 

intervening time, Congress has not altered the SEC’s 

interpretation. 
20

We believe that Rule 10b5-2(b)(2) is based on a 

permissible reading of “deceptive device[s]” under § 10(b). 

Although we are not without reservations concerning the 

breadth of misappropriation under Rule 105b-2(b)(2), it is for 

Congress to limit its delegation of authority to the SEC or to 

limit misappropriation by statute. It is not the role of our 

Court, “even if the agency’s reading differs from what the 

court believes is the best statutory interpretation.” See Brand 

X, 545 U.S. at 980.9

C.

We hold that Rule 10b5-2(b)(2) is a valid exercise of 

the SEC’s rulemaking authority. The rule is owed Chevron

deference because it has not been congressionally or 

judicially foreclosed and is “based on a permissible reading” 

of § 10(b).

III.

McGee argues also that the District Court erred by 

denying his motion for a judgment of acquittal or a new trial 

because insufficient evidence supports his convictions for 

securities fraud and perjury. Our review of the sufficiency of 

the evidence is “highly deferential.” United States v. 

Caraballo-Rodriguez, 726 F.3d 418, 430 (3d Cir. 2013) (en 

banc). The verdict must be upheld if “after viewing the 

evidence in the light most favorable to the prosecution, any

rational trier of fact could have found the essential elements 

 

9 Like the Court in O’Hagan, we are reassured by the added 

protection for criminal liability under § 10(b), which requires

that misappropriators knowingly and willfully violate the law. 

521 U.S. at 665-666.
21

of the crime beyond a reasonable doubt.” Jackson, 443 U.S. at

319 (emphasis in original).

A.

McGee first challenges his securities fraud conviction. 

He argues that no rational trier of fact could have found that 

(1) McGee and Maguire had the requisite relationship of trust 

or confidence for misappropriation liability, or (2) the inside 

information was disclosed within the scope of such a 

relationship. But McGee cannot overcome the “highly 

deferential” standard of review for sufficiency of the 

evidence. Caraballo-Rodriguez, 726 F.3d at 430.

A person is liable for misappropriation when he 

“misappropriates confidential information for securities 

trading purposes, in breach of a duty owed to the source of 

the information.” O’Hagan, 521 U.S. at 652. Under Rule 

10b5-2(b)(2), a duty to disclose to the source exists when 

there is a “history, pattern, or practice of sharing confidences,

such that the recipient of the information knows or reasonably 

should know” that the person communicating the information 

expects it to be kept confidential. 17 C.F.R. § 240.10b5-

2(b)(2). The SEC explicitly rejected limiting liability to those 

who share “business confidences.” Proposed Rule, 64 Fed. 

Reg. at 72,603. The SEC instead favored a facts-andcircumstances test and noted that the type of confidences 

historically shared between parties could be a relevant factor. 

Id.10

 

10 Because we owe deference to the rule as codified, we reject 

McGee’s argument that a business relationship is required for 

misappropriation.
22

We reject McGee’s argument that he did not share a 

relationship of trust or confidence with Maguire. McGee 

contends that membership in AA alone does not generate a 

duty of trust or confidence and his relationship with Maguire 

did not bear the hallmark indicators of a confidential 

relationship. McGee characterizes their relationship as purely 

social, limited to “occasional bike rides and sporadic AA

meetings.” Appellant’s Br. at 31, 35. He argues this social 

affiliation is insufficient to impose a duty to disclose under 

Rule 10b5-2(b)(2). We disagree. 

Even assuming there is no expectation of 

confidentiality generally in AA,11 the plain language of Rule 

10b5-2(b)(2) requires a “history, pattern, or practice of 

sharing confidences” between the two parties. 17 C.F.R. 

