Mickelson Seeks Relief from Insider Trading Hazard

Almost two years ago, the Wall Street Journal and New York Times first reported an insider trading investigation involving sports gambler William “Billy” Walters and pro golfer Phil Mickelson.  At the time, the investigation appeared to focus on trading activity surrounding a potential take-over bid of Clorox.  We didn’t think much of potential claims against Mickelson arising out of the Clorox investigation.  Yet, buried in both articles was a reference to a second investigation involving trading in Dean Foods.  Today, the Dean Foods investigation shot up the leaderboard with the announcement of criminal insider trading charges against Walters and former Dean Foods Chairman Thomas Davis.  The SEC also brought civil charges against the pair and has named Mickelson as a “relief defendant,” asserting that Mickelson profited from trading in Dean Foods stock based upon non-public information received from Walters.

As a relief defendant, Mickelson is not accused of any wrongdoing. Rather, a relief defendant may be ordered to repay funds when that person has received ill-gotten gains and does not have a legitimate claim to those funds.  SEC v. Cavanagh, 155 F.3d 129, 136 (2d Cir. 1988).  In this case, the SEC alleges that Walters gave Mickelson, who at the time owed Walters for a gambling debt, inside information regarding Dean Foods (which Walters had received from Davis).  Mickelson then used that information to earn a $931,000 profit in just over a week from his $2.4 million position in the company.  That sure beats the $500 he made off of Mike Weir for betting that Jim Furyk would sink a bunker shot, a bet that put him in hot water for violating PGA Tour policy that provides that “player shall not have any financial interest, either direct or indirect, in the performance or the winnings of another player.”  In any event, the “ill-gotten” nature of Mickelson’s Dean Foods’ profit was not alleged to be the result of Mickelson’s conduct, but rather, Walters’.

It is not uncommon for the SEC to pursue disgorgement from individuals who are downstream tippees – traders who are a step or two distant from the insider who breached his or her fiduciary duty in disclosing material, non-public information.  See, e.g., SEC v. McGee, 895 F.Supp.2d 669, 686-689 (E.D. Pa. 2012).  By naming Mickelson as a relief defendant, not charging him civilly or criminally, the government need not prove that Mickelson knew that the insider – here, Davis – received a benefit from the immediate tippee – Walters – in exchange for the inside information. As tipees get further down the chain from the insider, the government faces an increasingly difficult task in proving the requisite knowledge of this benefit, particularly in light of the Second Circuit’s decision clarifying this requirement in United States v. Newman.  See our discussion of Newman here, here, and here.

As for Walters, he is a gambling man, and he’s now facing the gamble of his life.  He faces a federal indictment that alleges gains (and avoided losses) of more than $40 million.  Further, the government has announced that the corporate insider, Davis, has already pleaded guilty to conspiracy, securities fraud, wire fraud, obstruction of justice, and perjury, and is cooperating with the government.

For Mickelson, as the SEC announced today, he has agreed to repay the full disgorgement of his trading profits of $931,738.12 plus interest of $105,291.69.  He has neither admitted nor denied the allegations.  In a statement, Mickelson noted the return of the funds and said that he had “no desire to benefit from any transaction that the SEC sees as questionable.”  Mickelson appears to be identified in Walters’ indictment as “Individual-2” and may well play an ongoing role as a witness in any civil or criminal trial arising out of the SEC’s complaint or the criminal case against Walters.

Former Texas Governor Rick Perry’s Indictment Dismissed as Unconstitutional

Today, the Texas Court of Criminal Appeals held that the prosecution of former Texas Governor Rick Perry was as much an “oops” as his own slip that famously felled his 2012 Presidential campaign.  The court remanded the case to the district court with orders to dismiss the two-count indictment, charging him for the threat and actual veto of state funds for a district attorney who had been arrested for drunk driving but refused to resign.  We said it back in 2014 and say it again now:  Governor Perry should not have been charged.  Or, as better articulated by Judge David Newell’s concurring opinion in this appeal:

Come at the king, you best not miss.

– Omar Little, The Wire (HBO 2002).

Indeed, the indictment was a miss from the start (as detailed in the amicus brief of constitutional and criminal law scholars filed in the Court of Criminal Appeals).

