In The Courts

Second Circuit Considers Venue and Conspiracy Implications of Remote Insider 'Tipees'

In United States v. Geibel, 2004 WL 1178779 (2d Cir. May 28, 2004), the Court of Appeals considered several arguments on appeal raised by three remote 'tipees' in an insider trading conspiracy, who were convicted after trial. In Geibel, the originator of the inside information had worked at two New York investment banking firms, and made arrangements with a number of people to share information about mergers and acquisitions in return for receiving a percentage of profits on the resulting trades. The originator did not know, however, that at least one of the individuals with whom he shared his information was in turn sharing his tips with other individuals, including a stock broker in Bowling Green, KY, who in turn shared the information with some of his clients. The only three defendants, or 'tipees,' in Geibel were the stock broker and two of his clients.

First, the three tipees argued that their convictions for conspiracy to commit insider trading should be reversed because the indictment had charged them as being in a common conspiracy with the originator of the inside information. The Court of Appeals agreed that the originator of the information was not a member of the conspiracy, because the originator had been unaware of the existence of these downstream tipees, and had actively sought to limit the distribution of the information. However, the Court of Appeals upheld the conviction for conspiracy to commit insider trading because the defendants were not substantially prejudiced by the resulting variance with the indictment. Because of the chain of conspiracy up the ladder, almost all of the same evidence would have been admitted even without the inclusion of the originator in the conspiracy.

Second, the defendants argued that their convictions for conspiracy to commit insider trading, and insider trading should be vacated because venue in New York had been improper. The Court of Appeals found venue in New York to be proper with respect to the conspiracy count, because venue for a conspiracy charge is proper 'in any district in which an overt act in furtherance of the conspiracy was committed by any of the coconspirators.' Because the stockbroker had contacts with New York in the course executing the conspiracy, venue was proper as to the conspiracy among him and his two clients. However, the Court of Appeals found that New York was not the proper venue for the overwhelming majority of the individual insider trading counts. Although the originator of the inside information was based in New York, the court held that venue could not be grounded 'merely on [the] initial misappropriation and the fact that the information originated in New York.'

Second Circuit Considers Venue and Conspiracy Implications of Remote Insider 'Tipees'

In United States v. Geibel, 2004 WL 1178779 (2d Cir. May 28, 2004), the Court of Appeals considered several arguments on appeal raised by three remote 'tipees' in an insider trading conspiracy, who were convicted after trial. In Geibel, the originator of the inside information had worked at two New York investment banking firms, and made arrangements with a number of people to share information about mergers and acquisitions in return for receiving a percentage of profits on the resulting trades. The originator did not know, however, that at least one of the individuals with whom he shared his information was in turn sharing his tips with other individuals, including a stock broker in Bowling Green, KY, who in turn shared the information with some of his clients. The only three defendants, or 'tipees,' in Geibel were the stock broker and two of his clients.

First, the three tipees argued that their convictions for conspiracy to commit insider trading should be reversed because the indictment had charged them as being in a common conspiracy with the originator of the inside information. The Court of Appeals agreed that the originator of the information was not a member of the conspiracy, because the originator had been unaware of the existence of these downstream tipees, and had actively sought to limit the distribution of the information. However, the Court of Appeals upheld the conviction for conspiracy to commit insider trading because the defendants were not substantially prejudiced by the resulting variance with the indictment. Because of the chain of conspiracy up the ladder, almost all of the same evidence would have been admitted even without the inclusion of the originator in the conspiracy.

Second, the defendants argued that their convictions for conspiracy to commit insider trading, and insider trading should be vacated because venue in New York had been improper. The Court of Appeals found venue in New York to be proper with respect to the conspiracy count, because venue for a conspiracy charge is proper 'in any district in which an overt act in furtherance of the conspiracy was committed by any of the coconspirators.' Because the stockbroker had contacts with New York in the course executing the conspiracy, venue was proper as to the conspiracy among him and his two clients. However, the Court of Appeals found that New York was not the proper venue for the overwhelming majority of the individual insider trading counts. Although the originator of the inside information was based in New York, the court held that venue could not be grounded 'merely on [the] initial misappropriation and the fact that the information originated in New York.'