Posted On Tuesday, October 6, 2015
Yesterday, the Supreme Court surprised many by declining to hear the Department of Justice’s (“DOJ”) appeal of the Second Circuit’s decision in U.S. v. Newman, a controversial insider trading ruling that the DOJ has warned will have dire effects on white-collar prosecutions and the integrity of the financial markets alike.
Almost ten months ago, the Second Circuit, in a remarkable decision, reversed the insider trading convictions of former hedge fund managers Anthony Chiasson and Todd Newman for trading on insider information. The Second Circuit held that to prove illegal insider trading between a tipper and tippee, the government must prove the tipper received a real, potentially pecuniary, benefit and that the tippee knew of the benefit. In overturning the convictions of Chiasson and Newman, the Court held that the government had not proven that either man knew they were receiving illegal tips or that the corporate insiders who had disclosed the information received any actual benefit. In his writ of certiorari, U.S. Solicitor General Donald Verilli argued that the Second Circuit’s ruling misread the Supreme Court’s decision in Dirks v. Securities and Exchange Commission, which the Solicitor General argued held that a tipper can be liable for benefiting from making a gift of insider information to another.
The ruling in Newman thus arguably makes it much more difficult to bring cases against corporate officers who disclose insider information to family and friends. In a press conference on Monday, U.S. Attorney Preet Bharara stated that his office would struggle with bringing those types of cases post-Newman and that this variety of insider trading may now go largely unpunished.
As reported in Kaja Whitehouse’s analysis of the decision in the USA Today, the ruling in Newman, now undisturbed by the Supreme Court, could have a significant impact on pending cases. This includes the appeal by SAC Capital’s Michael Steinberg, the possibility of overturning the guilty pleas of the analysts who provided information to Newman and Chiasson, as well as the lawsuit by Chiasson’s former business partner David Ganek against the U.S. government, where he seeks damages related to the demise of their hedge fund Level Global.
Posted On Friday, October 2, 2015
The Ninth Circuit, in United States v. Augare, No. 14-30131, 2015 WL 5234789 (9th Cir. Sept. 9, 2015), recently affirmed the application of a “sophisticated means” sentencing enhancement under U.S.S.G. § 2B1.1(b)(10)(C) in a case where the defendant, Delyle Augare was convicted of conspiracy to defraud the United States, False Claims Act conspiracy, theft from an Indian tribe receiving federal funding and federal income tax evasion. In doing so, the court found that use of multiple bank accounts and making fraudulent transfers in those accounts was sufficient to invoke the sophisticated means enhancement.
Under the Sentencing Guidelines, a “sophisticated means” sentencing enhancement results in a two-level increase. Offense conduct is deemed sophisticated if it involves a greater level of planning or concealment than a typical fraud of that kind. The Guideline Application Notes provide examples of sophisticated means, such as telemarketing schemes in which the main office is located in one jurisdiction, while the solicitation operations are conducted in another, as well as offenses involving the hiding of assets and/or transactions through the use of shell corporations, fictitious persons or offshore accounts.
While serving as assistant director of the Po’Ka Project, an organization created to help Native American youth, Augare, the father of Montana state senator Shannon Augare, stole federal grant money intended for the project. According to prosecutors, Augare and one of his co-defendants devised a scheme to donate Po’Ka Project money to a charity controlled by the Po’Ka Project, which Augare then deposited into his personal account. He entered a plea of guilty in the district court to conspiracy to defraud the United States, False Claims Act Conspiracy, theft from an Indian tribe receiving federal funding and federal income tax evasion. In June 2014, the district court sentenced Augare to 33 months in prison and ordered him to pay over $1 million.
Augare appealed his sentence, specifically challenging the district court’s application of the “sophisticated means” sentencing enhancement. Augare argued that his crimes amounted only to simple fraud involving the use of government-funded fuel cards for personal travel and money transfers between different bank accounts.
The Ninth Circuit concluded that the district court did not abuse its discretion when it applied the “sophisticated means” enhancement to Augare’s offense conduct. The three-judge panel explained that the “sophisticated means” sentencing enhancement is applicable when a defendant employs coordinated and repetitive conduct to execute a criminal scheme. Relying on precedent from other federal circuit courts, the panel noted that even if the individual activities employed to carry out the scheme are not elaborate, a “sophisticated means” enhancement is warranted if the totality of the scheme is sufficiently coordinated and complex. In affirming the sentence, the Ninth Circuit determined that Augare’s use of various bank accounts and fraudulent transfers of money that was intended for the Po’Ka Project was sophisticated enough to trigger the two-level sentence guideline increase.
