Court Opinion

ID: 3169565
Source: CourtListenerOpinion
Date Created: 2016-01-14 16:00:17.372373+00
Date Added: 2024-06-11T12:01:01.931722
License: Public Domain

15-1541-cr
United States v. Riley

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                        SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 14th day of January, two thousand sixteen.

PRESENT: REENA RAGGI,
                 RICHARD C. WESLEY,
                 CHRISTOPHER F. DRONEY,
                                 Circuit Judges.
----------------------------------------------------------------------
UNITED STATES OF AMERICA,
                                 Appellee,

                         v.                                              No. 15-1541-cr

DAVID RILEY,
                                 Defendant-Appellant,

MATTHEW TEEPLE,
                                 Defendant.
----------------------------------------------------------------------

APPEARING FOR APPELLANT:                         JOHN F. KALEY, Doar Rieck Kaley & Mack,
                                                 New York, New York.

                                                     1
APPEARING FOR APPELLEE:                   SARAH EDDY MCCALLUM, Assistant
                                          United States Attorney (Telemachus P. Kasulis,
                                          Michael A. Levy, Assistant United States
                                          Attorneys, on the brief), for Preet Bharara,
                                          United States Attorney for the Southern District
                                          of New York, New York, New York.

       Appeal from a judgment of the United States District Court for the Southern

District of New York (Valerie E. Caproni, Judge).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment entered on April 29, 2015, is AFFIRMED.

       Defendant David Riley stands convicted after a jury trial on three counts of

conspiratorial and substantive securities fraud as a tipper of inside information, see 15

U.S.C. §§ 78j(b), 78ff; 18 U.S.C. §§ 2, 371; 17 C.F.R. §§ 240.10b-5, 240.10b5-2, for

which he was sentenced to concurrent 78-month prison terms, significantly below his 121

to 151-month Guidelines range. On appeal, Riley challenges the sufficiency of the

evidence to support conviction, several evidentiary rulings, the jury instructions, and the

calculation of his Guidelines range. We assume the parties’ familiarity with the facts

and the record of prior proceedings, which we reference only as necessary to explain our

decision to affirm.

1.     Sufficiency of the Evidence

       A defendant challenging the sufficiency of the evidence supporting his conviction

bears a “heavy burden” because, although our standard of review is de novo, we must

affirm a conviction “if any rational trier of fact could have found the essential elements of

the crime beyond a reasonable doubt.” United States v. Allen, 788 F.3d 61, 66 (2d Cir.

                                             2
2015) (internal quotation marks omitted); see also United States v. Persico, 645 F.3d 85,

104 (2d Cir. 2011).

       To prove insider trading as a tipper, the government must demonstrate that a

defendant (1) owed a duty of confidentiality respecting material nonpublic information,

(2) breached that duty by intentionally or recklessly relating such information to a tippee

who could be anticipated to trade thereon, and (3) did so in exchange for personal benefit.

See SEC v. Obus, 693 F.3d 276, 289 (2d Cir. 2012); see also United States v. Newman,

773 F.3d 438, 450 (2d Cir. 2014), cert. denied, 136 S. Ct. 242 (2015).

       a.     Material Nonpublic Information

       Riley argues that the evidence was insufficient to prove his access to the

information at issue. Indeed, he asserts that the evidence established that other persons

were the likely source of information conveyed to tippee Matthew Teeple. In any event,

Riley contends that the transmitted information was neither material nor confidential.

This challenge fails on the merits.

       Although Riley emphasizes that no witness testified that he had “full access” to

FNI Web BBB (“BBB”), the internal online database where Foundry stored its

worldwide sales data, the trial evidence was sufficient to allow a reasonable jury to find

both that Riley had access to such information and that he communicated it to Teeple.

See United States v. Lorenzo, 534 F.3d 153, 159 (2d Cir. 2008) (stating that government

may carry its burden through inferences reasonably drawn from totality of circumstantial

evidence).

                                            3
      For example, the head of FBOL (the portal through which Foundry employees

accessed   BBB)     testified   that   Foundry’s    Information    Technology     (“IT”)

department—which Riley headed as Foundry’s Chief Information Officer (“CIO”) and

Vice President for Information Systems and IT—had worldwide access to the BBB

database, and that Riley was responsible for FBOL’s operating functionality. Further,

trial evidence showed Riley accessing BBB through FBOL 57 times, with several logins

occurring while Riley was on the phone with Teeple or the night before a meeting

between the two men.