§ 240.10b5-2(b)(2). Sufficient evidence supports the jury’s 

 

11 Amicus on behalf of McGee cites an exposition published 

by AA’s General Service Office for the proposition that AA 

is premised on the “anonymity” of its members and not 

“confidentiality.” Amicus Curiae Br. Supporting Appellant at 

12-13. But the AA materials cited by Amicus include broader 

language. Amicus cites to an AA publication stating that a 

“newcomer can turn to A.A. with the assurance that no 

newfound friends will violate confidences relating to his or 

her drinking problem.” Id. at 12 (citation omitted) (emphasis 

added). This language is not limited to a member’s 

anonymity. Moreover, evidence at trial indicated that AA 

members were cautioned that “what you hear here, stays 

here.” J.A. 111. Although this undermines McGee’s 

argument, a finding that AA requires confidentiality is not 

necessary to our holding. 
23

finding that such a pattern existed. For almost a decade, 

McGee informally mentored Maguire, who entrusted 

“extremely personal” information to McGee to alleviate stress 

associated with alcohol relapses. J.A. 109-110. 

Confidentiality was not just Maguire’s unilateral hope; it was 

the parties’ expectation. It was their “understanding” that 

information discussed would not be disclosed or used by 

either party. J.A. 112. Maguire never repeated information 

that McGee revealed to him and McGee assured Maguire that 

their discussions were going to remain private. Furthermore, 

McGee encouraged Maguire to use his services as an 

investment adviser, telling Maguire, “I know everything 

about what you’re going through from an alcohol perspective. 

You can keep your trust in me.” J.A. 112. From this evidence, 

a rational juror could find that a relationship of trust or 

confidence existed based on the parties’ history, pattern or 

practice of sharing confidences related to sobriety.

We reject also McGee’s argument that the inside 

information about PHLY’s sale exceeded the scope of any 

confidential relationship related to sobriety. Shortly following

Maguire’s relapse, McGee saw him at an AA meeting. After 

the meeting, McGee asked Maguire about his inconsistent AA 

attendance. In response, Maguire told McGee, his confidant, 

that the impending sale of PHLY was a source of high stress 

and that he was not dealing well with the pressure. McGee, a 

savvy investment advisor, feigned fidelity to Maguire and did 

not disclose his intent to use the information to his pecuniary 

advantage by trading in PHLY. Accordingly, McGee’s 

inquiry and Maguire’s disclosure of PHLY’s impending sale 

related directly to their confidential relationship.
24

Ultimately, we agree with the District Court, which 

held that “[t]here was sufficient evidence from which a 

rational fact finder could have found that a confidential 

relationship existed and the inside information was disclosed 

within the confines of that relationship.” McGee, 955 F. 

Supp. 2d at 470. Accordingly, we will affirm McGee’s 

conviction for securities fraud. 

B.

McGee next challenges his perjury conviction under 

18 U.S.C. § 1621 based on his sworn testimony on September 

16, 2009 before the SEC. Under oath, McGee denied 

knowing any information about the sale of PHLY before he 

purchased the company’s stock in July 2008.12 McGee 

 

12 The charge in the indictment recited the following colloquy 

regarding McGee’s perjury charge:

Q: [SEC attorney] Did you have any information prior 

to making your purchases in Philadelphia Consolidated 

in July of ’08 that there might be something afoot at 

the company, that there might be something happening 

with the stock?

A: [McGee] No.

Q: You didn’t get a feeling from anyone that there was 

some activity, maybe [PHLY executives] weren’t at a 

certain event that they were always at and you thought

something might be going on, that they were busy?

A: No, there was nothing like that. . . .

Q: Any other events that you recall in let’s say—

beginning in maybe March of ’08 going forward?

A: March of ’08?

Q: Anything from that time forward till you bought?

A: No.
25

contends that his perjury conviction must be overturned 

because (1) Maguire’s testimony was uncorroborated and (2) 

there was insufficient evidence that McGee’s statements were 

false. We find neither argument to be persuasive. 

 

Q: How about any contacts, do you recall having any 

conversations or contacts with [PHLY executives]?

A: Oh, I talked to [Maguire], you know, just checked 

in with him. Made sure he was doing alright in our 

common deal. There’s a certain amount of our 

conversations that kind of revolve around that bike 

environment.