Count I alleged that the vetoing the funds constituted “abuse of official capacity” under Texas Penal Code § 39.02.  Count II alleged that the threat to veto constituted a “coercion of a public servant” pursuant to Texas Penal Code § 36.03.  The Court of Criminal Appeals rejected the government’s arguments on both counts.

The court concluded that the legislature could not directly or indirectly limit the governor’s veto power.  Because it was the veto that was the alleged illegal act, the prosecution violated the separation of powers.  In a footnote, the court distinguished the indictment with a hypothetical bribery prosecution in which a governor accepted money in exchange for the veto.  In such a case, “the illegal conduct is not the veto; it is the agreement to take money in exchange for the promise.”  Slip op. at 24 n.96.

With respect to the threat and the “coercion of a public servant,” the court concluded that the definition of “coercion” as “a threat, however communicated . . . to take or withhold action as a public servant” is unconstitutionally overbroad in violation of the First Amendment. Id. at 51 (citing Tex. Penal Code § 1.07(a)(9)(F)).

When we first called the indictment a “weak case that shouldn’t have been charged,” we lamented that “it is often a very long road to reveal the truth.”  The appeal tells us that the wait was not necessarily for the “truth” – the facts were undisputed – but the law.  Not without dissent (actually, two), the Court of Criminal Appeals nonetheless rightfully applied the law and ordered the dismissal of the indictment.



Second Circuit Accepts Rajat Gupta’s Insider Trading Appeal

This week I spoke with Fox Business reporter Serena Elavia about the Second Circuit’s decision to grant a certificate of appealability in the Rajat Gupta insider trading prosecution.  Gupta is the high-profile former McKinsey & Co. Managing Director and Goldman Sachs board member who was prosecuted and convicted for providing insider information to former Galleon Group hedge fund manager Raj Rajaratnam.

Gupta, who was first convicted in 2012 and whose direct appeal was denied in 2014, received another bite at the apple earlier this month.  He now has an opportunity for the Second Circuit to determine whether his conviction should be vacated because the jury was erroneously instructed and whether any procedural default may be excused for cause and prejudice or actual innocence.  This opportunity flows directly from the Second Circuit’s United States v. Newman decision, which altered the proof needed for the “personal benefit” to the insider that is required under Dirks v. S.E.C., 463 U.S. 646 (1983).

Newman held that merely “maintaining a good relationship” is not enough to prove the required “personal benefit.”  Instead, the insider must be the beneficiary of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”  Yet, at the time that Gupta was convicted, the district court instructed the jury that the benefit received did “not need to be financial or to be tangible in nature.  It could include, for example, maintaining a good relationship with a frequent business partner, or obtaining future financial benefits.”  Gupta did not object at the time to the instruction (Newman had not been decided).  Gupta and others, including Bassam Salman, whose petition for certiorari the Supreme Court just granted, have argued that Newman did, in fact, change the personal benefit test and thus their convictions under the less stringent “relationship” test should be vacated.

For Gupta personally, the Second Circuit’s order agreeing to hear the appeal is a significant step, although, procedurally, the Second Circuit may have accepted the appeal to put it in a holding pattern.  The Supreme Court will have the final say on this issue as it addresses Salman’s petition on the question of whether the personal benefit:

requires proof of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in United States v. Newman, or whether it is enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case.

Salman’s Supreme Court brief is due in May.



Supreme Court Takes on Insider Trading “Personal Benefit” After All

Just when the Supreme Court appeared to be turning its collective attention away from the standard for insider trading convictions by denying the writ for certiorari in United States v. Newman, the Court today granted cert. in Salman v. United States, which addresses the “personal benefit” that a tipper must receive in an insider trading case.  (And speaking of recent cert. grants:  kudos to my colleague, Charles Casper, who, along with others, obtained a grant of certiorari in Microsoft Corporation v. Baker, No. 15-457, on behalf of Microsoft, in a case raising a class action jurisdictional challenge).

Back to insider trading.  The Court will now take up the following question, as posed by the petitioner in Salman:

Does the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 636 (1983), require proof of an “exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015), or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case?

In Salman, the remote-tippee defendant (Salman) received and traded on information received from the brother (Michael) of a Citigroup investment banker-insider (Maher).  Maher testified that he provided the information to his brother Michael to “get him off his back.”  Michael then provided the information to Salman.  The petitioner argued that, under the standard set by Newman, Maher, the insider, gained “nothing” – or at the very least nothing that was “objective” or “consequential” or that represented “a potential gain of a pecuniary or similarly valuable nature.”  Maher, it seems, was – like Spaulding Smails in Caddyshack – that family member whose relative was content to declare:  “you’ll get nothing and like it!”

