If the Supreme Court Won't Help Stop Insider Trading, Who Will?


Bruce Dorris, J.D., CFE, CPA, CVA
Vice President and Program Director at the ACFE

The Supreme Court's decision not to review a recent insider trading case produces a cloudy precedent for white-collar prosecutions.

The U.S. Supreme Court recently decided that they would not hear the Justice Department's challenge of a major appeals court decision, United States v. Newman, which overturned two counts of insider trading in 2014. The case against former hedge fund managers Todd Newman, of Diamondback Capital Management, and Anthony Chiasson, of Level Global Investors, was initially brought by the U.S Attorney's Office for the Southern District of New York. The government alleged that Newman and Chiasson used a round-robin ring of insider trading tips to earn a combined total of $72 million for their funds.

After a six-week trial on securities-related charges in 2012, a federal district court jury found the defendants guilty on all counts. Newman was sentenced to 54 months in prison, and Chiasson received a sentence of 78 months. In 2014, a three-judge panel of the U.S. Court of Appeals for the Second Circuit overturned the convictions. The Justice Department filed a petition to the Supreme Court to review the case in July 2015.

A conviction for insider trading requires proof that the person who disclosed the information, the tipper, received a "personal benefit." Under some circumstances, a "personal benefit" may be proven if there is a "meaningfully close personal relationship" between the tipper and the tippee. The Second Circuit reversed the convictions based on a very narrow interpretation of the term "personal benefit." The court also found that the Justice Department had not established that there was a "meaningfully close personal relationship" between either Newman or Chiasson (the tippees), and the providers of the insider trading tips (the tippers). The Second Circuit interpreted the 1983 case Dirks v. SEC to mean that for insider trading to have occurred, the providers of the tips must have benefitted from sharing the tips, which, the appellate court wrote, could not be proven.

The jury heard a lot of evidence in six weeks, enough to convict on all counts for each defendant. The Dirks decision gave the fact-finder fair latitude regarding the "objective facts and circumstances" to determine culpability in the case. But the Second Circuit's interpretation will create problems for prosecutors in future cases, as the margin for that connection just shrank. It seems illogical to think that both the tippers and tippees did not see the potential for misuse of the confidential information repeatedly provided over the span in this case. These are not your average investors. These are really smart, sophisticated traders, who understand the nuances in securities law and now appear to have a more vague definition to use as a defense.

Read the full article at Fraud-Magazine.com.

Gil Geis: A Generous Giant


James D. Ratley, CFE
ACFE President and CEO

Gil Geis had every reason to not be humble. As a professor and researcher, he had written more than 28 books, plus 500 articles and book chapters. He was the preeminent successor to Edwin Sutherland, the "father of white-collar crime." He was a friend and colleague of Donald Cressey — another seminal criminologist and namesake of our Cressey Award. But when you saw Gil, he didn't first talk about himself. He wanted to know what was going on in your life.

Gil passed away Nov. 10, 2012, at the age of 87. We've lost one of the pillars of our association. He was there at the beginning as he counseled and mentored ACFE founder and Chairman Dr. Joseph T. Wells, CFE, CPA, me and many others as we formed this little group that offered a distinctive new way to fight fraud. He was thrilled to help meld so many disparate disciplines that eventually would comprise the Certified Fraud Examiner credential. He wrote the criminology section of the ACFE's Fraud Examiners Manual and was the ACFE's president from 1992 until 2002.

Yet, despite his accomplishments, we'll remember him most for his kindness and generosity. "Regardless of a person's status in the field — whether a well-known scholar or a little-known student — Gil would always take the time to stop, talk and take a genuine interest," says Francis T. Cullen, Ph.D., Distinguished Research Professor of Criminal Justice at the University of Cincinnati, in the cover article.

In this issue, we also include an article on Gil's research by one of his disciples, Harry Pontell, Ph.D., plus the first part of one of Gil's last articles, "Unaccountable external auditors: Their roles in the 'Great Economic Meltdown.' " To complete our tribute, we're republishing a chapter from "Contemporary Issues in Crime & Criminal Justice: Essays in Honor of Gilbert Geis," a book that honored Gil on his 75th birthday.

The 17th century British preacher Robert South once said, "If there be any truer measure of a man than by what he does, it must be by what he gives." I think Gil would agree with that. He was a doer, for sure. But he was, more importantly, a giver.

Read more about Geis in Fraud Magazine's cover article in the March/April issue.