United States v. McDermott

United States Court of Appeals for the Second Circuit · 2001 · Criminal Law

Criminal LawConspiracyInsider TradingVarianceEvidencesingle conspiracyagreementcollective venture

Facts

McDermott, president of Keefe Bruyette & Woods, had an affair with Kathryn Gannon and made numerous stock recommendations to her. Unbeknownst to McDermott, Gannon was also involved with Anthony Pomponio and passed McDermott's recommendations to him, and Gannon and Pomponio earned substantial trading profits. The government's case against McDermott relied largely on circumstantial evidence, including extensive phone records between McDermott and Gannon and correlations between those calls and Gannon's trades. McDermott and Pomponio were tried together, although the proof showed McDermott had no knowledge of Pomponio's existence.

Issue

Whether the evidence was sufficient to support McDermott's conviction for a single conspiracy with Gannon and Pomponio to commit insider trading, whether the evidence was sufficient on the substantive insider trading counts, and whether the variance between the single conspiracy charged and the proof at trial substantially prejudiced McDermott. The court also considered whether certain evidence concerning Gannon was improperly admitted under Rule 403.

Rule

To prove a single conspiracy, the government must show that each alleged member agreed to participate in what he knew to be a collective venture directed toward a common goal; liability is limited to the fair import of the agreement as the defendant understood it. A variance between the single conspiracy charged and the proof at trial requires reversal only if it caused substantial prejudice, evaluated by factors including a Pinkerton charge, use of statements by non-conspirators, spillover from joined defendants, and inflammatory evidence. Substantive insider trading may be proved by circumstantial evidence showing that a defendant passed material, non-public information in breach of fiduciary duty. Under Rule 403, courts must realistically balance probative value against unfair prejudice.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Park, a corporate accountant in Chicago, secretly gives quarterly earnings information to her boyfriend, Leo Moran, expecting only Leo to trade. Without telling Nina, Leo forwards the tip to his cousin Tessa in Milwaukee, who also trades profitably.

If prosecutors charge Nina with a single conspiracy involving both Leo and Tessa, what is the strongest argument for Nina's acquittal on that conspiracy charge?

Explanation. A single conspiracy requires proof that each alleged member agreed to participate in what she knew to be a collective venture directed toward a common goal. Liability is limited to the fair import of the agreement as the defendant understood it. If Nina's agreement extended only to Leo, and she had no knowledge of Tessa or any broader plan, the proof is insufficient to show a single conspiracy including Tessa. The majority opinion rejects defining conspiracy by overall purpose alone rather than by the defendant's own agreement.