Source: https://securitiesdiary.com/2015/02/22/chiasson-opts-for-mocking-tone-in-u-s-v-newman-brief/
Timestamp: 2019-04-21 08:05:36+00:00

Document:
Counsel for defendant Anthony Chiasson used a rhetorical mocking tone in the appellate brief filed on his behalf in response to the DOJ’s petition for rehearing en banc in United States v. Newman. The brief opens by likening the DOJ to “Chicken Little” screaming “the sky is falling,” arguing that the Government’s rehearing petition “echoes Chicken Little’s complaint.” It then declares that the DOJ’s “tone is less that of a frightened hen and more that of a petulant rooster whose dominion has been disturbed.” The brief later takes a rhetorical shot at the SEC: “The SEC, like “Turkey Lurkey” in the “Chicken Little” folk tale, joins in the lament that the regulatory “sky is falling.” (Dropping a footnote to explain who Turkey Lurkey is seems more than a little self-indulgent.) A copy of the Chiasson brief can be found here: Brief of Anthony Chiasson in opposition to DOJ Petition for Rehearing en banc in U.S. v. Newman and Chiasson.
An appellate brief is not a blog post (where we have in the past taken the Government for “sky is falling” arguments: see SEC’s Amicus Brief in U.S. v. Newman Fails To Improve on DOJ’s Effort). Rhetoric rarely is the winning play in an appellate brief, and ridicule is a dangerous way to play the upper hand in an appellate dispute with the Government. That is especially so when a “just the facts ma’m” approach seems well-tailored to win the day.
Fortunately, the Chiasson brief does come back down to earth to present compelling arguments in favor of denying the rehearing petition. The brief does point out in its first section that “contrary to the government’s argument, the Opinion leaves intact the rule that the government can prevail if it shows that the tipper made a gift of material nonpublic information to a friend, anticipating and intending that the friend would trade on the information and earn trading profits. . . . However, the mere existence of a friendship, and the disclosure of information to a friend, is not enough. There must be either the expectation of a quid pro quo or the intention that the recipient trade on the information and reap profits. This analysis is faithful to Dirks and its progeny.” Chiasson Brief at 6-7. And it also captures the key flaw in the DOJ’s approach to the “personal benefit” requirement: “In its Petition, as in its prior briefing, the government ignores the central point of Dirks, which identifies the tipper’s exploitation of confidential information for personal benefit as the gravamen of culpable insider trading. Rather than accepting this rule of law, which has been stated more than once by the Supreme Court, the government apparently wishes to water down the meaning of ‘personal benefit’ so that, as a practical matter, it can bring insider trading charges whenever someone trades on material nonpublic information that is disclosed without authorization by a company insider.” Id. at 7-8.
Most importantly, the brief emphasizes that an insider trading section 10(b) violation must be anchored in fraud, noting that conduct that “may violate corporate policy or the SEC’s Regulation FD” but still not be “fraudulent self-dealing under Dirks and its progeny, and does not open the door to prosecution for insider trading.” Id. at 8. They might have added that the “personal benefit” requirement is what converts the conduct to fraud, which requires deceit to obtain property or its equivalent.
The Chiasson brief goes on to explain why the DOJ provides no valid reason for a rehearing to reconsider the analysis of the evidence of personal benefit in the panel decision. This is especially so as to the lack of any evidence of knowledge by Messrs. Newman or Chiasson of any possible personal benefit that may have flowed to the original tippers. As the brief points out: “The government now explicitly declines to challenge” the key holding “that a tippee must know that an insider has disclosed material nonpublic information in exchange for personal benefit in order to commit insider trading.” Id. at 2.
Finally, the brief does a good job of laying waste to the Government’s contention that the Newman decision “threatens the integrity of the securities markets” (albeit with unnecessary recurring references to Chicken Little). The brief points out that virtually all of the DOJ’s and SEC’s traditional insider trading cases are unaffected by the Newman decision. It goes on: “It is only recently that the government has decided to push the doctrinal envelope, and bring cases in which tippers have not been charged with criminal acts and the defendants are remote tippees who are ignorant of the circumstances attending the tippers’ disclosure of material nonpublic information. To the extent that convictions are jeopardized because the government cannot prove that the tippees knew that the tippers were receiving a personal benefit . . . the government is not in a position to complain. The Court has determined that such knowledge is required, and the government has explicitly decided not to contest this holding on rehearing.” Id. at 19.
One hopes and expects that the Second Circuit judges will look past the questionable rhetorical flourishes and focus on the strong substantive arguments laid out in the Chiasson brief.
This entry was posted in Enforcement Overreaching, Insider Trading, SEC Enforcement, Securities Law and tagged 2d Circuit, Anthony Chiasson, appellate briefing, Chiasson, Chicken Little, Dirks, Dirks v. SEC, DOJ, fraud, insider trading, lawyer, legal analysis, Newman, Newman en banc petition, petition for rehearing, Petition for Review, petulant rooster, Rule 10b-5, SEC, SEC enforcement, section 10(b), securities, Securities Exchange Act of 1934, securities fraud, securities law, securities litigation, Turkey Lurkey, U.S. v. Chiasson, U.S. v. Newman on February 22, 2015 by Straight Arrow.

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