      Evidence was also adduced that on July 1, 2008, Riley was among the few

Foundry officials provided with confidential information about an anticipated

Brocade-Foundry deal. Two weeks later, on the morning of July 16, 2008, Riley met

with Teeple, after which Teeple contacted 15 people, all of whom traded or caused their

funds to trade in a way that bet on an increase in Foundry’s stock price.   Not only do

these circumstances admit a reasonable inference that Riley conveyed information about

the Brocade-Foundry deal to Teeple, but Riley himself also admitted to FBI agents in

2012 that he “may have” leaked such information to Teeple.

      Thus, we need not detail any further evidence to conclude that, even if other

persons were also conveying confidential Foundry information to Teeple, the trial

evidence was sufficient to permit a reasonable jury to find that Riley had access to such

information and communicated it to Teeple.

      Riley’s contention that the evidence was insufficient to prove the materiality and

confidentiality of the information he conveyed merits little discussion. Uncontroverted

                                             4
evidence was adduced that Foundry’s worldwide sales data were a very important market

metric, Tr. 566, and that a merger with Brocade would have a significant effect on

investors’ expectations, id. at 585–86. See United States v. Contorinis, 692 F.3d 136,

143 (2d Cir. 2012) (“Information is material when there is a substantial likelihood that a

reasonable investor would find it important in making an investment decision.”).

Further, record evidence demonstrating a significant market reaction to the April 2008

announcement of Foundry’s sales data, Tr. 1166, and analysts’ surprise at news of a

possible Brocade-Foundry deal was sufficient to allow a reasonable jury to find that the

information Riley conveyed to Teeple on these matters was not public. See United

States v. Contorinis, 692 F.3d at 142.

       b.     Anticipation of Tippee Trading

       Riley argues that the evidence was insufficient to prove his knowledge that Teeple

would use communicated confidential Foundry information for securities trading. But a

January 2007 email from Riley to his business partners reveals his knowledge that Teeple

worked with several fund managers with a primary focus on technology companies.

When this fact is considered together with the nature of the information communicated

from Riley to Teeple and the timing of the men’s contacts relative to related trading, we

cannot conclude that the evidence was so “nonexistent or so meager” that no reasonable

jury could find beyond a reasonable doubt that Riley possessed the requisite culpable

                                            5
knowledge.1 United States v. Espaillet, 380 F.3d 713, 718 (2d Cir. 2004) (internal

quotation marks omitted).

      c.       Personal Benefit

      Riley mistakenly relies on United States v. Newman, 773 F.3d 438, to challenge

the sufficiency of the evidence that he exchanged confidential information for personal

benefit. Newman holds that when a tipper’s expectation of personal benefit is to be

inferred from the personal relationship of the tipper and tippee, the government must

prove “a meaningfully close personal relationship that generates an exchange that is

objective, consequential, and represents at least a potential gain of a pecuniary or

similarly valuable nature.” Id. at 452. That, however, is not this case because the trial

evidence admits an inference that Riley, the tipper, received an “immediately pecuniary”

tangible benefit, see id. (emphasis in original), in the form of investment advice from

Teeple. Such professional advice would constitute a benefit whether or not Riley used

or profited from it. See United States v. Jiau, 734 F.3d 147, 153 (2d Cir. 2013) (holding

that defendant received personal benefit through invitation to investment club even if he

never received any investment tips).2 Riley, however, did both. Indeed, the quid pro

quo nature of Riley’s tipping could be inferred from telephone, login, and trading records

1
  For the same reason, we reject Riley’s challenge to the sufficiency of the evidence
supporting his conviction for conspiracy to engage in securities fraud.
2
  In these circumstances, we need not decide whether—in light of Newman—the jury
could also have found personal benefit established from evidence of Teeple’s help with
(1) Riley’s work on an outside venture, see App’x 164, or (2) planning Riley’s exit
strategy following the Brocade-Foundry deal, see id. at 179–80.

                                            6
showing him both logging into the BBB database and making profitable purchases of

Motorola and Palm stock at the same time he was on a telephone call with Teeple.

      d.     Venue

      Equally meritless is Riley’s sufficiency challenge to venue, which the government

was required to prove only by a preponderance of the evidence. See United States v.

