Opinion ID: 4018902
Heading Depth: 2
Heading Rank: 3

Heading: Personal Benefit

Text: The Supreme Court has instructed that, in the classical insider trading context,4 whether a corporate insider has breached 4 Under the 'traditional' or 'classical theory' of insider trading liability, § 10(b) and Rule 10b–5 are violated when a - 18 - his or her duty in sharing material nonpublic information pivots, in part, on whether the insider personally will benefit, directly or indirectly, from his disclosure. Dirks v. SEC, 463 U.S. 646, 662 (1983). Assuming that this principle extends to tippers in misappropriation cases, McPhail argues that the government failed to prove that he anticipated a legally recognizable personal benefit in return for sharing the information with his golf buddies. He challenges both the sufficiency of the government's personal benefit evidence and the district court's instructions to jurors regarding what kind of benefit he had to have expected for the crime to have been consummated. McPhail objected on both grounds in district court, and we review the denial of these objections de novo. See United States v. Berríos–Bonilla, 822 F.3d 25, 32 (1st Cir. 2016) (refusal to instruct); Prieto, 812 F.3d at 13 (sufficiency). The district court instructed jurors on this point at length, but McPhail objects only to the final sentence of those instructions: You may find that Mr. McPhail received or expected to receive a direct or indirect benefit from providing inside information to others if you find that he gave the information to others with the intention of benefiting himself in some tangible or intangible way or as a gift with the goal of corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. O'Hagan, 521 U.S. at 651–52. - 19 - maintaining or furthering a personal friendship. McPhail takes issue with the emphasized or above, which permitted the jury to find that Mr. McPhail received or expected to receive a direct or indirect benefit if they determined that, at a minimum, he gave the information to others . . . as a gift with the goal of maintaining or furthering a personal friendship. This instruction, McPhail argues, amounts to legal error in light of the Second Circuit's recent decision to adopt[] a more discriminating definition of the benefit to a tipper in a classical insider trading case, Parigian, 2016 WL 3027702, at  (citing United States v. Newman, 773 F.3d 438, 452 (2d Cir. 2014), cert. denied, 136 S. Ct. 242 (2015)), and the Supreme Court's more recent grant of certiorari to review the personal benefit question posed by United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), cert. granted in part, 136 S. Ct. 899 (2016). McPhail is correct that the nature of the personal benefit requirement in insider trading cases is the source of some inter-circuit tension likely to be resolved by the Supreme Court in its next term. But [h]ow this will all play out, we do not venture to say because, as a three-judge panel, we are bound to follow this circuit's currently controlling precedent. Parigian, 2016 WL 3027702, at . - 20 - That precedent dictates affirmance: McPhail does not argue that the instruction given by the district court fails to align with the law in this Circuit. We have in the past only entertained the assumption that personal benefit to a tipper need be shown in a misappropriation case, see Rocklage, 470 F.3d at 7 n.4; SEC v. Sargent, 229 F.3d 68, 77 (1st Cir. 2000), and have said that if such a showing is required, it is satisfied by benefits as thin as reconciliation with [a] friend and the maintenance of a useful networking contact, Sargent, 229 F.3d at 77, or the mere giving of a gift to a relative or friend, Rocklage, 470 F.3d at 7 n.4. At closing, the government argued that McPhail anticipated receiving two broad types of personal benefits: concrete ones and more subtle ones. Among the concrete benefits identified at trial were McPhail's expectations that he would receive a free dinner, wine, and a massage parlor visit from the beneficiaries. The government further reminded jurors of evidence that McPhail had given an AMSC stock tip to a close friend that yielded a nearly $200,000 profit, arguing further that McPhail ultimately benefited from a $3,000 kickback from that grateful friend.5 [M]ore subtl[y], the government argued, McPhail stood 5 McPhail argues that the tip to his friend was no gift and that the $3,000 deposit into his bank account the day after his friend liquidated his AMSC profits was no kickback. But a rational juror could certainly have disagreed. - 21 - to benefit from the group's general gratitude for his largesse. Jurors were told: It makes him one of the guys, they're all kind of impressed. Under the governing Rocklage and Sargent standards, the cumulative weight of this evidence was surely sufficient to show that McPhail anticipated receiving a personal benefit in return for the tips. We see no error.