The Ninth Circuit, however, explicitly rejected the approach in Newman and determined that it was sufficient that the government proved that the insider “made a gift of confidential information to a trading relative or friend.”  Because the government had established that link, the Ninth Circuit (Southern District of New York Judge Jed Rakoff, sitting by designation) concluded that the government satisfied its “personal benefit” burden.

But why did the Supreme Court pick Salman rather than weigh in on Newman?  While it is, of course, reading tea leaves, it nonetheless appears that the Court was persuaded by the petitioners’ argument (adopting the Justice Department’s arguments from the Newman petition) that the conflict generated by Newman and widened by Salman creates “uneven enforcement” of the securities laws and that Supreme Court review is necessary to “restore certainty and order” to the law of insider trading.

Moreover, petitioner argued that, unlike in Newman, where the Second Circuit based its decision on a second ground (the defendant’s lack of knowledge of any personal benefit), the “personal benefit” test here was outcome-determinative:  apply Newman, judgment reversed; require merely a gift to a family member, judgment affirmed.

As we argued previously in the context of Newman, we think that Newman got it right (or, at least, put us on the right path) by providing clarity as to the level of personal benefit required of a tipper in an insider trading prosecution.  What the Court does with Newman and Salman will surely be debated going forward, but in the meantime, there appears to be at least a final word on the subject coming shortly from One First Street.

Supreme Court Denies Review of Second Circuit’s Newman Insider Trading Decision

We’ve taken a summer (early fall?) recess here at White Collar Alert but have been jolted back into the blogosphere with the news of the Supreme Court’s denial of certiorari in United States v. Newman. We’ve written and blogged repeatedly (and here, too) about the Second Circuit’s decision in Newman, including the Government’s petition for a writ of certiorari to the Supreme Court. Yesterday, the Court denied the government’s petition, meaning the Second Circuit’s opinion remains binding precedent in the Second Circuit.

What exactly does this mean? For starters, the Second Circuit’s holding stands: the government must prove that an insider disclosed confidential, non-public information for a personal benefit, which must be “of some consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. Further, the Second Circuit’s other holding in Newman – that a downstream tippee must know that the corporate insider-tipper received a personal benefit from the tip – was not subject to the petition for writ of certiorari and further remains binding in the Second Circuit.

What is left is to determine what the implications are for existing and future insider trading prosecutions. Already, U.S. Attorney for the Southern District of New York Preet Bharara forecasted in a press conference following the high court’s denial that executives and traders will have a “bonanza for friends and family of rich people who have access to material nonpublic information.” Bharara’s “bonanza” rhetoric appears, to put it mildly, over the top, as he acknowledged that 90% of the cases he’s brought are not implicated by the Circuit’s decision.

As for the other 10%? We at White Collar Alert will continue to stand by to monitor how the courts – and the nation’s prosecutors – approach insider trading cases in light of the Second Circuit’s now final decision. From our perspective, however, having more clearly defined standards for what is a “personal benefit” and what the government is required to prove a defendant knew before trading in a security promotes a more fair and just application of the securities laws, which are designed to protect against breaches of fiduciary duties by insiders. For now, at least, the precedential value of the Second Circuit’s decision is secure.

Don’t Text with an Informant and iPads are Not Phones

While Dora the Explorer’s cousin, Diego, may proudly proclaim that “helping out each other is good for everyone,” apparently defendant Curtis Diego’s “friend,” Gary Still, had no such interest.

Mr. Still, when confronted by police about his suspected theft of numerous firearms, quickly confessed to the thefts and became an informant against Diego.  Still told the police that he exchanged two of the stolen guns for heroin from Diego.  Sitting in police headquarters and surrounded by police officers, Still used his iPad to text with Diego to set up a drug transaction.  Not surprisingly, when the police showed up at the arranged location, they found Diego with drugs and made an arrest.  Diego then filed a motion to suppress based upon an improper wiretap arising out of the texts from the police station.  The trial court granted the motion. In Commonwealth v. Diego, issued Tuesday, the Superior Court reversed.