Royer, 549 F.3d 886, 894 (2d Cir. 2008). Whether or not the traders tipped by Teeple

acted with the culpable knowledge discussed in Newman, 773 F.3d at 450, a reasonable

jury could have found it more likely than not that Riley, as Foundry’s CIO, could have

foreseen that the trading that would result from his communication of inside information

to Teeple would occur in the Southern District of New York, given that Foundry’s shares

were publicly traded on NASDAQ, located in Manhattan, see Tr. 556, 1062–63. See

United States v. Svoboda, 347 F.3d 471, 483 (2d Cir. 2003) (holding venue proper where

defendant’s only contacts with SDNY were trades executed on New York-based

securities exchanges because “savvy investor” could reasonably foresee that trades likely

would be executed on such exchange); accord United States v. Geibel, 369 F.3d 682,

697–98 (2d Cir. 2004).

2.    Jury Instructions

      a.     “Personal Benefit” Instruction

      Riley argues that the jury instruction regarding “personal benefit” was erroneous

under United States v. Newman, 773 F.3d at 452, a decision that issued after Riley had

been convicted, but before the district court denied him post-trial relief under Fed. R.

                                              7
Crim. P. 33.3 In these circumstances, we review the challenged instruction for plain

error, which we identify only if (1) there is error; (2) that is clear or obvious, rather than

subject to reasonable dispute; (3) that affected the defendant’s substantial rights,

generally by affecting the outcome of the trial; and (4) that seriously affects the fairness,

integrity, or public reputation of judicial proceedings. See United States v. Vilar, 729
F.3d 62, 70 (2d Cir. 2013) (stating that objection to trial court ruling based on

supervening legal decision is reviewed for plain error (citing Johnson v. United States,

520 U.S. 461, 466–67 (1997))).

        Riley cannot satisfy this standard because, even if the district court’s instruction

was clearly erroneous, which the parties dispute, any error did not affect his substantial

rights, much less the fairness, integrity, or public reputation of the proceedings.4 The

evidence that Riley exchanged nonpublic information for an immediate pecuniary

3
    The district court charged:

                       Finally, you must determine whether Mr. Riley
                anticipated receiving a personal benefit of some kind from
                disclosing the information. The personal benefit does not
                need to be financial or tangible; it could include, for example,
                maintaining a useful networking contact, improving Mr.
                Riley’s reputation, obtaining future financial or employment
                benefits, or just maintaining or furthering a friendship. But
                the government must show that Mr. Riley was disclosing
                inside information to Mr. Teeple for some personal reason,
                rather than a company-approved purpose, and was obtaining
                or hoping to obtain some personal benefit, however modest.

App’x 74–75.
4
  We assume without deciding that Newman would have required a different jury
instruction on the element of personal benefit than the one given by the district court.

                                               8
benefit, which the government highlighted in summation, was sufficiently compelling to

leave us with no doubt that a jury instructed consistent with Newman would have found

Riley guilty. See United States v. Mandell, 752 F.3d 544, 549 (2d Cir. 2014) (“A

defendant is not prejudiced by an infirm instruction if the jury would have necessarily

found [him] guilty on one of the properly instructed theories of liability.” (internal

quotation marks omitted)).5

       b.     Supplemental Instruction on “Motive”

       Riley argues that by giving a negative response to a jury note asking whether the

government was required to prove motive on the charged securities crimes, the district

court permitted the jury to convict him without making the necessary finding of personal

benefit. The argument fails because, for reasons just discussed, the evidence of an

immediately pecuniary personal benefit was compelling, and the law does not require

proof of motive to support a criminal conviction. See United States v. Chestnut, 533
F.2d 40, 48 (2d Cir. 1976) (holding that absence of motivation is not fatal to

government’s case where there is sufficient evidence of criminal intent); 1-6 Modern

Federal Jury Instructions – Criminal, Inst. 6-18 (stating that if guilt of defendant is proved

beyond reasonable doubt, “it is immaterial what the motive for the crime may be”).

Moreover, the district court’s response directed the jury back to the original charge,

5
  Whether Riley or the government has the burden of demonstrating the effect (or lack
thereof) of any error on his substantial rights does not affect our decision. See United
States v. Vilar, 729 F.3d at 71 n.5 (questioning whether allocation of burden “will ever be
dispositive in this context”).