Q: In any of these interactions that you had with him 

during that time frame, did you ever sense or pick up 

any type of information or queue [sic] that would 

suggest that the company was going to be purchased?

A: I did not.

Q: Was there any rumors going on that you heard 

about the company being bought that led you to 

purchase the stock in July?

A: No. I knew nothing. I mean there was not a factor.

Q: And there’s no indication from any of the family 

members, generic or otherwise, to suggest to you to 

purchase the stock, whether it not be specific about 

whether you bought out, but any other indications to 

you that it might be a good time to buy the stock?

A: If there were, it was so generic that I didn’t pick up 

on it. I mean I did not pick up on anything. I did not 

recognize any comment that made me take pause to 

think.

J.A. 52-54 (emphasis in original) (footnote omitted).
26

1.

A perjury conviction under § 1621 cannot be obtained 

solely on the uncorroborated testimony of one witness, but 

must be based on “the testimony of two independent 

witnesses or by one witness and corroborating evidence.” 

United States v. Neff, 212 F.2d 297, 306 (3d Cir. 1954). 

Evidence corroborating the testimony of a single witness 

must be independent of the witness’s testimony, trustworthy 

enough to convince the jury that what the witness said was 

true, and be “inconsistent with the innocence of the 

defendant.” Id. at 307. To be inconsistent with innocence, 

corroborating evidence must “merely support the inference 

that the defendant was lying.” United States v. Nessanbaum, 

205 F.2d 93, 95 n.4 (3d Cir. 1953).

At trial, the Government offered McGee’s highvolume trading in PHLY stock to corroborate Maguire’s 

testimony that he told McGee about PHLY’s sale before it 

was publicly announced. McGee contends that his trading 

records are not sufficient corroborative evidence. McGee 

points to United States v. Chestman, in which the Court of 

Appeals for the Second Circuit reversed a perjury conviction 

because the evidence of trading was not inconsistent with the 

defendant’s “position that he researched the company, 

assumed it was a takeover target, and invested accordingly.” 

903 F.2d 75, 82 (2d Cir. 1990), rev’d on other grounds en 

banc, 947 F.2d 551 (2d Cir. 1991). McGee argues that, like 

the defendant in Chestman, his trading records are insufficient 

corroborative evidence because there are other explanations 

for his excessive trading.

McGee contends that his trades are congruous with his 

investment strategy of “averaging down.” Averaging down 
27

“occurs when an investor . . . buys additional stock at a price 

lower than the initial investment, which reduces the average 

price per share of the total investment.” McGee, 955 F. Supp. 

2d at 472 n.12. McGee contends that because PHLY’s stock 

price at the time of his July trades was lower than the price at 

which he had previously purchased the stock, his trading was 

“not inconsistent with his innocence.” Appellant’s Br. at 46.

McGee additionally cites a “historic and significant spike in 

volume” near the time of his trades, which would encourage 

increased investor holdings. Id. For these reasons, McGee 

argues his trading alone fails to independently establish 

perjury because there were innocent motives for his trades.

We agree with the District Court that McGee’s trading 

records constitute independent corroborating evidence and

that “[t]he jury obviously rejected [McGee’s averaging-down] 

argument.” McGee, 955 F. Supp. 2d at 472. Unlike in 

Chestman, in which the defendant’s trading was consistent 

with his position that he researched the company and invested 

accordingly, McGee’s high-volume trades were anomalous 

and inconsistent with an averaging-down strategy. McGee did 

not engage in similar trading activity during prior periods of 

low PHLY stock prices. Yet, in the weeks preceding PHLY’s 

sale, McGee increased his holdings in PHLY from 10 percent 

of his portfolio on June 30, 2008 to 60 percent by July 23, 

2008, the date PHLY’s sale was publicly announced. 