The Superior Court first rejected the Commonwealth’s argument that texting on an iPad somehow is the same thing as using a telephone.  As we’ve blogged about before, the Pennsylvania Wiretapping and Electronic Surveillance Control Act prohibits interception of “any wire, electronic or oral communication.”  18 Pa.C.S. § 5702.  The statute, however, excludes from the definition of “intercept” the use of any telephone.  In Commonwealth v. Spence, the Pennsylvania Supreme Court confirmed that interceptions using a telephone are not prohibited by the Wiretap Act.  Here, the Supreme Court didn’t buy the Commonwealth’s argument that the use of a text messaging function on an iPad was the functional equivalent of a telephone:

An iPad is not a telephone or telegraph instrument under a common understanding of the relevant terms, and no reasonable person familiar with the now ubiquitous technology of tablet computers would misidentify an iPad as a mere telephone. The fact that an iPad or any other tablet computer can perform functions similar or identical to a modern cellular phone is not dispositive, as the Spence Court’s holding implies. The trend of convergence between modern computers and telephones aside, at this time the technologies in question remain different not only by degree, but also in kind.

Commonwealth v. Diego, 2015 PA Super 143, slip op. at 7-8 (Pa. Super. 2015).  Take that, Commonwealth.

But not so fast.  Just because an iPad is not a telephone – and therefore the text messages were not subject to the Wiretap Act’s telephone exception – did not mean that the texting evidence should be suppressed.  The court then turned to whether there was a reasonable expectation of privacy in the text messages and whether or not there was even an “intercept” in the first place.  This is where things began to crumble for Mr. Diego.

The Superior Court held that the very nature of texting, much like drafting an e-mail or posting on a chat room, recorded the text message for posterity.  Unlike an oral communication, for which one would expect no record of what was said, a text message, like an e-mail message or a post, is recorded for all time (or at least, for some time, until someone hits “delete”).  As the court noted, “by the very act of engaging in the means of communication at-issue, Appellee risked that Gary Still would share the contents of that conversation with a third party.”  Id. at 10.

The Superior Court also rejected Diego’s reliance on Riley v. California, which involved a cell phone that was seized and searched incident to an arrest for a firearms offense (and which we’ve discussed here and here).  The court distinguished between police searching a cell phone incident to arrest with the use of an informant to engage in a text conversation with a defendant.

Then, the court concluded that there was no interception at all.  The court noted that the informant voluntarily cooperated with the police and communicated with the defendant.  Once the defendant sent the messages, that was it and what the informant did with the information received from the defendant was, according to the court, irrelevant.  A government “interception” must occur either “during the transmission of the message or at least simultaneous to the receipt of the message.”  Id. at 19.

Ultimately, the court focused on the specific factual circumstances before it:  the police, although with the defendant in a basement holding cell and present during the transmission of the text messages setting up the fateful transaction, did not observe the actual texts.  Had that been the case, the court explained “it would then be plausible to argue that the police may have observed the content of the text messages before Still had received them. However, because that particular factual scenario is not before this Court at this time, we need not address it.”  Id. at 21.

The court explained in a lengthy footnote how this was not a circumstance involving police who saw / “intercepted” the text messages.  But this seems to draw a fine line between six police officers standing around an informant in a basement room of a police station setting up an illegal transaction (drugs. . . or fraud, or bid rigging, or whatever) and the same scenario but in which at least one officer glances at the iPad screen and sees the texts in real (or near) time.  For now, perhaps, the answer is, “don’t text with an informant,” but this shifts the focus to citizens to remain vigilant from government overreaching, rather than on the government to uphold its obligations.

Former Speaker Hastert Indicted: Structuring a Costly Cover-Up

Yesterday, the Department of Justice charged former House Speaker Dennis Hastert in an indictment stemming from his alleged agreement to pay an unknown individual $3.5 million “to compensate for and conceal his prior misconduct” against that unknown person. According to the indictment, Mr. Hastert, a former high school teacher and wrestling coach before entering politics, first withdrew cash in amounts of $50,000, but then, following questioning by bank representatives, structured his withdraws – reducing his payments to under $10,000 each – to evade the banks’ reporting requirements. And he did so at least 106 times. So far, Mr. Hastert has paid $1.7 million to this person, who claims to have known the former Speaker for most of his or her life. When questioned by the FBI about his conduct, Mr. Hastert allegedly lied about it. When the FBI asked him if he had taken out large sums of cash on several occasions, “because he did not feel safe with the banking system, as he previously indicated,” he replied, “Yeah . . . I kept the cash. That’s what I’m doing.” For this, he was charged with two counts: making false statements to the FBI and structuring.