                                              9
which included an instruction advising the jury that it must find personal benefit proved

beyond a reasonable doubt.

       Accordingly, we reject Riley’s jury instruction challenges on the merits.

3.     Evidentiary Rulings

       We review Riley’s evidentiary challenges for abuse of discretion, see United

States v. Cuti, 720 F.3d 453, 457 (2d Cir. 2013), which is not evident here.

       a.     Admission of June 15, 2009 Phone Call

       The district court admitted as a statement in furtherance of the charged conspiracy,

see Fed. R. Evid. 801(d)(2)(E), a June 15, 2009 recording in which Teeple told

cooperator Karl Motey that he was going to meet his “best guy from Foundry” at 10:00

a.m. the next day. App’x 156, 157. Riley asserts that because there was no evidence

that he provided Teeple with confidential information in early 2009, Teeple’s statement

could not have been in furtherance of any conspiracy then existing between the two men.

The argument fails because where, as here, there is evidence of the charged conspiracy’s

existence before 2009, and no evidence that the scheme had attained its goal or that Riley

had withdrawn therefrom, the mere absence of conspiratorial activity in early 2009 is not

enough to render the district court’s Rule 801(d)(2)(E) ruling “manifestly erroneous.”

United States v. Samet, 466 F.3d 251, 254 (2d Cir. 2006) (stating standard of review); see

United States v. Mandell, 752 F.3d at 552 (stating that “mere cessation” of conspiratorial

activity is insufficient to establish conspirator’s withdrawal from or end of scheme).

       Equally unavailing is Riley’s argument that Teeple’s statement was not in

furtherance of the conspiracy. The evidence, viewed most favorably to the government,

                                            10
showed that Teeple used various persons to collect and trade upon nonpublic information,

that Riley was Teeple’s “best” source of such information in Foundry, and that Motey

(even after he became a government cooperator) was a frequent recipient of Teeple’s tips.

This was sufficient to permit the district court to make a preponderance finding of both

the existence of the conspiracy and also Teeple’s effort to further that conspiracy by

communicating—to a person who Teeple thought was a coconspirator recipient of his

nonpublic information—details regarding his ongoing relationship with the conspirator

(Riley) who was the best source of that information. See United States v. James, 712
F.3d 79, 105–06 (2d Cir. 2013) (holding that statement providing information as to status

of conspiracy can be in furtherance thereof); see also United States v. Gupta, 747 F.3d
111, 125 (2d Cir. 2014) (stating that Rule 801(d)(2)(E) requires both declarant and party

against whom statement is offered to be members of conspiracy, but does not require that

person to whom statement is made also be member).6

      b.     Limitation on Character Testimony

      Riley further argues that the district court unfairly limited the testimony of his

character witnesses.    Having reviewed the unredacted, sealed transcripts of the

proceedings relevant to this issue, we discern no abuse of the broad discretion accorded

district courts in admitting or limiting this type of evidence.     See United States v.

Damblu, 134 F.3d 490, 494 (2d Cir. 1998).

6
  Because we discern no error in the admission of Teeple’s statement pursuant to Rule
801(d)(2)(E), we need not address the government’s additional proffered bases for
admission, or its argument that Riley is entitled only to plain error review as a result of
his failure to object to its admission on hearsay grounds at trial.

                                            11
       Riley’s character witnesses were permitted both to give their opinions and to

testify about Riley’s reputation for truthfulness, honesty, and “secret keeping.” They

were permitted to testify generally to the type of work Riley had done with the Central

Intelligence Agency and to his responsibility for handling classified information.

       Riley nevertheless maintains that this testimony was meaningless without allowing

the witnesses to provide the foundational evidence that explained how they could speak

with authority on the opinions expressed.         We are not persuaded.      The limitations

imposed by the district court followed directly from the Rules of Evidence, which permit

a defendant to offer evidence of a personal opinion or his reputation for a pertinent

character trait, see Fed. R. Evid. 404(a)(2)(A), 405(a), but not to offer testimony

regarding “specific instances” of conduct in conformity with a trait that is not at issue, see

United States v. Doyle, 130 F.3d 523, 542 (2d Cir. 1997); see also United States v.