Moreover, there is scant evidence McGee knew about a 

“historic and significant spike in volume” or that he would 

increase his holdings in PHLY so appreciably based on such a 

trading spike. As the District Court held, “[t]he unusual 

timing and the large number of the shares purchased within a 

three-week period of time when compared to his previous 

holdings in PHLY stock, and the significant loan he took to 
28

purchase the stock is [sufficient] corroborative evidence.” Id.

Accordingly, we reject McGee’s argument that his trading 

records do not corroborate Maguire’s testimony.

2.

McGee next contends that there was insufficient 

evidence that his sworn statements were false. McGee first 

claims that Maguire’s inability to recall the precise date he 

told McGee about the sale demonstrates that McGee’s 

answers denying knowledge of the sale when he traded could 

have been true. Next, McGee selectively points to specific 

questions asked of him under oath to show that each is 

ambiguous and the corresponding answers were literally true. 

McGee again cannot overcome the “highly deferential” 

standard of review for sufficiency of evidence as to the falsity 

of his statements. See Caraballo-Rodriguez, 726 F.3d at 430. 

We do not agree that Maguire’s testimony was unclear. 

Maguire plainly testified that he disclosed PHLY’s sale 

before McGee’s suspicious July trades. Maguire testified that 

a week or two after June 21-22, 2008, he attended a weekend 

golf tournament where he drank. Maguire further testified that 

right after the golf tournament, he recommenced his AA 

attendance and told McGee about the sale after a meeting. 

Though Maguire did not point to an exact date, his testimony 

indicates that he disclosed the information within the first two 

weeks of July 2008, before McGee’s first purchase of PHLY 

stock on the evening of July 14, 2008. Maguire’s testimony 

therefore directly contradicts McGee’s sworn statement

before the SEC that he did not have any inside information 

“prior to making [his] purchases in Philadelphia Consolidated 

in July of ’08.” J.A. 52. The jury was free to accept or reject 
29

Maguire’s testimony, which was not so unclear as to 

invalidate McGee’s perjury conviction.

We reject also McGee’s argument that the SEC’s 

questions were ambiguous. “Precise questioning is imperative 

as a predicate for the offense of perjury.” Bronston v. United 

States, 409 U.S. 352, 362 (1973). However, our Court has 

“eschew[ed] a broad reading of Bronston,” noting instead 

that, “[a]s a general rule, the fact that there is some ambiguity 

in a falsely answered question will not shield the respondent 

from a perjury or false statements prosecution.” United States 

v. Reilly, 33 F.3d 1396, 1416 (3d Cir. 1994) (quoting United 

States v. Ryan, 828 F.2d 1010, 1015 (3d Cir. 1987)). 

We agree with the District Court, which held that 

although some questions were imprecise, they were not so 

ambiguous that McGee’s answers were literally true. McGee 

was specifically asked, “Did you have any information prior 

to making your purchases in [PHLY] in July of ’08 that there 

might be something afoot at the company, that there might be 

something happening with the stock?” J.A. 52. McGee 

responded, “No.” J.A. 52. McGee makes much of the word 

“afoot,” arguing that its implication of mischief or trouble 

makes his answer literally true. Appellant’s Br. at 54. McGee 

strains to find ambiguity in the question. Read in its entirety, 

the question asks whether McGee had any information 

concerning PHLY stock in July. McGee’s express denial 

cannot be characterized as literally true. 

McGee’s efforts to find ambiguity in other questions 

are similarly flawed. McGee was asked, “W[ere] there any 

rumors going on that you heard about [PHLY] being bought 

that led you to purchase the stock in July?” J.A. 53. McGee 
30

answered, “No. I knew nothing.” J.A. 54. McGee was 

additionally asked, “In any of these interactions [with 

Maguire] during that time frame, did you ever sense or pick 

up any type of information . . . that would suggest that the 

company was going to be purchased?” J.A. 53. McGee 

answered, “I did not.” J.A. 53. McGee argues that the words

“rumors” and “sense” relate to gossip and intuition, not 

whether anyone directly told him about the sale. We do not 

accept McGee’s contrived interpretation of the SEC’s 

questions and determine that McGee’s unequivocal answer 

that he “knew nothing” was clearly false. The questions asked 

by the SEC were not so ambiguous as to render McGee’s 

answers literally true. 