The first lesson, of course, is “don’t lie to the FBI.” Ever. It’s not a good idea. Ask Martha Stewart.

But back to structuring. In 1970, Congress passed the Bank Secrecy Act, an anti-money laundering statute that, among other things, requires banks to file Currency Transaction Reports for any deposit or withdrawal of more than $10,000. It is a crime for a person “for the purpose of evading the reporting requirements” to cause a bank to fail to file a report required under the Bank Secrecy Act. 31 U.S.C. § 5324(a). Indeed, the reporting requirements led ultimately to the downfall (but not prosecution) of the infamous Client 9, who, in addition to being a client of a high-priced prostitution ring, also served as the Governor of the State of New York.

The law’s purpose is designed to track down illegal activity. The rationale goes that those who structure their deposits or withdrawals so as to avoid the $10,000 reporting trigger are more likely to be those whose transactions are connected to illegal activity. But that’s certainly not always the case. Maybe, rather than trying to hide currency that is the result of illegal conduct, the goal was to hide the funds from an ex-spouse? Yet the government will have to prove that the former Speaker knew he was trying to avoid the $10,000 reporting trigger. See United States v. MacPherson, 424 F.3d 183, 189 (2d Cir. 2005) (conviction for structuring currency transactions requires that defendant have done so with knowledge that the financial institutions involved were legally obligated to report currency transactions in excess of $10,000).

I suspect that we will eventually find out what “misconduct” Speaker Hastert was trying to hide (if the government’s indictment is to be believed). But the prosecution itself highlights the very real consequences of trying to evade bank reporting requirements . . . and lying about it.

What To Do At Your Federal Sentencing: Lessons Learned from Ex-Virginia Governor McDonnell

Yesterday, former Virginia Governor Bob McDonnell was sentenced to two years in prison following his public corruption conviction for using the governor’s office to help a dietary supplement executive in exchange for loans, gifts, and, as we’ve noted before, a Rolex and a joy ride in a Ferrari. The sentence was significant because it marked a large reduction from the 10 to 12 year sentence recommended by the U.S. Probation Office and the 6 to 8 year sentence that the Court calculated using the Sentencing Guidelines.

So why did the Court grant such a large variance from the Guidelines sentence? Thanks to the Washington Post’s live blog of the sentencing proceedings, we’ve been able to draw some of the following conclusions:

First, character letters count. The defense did a spectacular job presenting the former governor as a decent, faithful, charitable man who has shown great remorse and who has already suffered significantly for his crimes. The defense filed over 440 character letters on McDonnell’s behalf. But it wasn’t the quantity of the support – which was overwhelming – but the content of most of the letters that had an effect on Judge Spencer.

Character letters are critically important to show the human side of a defendant, and to convince the Court that the criminal conduct was an aberration and that the likelihood of recidivism is low. Character letters can also be instrumental in demonstrating the collateral consequences of the conviction. Here, for instance, McDonnell’s supporters were able to tell Judge Spencer that had McDonnell not gotten into this mess, he would have been a front-runner candidate for President of the United States.

However, it’s important to make sure character letters don’t break the cardinal rule of good sentencing advocacy: denying responsibility and blaming others. This is a sure-fire way to irritate the judge. According to reports, Judge Spencer specifically said that, although many of the letters were moving, some “continued to cast blame on others or to see conspirators behind every tree.”

Second, character witnesses may help, too. The answer to the question of whether to call a character witness to testify on a defendant’s behalf is often, “it depends.” Character witnesses may backfire if not properly prepared, particularly if they don’t know the full extent of the underlying criminal conduct or the harm that the defendant may have caused. But McDonnell’s defense team called 11 witnesses to the stand to help further paint the picture of McDonnell as a good human being. It appears, at least in the eyes of defense counsel, that the character testimony mattered, particularly that of former Democratic Governor Doug Wilder, who counsel described as “one of the best defense witnesses I have ever seen.” While we all can’t have former governors testify as character witnesses (not to mention the first African-American governor of any state since Reconstruction), the stature of the witness is far less important than the content of the testimony.