Wilson, 750 F.2d 7, 9 (2d Cir. 1984) (upholding ruling limiting character evidence to fact

of defendant’s employment with intelligence agencies and involvement in covert

operations). To the extent that any excluded testimony could not be characterized as

describing specific instances of conforming conduct, the district court acted well within

its authority under Fed. R. Evid. 403 in concluding that the probative value of such

evidence was substantially outweighed by the danger of unfair prejudice, confusing the

issues, misleading the jury, and wasting time. See United States v. Wilson, 750 F.2d at

9.

       Thus, we find no abuse of discretion.

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       c.     Excluded Defense Exhibits

       Nor was there abuse of discretion in the district court’s decision not to admit

certain publicly available information offered by the defense. As to public information

about the companies in whose stock Riley traded, the district court properly determined

that such evidence was irrelevant under Fed. R. Evid. 401, given Riley’s failure to

demonstrate that he ever saw these materials when trading, despite the court suggesting

“a lot of ways of proving it.” Tr. 1902. As for evidence of the failed Intuit transaction,

there was no legitimate basis for Riley to argue that he was aware of this news, or that it

could have been the subject of his April 2, 2007 email to Teeple. While Riley claims

the jury was entitled to infer his awareness from the government’s characterization of

him as a “sophisticated investor,” the district court’s rejection of this argument easily fell

within the range of permissible decisions available to it.

4.     Calculation of Guidelines Range

       Riley challenges his sentence, asserting procedural error in the calculation of his

Sentencing Guidelines range. See United States v. Cavera, 550 F.3d 180, 190 (2d Cir.

2008) (en banc) (recognizing miscalculation of Guidelines range as procedural error).

In evaluating this claim, we review “primarily legal” questions de novo, and “primarily

factual” determinations for clear error. United States v. Hsu, 669 F.3d 112, 120 (2d Cir.

2012) (internal quotation marks omitted); see United States v. Carr, 557 F.3d 93, 103 (2d

Cir. 2009) (“[T]he interpretation of a sentencing guideline is a question of law.” (internal

quotation marks omitted)). Neither of Riley’s arguments withstands the appropriate

scrutiny.

                                             13
       First, we discern no clear error in the district court’s consideration of trading by

Artis Capital Management, LP—tippee Teeple’s hedge-fund employer—in making the

U.S.S.G. § 2B1.4 calculation of the “gain” resulting from Riley’s offense.             The

background commentary to that Guideline states that “gain” includes “value realized

through trading in securities” by persons “to whom the defendant provided inside

information.” Id. § 2B1.4 cmt. background; accord United States v. Royer, 549 F.3d at

904 & n.19. The trial evidence not only permitted the jury to find beyond a reasonable

doubt that Riley knew Teeple would trade on the communicated inside information but

also permitted the sentencing judge to make a preponderance finding that Riley knew

Teeple would do so as the agent of a hedge fund. Thus, the district court properly

considered the Artis trading in assessing the seriousness of Riley’s offense.

       Second, the district court correctly rejected Riley’s argument that gain “result[s]

from [an] offense” only when a trading position taken on the basis of inside information

is liquidated.   Riley offers no support for this view, and the relevant Guidelines

commentary signals otherwise. It defines “gain” under § 2B1.4 as the “value realized

through trading in securities,” U.S.S.G. § 2B1.4 cmt. background (emphasis added), a

figure reasonably determined by reference to the market price once the inside information

has been revealed, not the profit (or loss) realized by the tippee, whose hold decisions

may be informed by various factors.          This comports with the Supreme Court’s

observation that insider trading reflects a breach of duty owed by the tipper to the entity

whose confidential information was disclosed. See, e.g., Dirks v. SEC, 463 U.S. 646,

661–62 (1983); accord United States v. Newman, 773 F.3d at 445–46. Indeed, Riley

                                            14
himself recognizes the problem with his reasoning in acknowledging the need for loss

avoidance to “work somewhat differently.”          Appellant’s Reply 49 & n.36.   That

distinction has no basis in either the Guidelines’ text or precedent.

       Accordingly, we conclude that Riley’s substantially below-Guidelines sentence is

not infected by procedural error.

5.     Conclusion

       We have considered Riley’s remaining arguments and conclude that they are

without merit. Accordingly, the judgment of the district court is AFFIRMED.

                                    FOR THE COURT:
                                    CATHERINE O’HAGAN WOLFE, Clerk of Court

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