3.

We hold that Maguire’s testimony was corroborated 

and there was sufficient evidence to support the falsity of

McGee’s statements under oath. Accordingly, we will affirm 

McGee’s perjury conviction. 

IV.

Finally, McGee contends that he is entitled to a new 

trial based on a newly discovered affidavit. We review the 

denial of a motion for a new trial pursuant to Rule 33 of the 

Federal Rules of Criminal Procedure for abuse of discretion. 

United States v. Quiles, 618 F.3d 383, 390 (3d Cir. 2010). 

Under Rule 33, “[u]pon the defendant’s motion, the court 

may vacate any judgment and grant a new trial if the interest 

of justice so requires.” Fed. R. Crim. P. 33. Five requirements 

must be met to justify a new trial on the basis of newly 

discovered evidence:
31

(a) the evidence must be in fact, newly discovered, 

i.e. discovered since trial; (b) facts must be alleged 

from which the court may infer diligence on the 

part of the movant; (c) the evidence relied on must 

not be merely cumulative or impeaching; (d) it 

must be material to the issues involved; and (e) it 

must be such, and of such nature, [that the 

evidence] would probably produce an acquittal. 

Quiles, 618 F.3d at 388-389 (quoting United States v. 

Saada, 212 F.3d 210, 216 (3d Cir. 2000)). To warrant a 

new trial based on impeachment evidence, there must be 

“a factual link between the heart of the witness’s 

testimony at trial and the new evidence” and “[t]his link 

must suggest directly that the defendant was convicted 

wrongly.” Id. at 392 (citation omitted).

McGee argues that a new trial is warranted based on

an affidavit by Tyler D., which came to light during civil 

discovery after his criminal conviction. He maintains that he 

was previously unable to find a witness willing to deny that

the statement “what you hear here, stays here” was made at 

the AA meetings he and Maguire attended. Appellant’s Br. at 

40. McGee contends that this evidence would rebut the 

existence of a relationship of trust or confidence related to 

AA and “surely would produce an acquittal.” Id.

McGee fails to meet the five requirements for a new 

trial based on newly discovered evidence. First, he fails to 

explain what diligence he used to procure Tyler D.’s 

testimony although he has known Tyler D. and attended AA 

with him since 2005. Tyler D. actually testified on behalf of 

McGee at his criminal sentencing, yet McGee fails to clarify 

why he did not offer Tyler D.’s testimony at trial before
32

sentencing. Additionally, the affidavit does not “suggest 

directly that the defendant was convicted wrongly” or attack 

the heart of Maguire’s testimony. Quiles 618 F.3d at 392. As 

noted above, even if confidentiality is not a tenet of AA, Rule 

10b5-2(b)(2) requires only a “history, pattern, or practice” of 

sharing confidences between the two parties. 17 C.F.R. 

§ 240.10b5-2(b)(2). Tyler D.’s affidavit disputing what was 

said at AA meetings does not undermine Maguire’s testimony 

detailing his confidential relationship with McGee related to 

sobriety. The District Court therefore acted well within its 

discretion in holding that the affidavit did not warrant a new 

trial.

V.

For the foregoing reasons we will affirm. Rule 10b5-

2(b)(2) warrants Chevron deference and is based on a 

permissible reading of § 10(b). Moreover, a rational juror 

could find that McGee and Maguire had a relationship of trust 

or confidence based on their history, pattern or practice of 

sharing confidences related to sobriety to support a conviction 

for securities fraud. In addition, there was sufficient evidence 

to support a perjury conviction, and the District Court did not 

exceed permissible discretion in denying McGee’s motion for 

a new trial based on newly discovered evidence. 

* * * * *

The judgment of the District Court will be affirmed.