Third, remorse, remorse, remorse. Although the prosecutor today concluded his remarks by stating that the former governor had “shown no true remorse in this case for these crimes,” the former Governor convinced the Court otherwise. McDonnell stood up and asked for mercy for his wife (facing sentencing February 20) and then accepted responsibility for his actions and said he would dedicate the rest of his life to help others.

Fourth, the Sentencing Guidelines are sometimes out of whack. Judge Spencer noted that the Guidelines range of seven or eight years, “would be unfair, it would be ridiculous, under these facts.” The Sentencing Guidelines, which calculate sentencing ranges based upon various factors, including the severity of the crime (which takes into account the financial loss to victims), the defendant’s role in the offense, and the defendant’s criminal history, are now only advisory, but they provide the initial framework for the Court’s sentencing determinations. Yet the Guidelines have steadily (and not necessarily slowly) increased over the years for white collar criminal offenses, resulting in lengthy sentences for first-time criminal defendants convicted of economic crimes. Judge Spencer recognized that “a price must be paid” and that “unlike Pontius Pilate, I can’t wash my hands of it all. A meaningful sentence must be imposed.” But looking at the totality of the circumstances – and thanks to the defense’s skillful use of sentencing letters, witnesses, and the clear articulation of the governor’s remorse – the Court refused to impose the lengthy sentence calculated under the Guidelines.

Former Oriole Swinging for the Fences in Insider Trading Prosecution

The fallout from the Second Circuit’s decision in United States v. Newman continues and threatens to affect not just future enforcement actions, but pending prosecutions. As we have noted before, the Second Circuit in Newman required that a trader / tippee know that an insider disclosed confidential, non-public information and that the insider did so in exchange for a personal benefit. The benefit must be “of some consequence” and more than mere friendship.doug_decinces_autograph

Just a week after the Second Circuit’s ruling, in an insider trading prosecution involving tips relating to a 2009 acquisition by IBM, a court questioned whether there was a sufficient factual basis for guilty pleas that were entered prior to the Second Circuit’s ruling. Others, including Michael Steinberg of SAC Capital Advisors, who was sentenced to three and half years for insider trading (see our coverage here and here) and who received the same flawed jury instruction that the Second Circuit criticized in Newman, may also benefit from the Second Circuit’s decision.

And that’s not all. The decision may touch upon one of the most high-profile insider trading investigations to reach Major League Baseball, the prosecution of former Oriole All-Star third baseman Doug DeCinces and several others. You may recall DeCinces from his two-out, ninth inning walk-off home run from the 1979 season that gave rise to “Orioles Magic.” Or maybe you recall his 1975 Topps rookie baseball card in which he shared real estate with the great Manny Trillo, the second baseman for the 1980 World Champion Phillies.

In any event, the government has alleged that DeCinces received material, non-public information from James Mazzo, the former CEO of Advanced Medical Optics, regarding that company’s pending acquisition by Abbott Laboratories. Although DeCinces is the only MLB player that has been prosecuted from this scheme, the investigation reached the Pantheon of baseball immortality, ensnaring fellow Oriole and Hall of Famer Eddie Murray, who allegedly traded on a tip from DeCinces and ultimately settled with the SEC for over $350,000 (without admitting or denying the allegations). DeCinces similarly settled with the SEC – for $2.5 million – but that didn’t stop federal prosecutors for charging him criminally with insider trading. Continue reading

Supreme Court Denies Review of “Acquitted Conduct” Sentences

A defendant exercises his constitutional right to a jury trial and is proven guilty by a jury of his peers. The jury, confronted with multiple charges against the defendant, weighs the evidence and acquits on all counts, save one for which they find him guilty beyond a reasonable doubt. The judge at sentencing nonetheless sentences the defendant based not just on the one guilty count, but on the acquitted conduct, finding “by a preponderance of the evidence” that although the jury acquitted the defendant of those crimes, he, in fact, committed them and therefore should be sentenced to a much higher sentence as a result (although below the statutory maximum for the offense).

This can’t be right. An appeals court must surely reverse. And if not, the Supreme Court will certainly grant certiorari to fix it, right? Wrong.

Today, the Supreme Court denied certiorari in a case presenting this very question in United States v. Jones, over the dissent of Justices Scalia, Thomas, and Ginsburg (one short of the necessary number to hear the appeal). The facts of the case, as articulated by Justice Scalia, are as follows: Continue reading