Opinion ID: 3036135
Heading Depth: 3
Heading Rank: 2

Heading: Tipping Allegations Against Bhagat

Text: The prosecution sought to prove that Bhagat advised two friends to buy Nvidia stock before the X-Box information was officially released to the public. Less than one-half hour after Bhagat made his purchase, two of his friends, Puneet Mehrotra (Mehrotra) and Mamat Gill (Gill), purchased Nvidia stock. There was no direct evidence that Bhagat contacted Mehrotra or Gill prior to their purchases. However, Bhagat did send Gill an e-mail during the blackout period, the day after Gill purchased the Nvidia stock, containing a link to an internet article discussing Nvidia and the X-Box. Evidence was also introduced that Bhagat provided his real estate agent with the X-Box information before it was made public. Finally, Gill’s purchase was his largest purchase of the year. Bhagat denied telling anyone about the X-Box contract before it was made public. He countered the prosecution’s evidence with the argument that a friend of Gill’s, who worked for one of Nvidia’s competitors, may have informed Gill of the X-Box contract award. 1422 UNITED STATES v. BHAGAT C. Reasons for the Increase in Nvidia’s Stock Price The parties disagree as to the reasons Nvidia’s stock price increased between the time of Bhagat’s purchase and the time the contract award was officially announced. The government’s expert opined that the increase was primarily caused by rumors regarding Nvidia and the X-Box contract. Bhagat countered that the value of Nvidia’s stock rose during this period primarily because Standard & Poor’s (S&P) issued a listing announcement indicating that Nvidia was now part of an S&P stock index. A number of witnesses, including Nvidia’s CEO and a financial analyst, testified that stock prices generally rise after a listing announcement. The government’s expert confirmed the existence of studies showing that technology-based stocks increase in value by ten percent after becoming listed. However, the expert qualified this observation by noting that the ten percent increase represented the aggregate increase over the course of several days to a few weeks. In light of Nvidia’s past performances upon becoming listed in other indices, the expert opined that it was highly unlikely that the listing announcement in this case had such an immediate impact on the market. Thus, according to the expert, any price increases during this time were more likely attributable to the X-Box rumors, and not to the listing announcement. D. Trial Proceedings Bhagat was charged with insider trading, tipping, and obstructing an SEC investigation. The most hotly contested issue was whether the government adequately proved that Bhagat possessed prior knowledge of the X-Box contract award. The key provisions of the indictment are as follows: 5. On . . . March 5 . . . NVIDIA entered into a contract with Mircrosoft to develop . . . a . . . processor for . . . the “X-Box.” UNITED STATES v. BHAGAT 1423 6. On Sunday, March 5 . . . NVIDIA’s president . . . sent an e-mail message to all NVIDIA employ- ees, including BHAGAT, announcing the contract. The e-mail . . . predicted that “[i]f Xbox becomes as big as Sony Playstation, we generate about $2B in sales over 5 years.” 7. On Monday, March 6 . . . , at 9:15 . . . NVIDIA’s Vice President of Marketing sent an e- mail to all NVIDIA employees. The e-mail was enti- tled “xbox shhhhhh . . .” and said: . . . keep the xbox news quiet . . . . Mircro- soft plans to make the news public this Fri- day . . . [L]ets don’t jinx it! 8. On March 6 . . . at . . . 12:23 . . . BHAGAT placed a market order to purchase 1000 shares of NVIDIA stock. The principal theory of the prosecution during the trial was that Bhagat knew about the contract from reading his own e- mail. During cross-examination, however, the prosecutor also questioned Bhagat about conversations among his co-workers that he had heard that morning concerning the X-Box contract. This line of questioning set the stage for what the parties refer to as the “office ‘abuzz’ theory.” Defense counsel informed the court that because the indictment did not include an allegation that Bhagat learned about the X-Box contract through office conversation, that theory should not be permitted as part of the government’s case. In the alternative, defense counsel requested an instruction informing the jury that the mere existence of an open cubicle environment may not, standing alone, give rise to an inference that Bhagat possessed insider information. Ultimately, the court authorized the government to present the argument, and declined to give the requested instruction. 1424 UNITED STATES v. BHAGAT During closing arguments, the government referenced the “office abuzz” theory in passing, stating that the jury should consider the fact that the office was “abuzz” with the news of the X-Box contract, and that Bhagat had to walk through the office to reach his cubicle. The government also repeatedly informed the jury that in order to find Bhagat guilty, the government would have to prove that he read the company-wide e-mails prior to purchasing the stock. The jury convicted Bhagat of insider trading, of tipping Gill, and of obstructing an SEC investigation by making false statements to SEC investigators. E. Sentencing Proceedings The district court calculated the “total increase in value” attributable to Bhagat and his tippee. See U.S.S.G. § 2F1.2, Background Note (1998).2 The district court measured Bhagat’s profit by finding the difference between the price Bhagat and Gill paid for the stock, and the price at which they sold it. When combined, the pair’s profits exceeded sixty thousand dollars, thereby triggering a five-level sentencing enhancement. U.S.S.G. § 2Fl.1(b)(1). F. Post-trial Motions Bhagat moved for acquittal on the basis of insufficient evidence. In the alternative, he sought a new trial on the same grounds he asserts in this appeal. The district court denied Bhagat’s motions and Bhagat timely appealed. 2 Although Bhagat was sentenced in 2003, the district court applied the 1998 version of the Sentencing Guidelines to avoid any ex post facto problems. UNITED STATES v. BHAGAT 1425