United States v. Jiau ( 2013 )

11-4167(L)
United States v. Jiau
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2012
(Argued: April 10, 2013 Decided: October 23, 2013)
Docket Nos. 11-4167(Lead), 12-2222(Con)
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UNITED STATES OF AMERICA,
Appellee,
-- v. --
WINIFRED JIAU, aka WINI, aka SEALED DEFENDANT 1,
Defendant-Appellant,
DONALD LONGUEUIL, SON NGOC NGUYEN, aka SONNY,
Defendants.
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B e f o r e : KEARSE, WALKER, and CHIN, Circuit Judges.
Winifred Jiau appeals her conviction for conspiracy and
insider trading in the District Court for the Southern District of
New York (Rakoff, J.), asserting that evidence at trial was
admitted in error and insufficient to support her conviction. We
agree with the district court that telephone conversations with a
co-conspirator, which were recorded in the ordinary course of
business, were admissible, and that evidence of non-pecuniary
benefits conferred upon the tippers was sufficient to prove that
the tippers had personally benefited from the insider trading
conspiracy. CONVICTION AFFIRMED.
RANDA D. MAHER, Law Office of Randa
Maher, Great Neck, New York, and
Winifred Jiau, pro se, Dublin,
California, for Appellant.
DAVID I. MILLER (Jenna M. Dabbs and
Diane Gujarati, Assistant United
States Attorneys, on the brief), for
Preet Bharara, United States
Attorney for the Southern District
of New York, New York, NY, for
Appellee.
JOHN M. WALKER, JR., Circuit Judge:
Defendant-Appellant Winifred Jiau was convicted, following a
jury trial in the District Court for the Southern District of New
York (Jed Rakoff, Judge), of conspiracy to commit securities fraud
and wire fraud, in violation of 18 U.S.C. § 371, and insider
trading, in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R.
§ 240.10b-5 and 18 U.S.C. § 2. This opinion addresses Jiau’s
claims on appeal that (1) the district court erred in admitting
evidence that she claims was recorded in violation of Title III of
the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C.
§§ 2510-22 (“Title III”), and (2) the evidence against her was
insufficient. We reject these arguments and affirm the conviction.1
I. BACKGROUND
From September 2006 to December 2008, Jiau operated an insider
trading scheme that involved a pair of tippers who worked at
publicly-traded companies, Son Ngoc Nguyen of NVIDIA Corporation
and Stanley Ng of Marvell Technology Group, Ltd., and a pair of
tippees who were hedge fund managers, Samir Barai of Tribeca
1
Jiau’s other arguments on appeal, including those challenging
certain orders that we vacate, are addressed in a summary order filed
simultaneously with this opinion.
2
Capital Management and later Barai Capital Management (“BCM”) and
Noah Freeman of Sonar Capital Management and later SAC Capital.
Jiau worked as a contract employee at NVIDIA and as a consultant
who provided information about the semiconductor industry to
financial analysts. At each of those jobs, she was aware of the
rules against disclosing material non-public information.
Jiau’s scheme was to obtain from her tippers earnings data of
their employer companies and convey this data to her tippees before
those companies’ quarterly financial results were publicly released.
The tippees compared the data with Wall Street analysts’ published
expectations and unpublished rumors known as the “whisper.” If the
data indicated that earnings would fail to meet expectations, the
tippees would “go short” by selling their stock positions in the
companies before the financial reports were made public. If the
data showed that earnings would likely exceed Wall Street’s
expectations, the tippees would “go long” by buying the stock.
To provide an incentive, Jiau promised the tippers insider
information for their own private trading. She also engaged in her
own insider trading. After a three-week trial, a jury convicted
Jiau of conspiracy to engage in insider trading and one substantive
count of insider trading. On September 21, 2011, the district
court sentenced her to 48 months’ imprisonment and ordered a
forfeiture of $3.118 million. This appeal followed.
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II. Discussion
A. Motion to Suppress
Before trial, Jiau moved to suppress recordings of certain
telephone conversations with the tippees that Barai had his
subordinates record or transcribe as contemporaneous instant
message notes. She asserted that the recordings and transcriptions
were inadmissible under Title III, 18 U.S.C. §§ 2510-22. After
holding a suppression hearing, the district court denied the
motion, ruling that the recordings and transcriptions were not
barred by Title III. United States v. Jiau, 794 F. Supp. 2d 484(S.D.N.Y. 2011).
We review a district court’s ruling on a motion to suppress
for clear error as to the facts and de novo on questions of law,
United States v. Rodriguez, 356 F.3d 254, 257 (2d Cir. 2004), and
pay special deference to the district court’s factual
determinations going to witness credibility, Bennett v. United
States, 663 F.3d 71, 85 (2d Cir. 2011).
Title III generally prohibits the interception or wiretapping
of electronic communications not authorized by a court of law or
permitted by one of the statute’s exceptions. 18 U.S.C. § 2511.
Among the exceptions permitting interceptions is one for a
recording that is made “in the ordinary course of . . . business.”
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18 U.S.C. § 2510(5)(a)(i).2 A separate statutory exception permits
a party to the communication, who is not acting under the color of
law, to make the recording himself or consent to the recording. 18
U.S.C. § 2511(2)(d). This latter exception does not apply,
however, “if the communication is intercepted for the purpose of
committing any criminal or tortious act in violation of the
Constitution or laws of the United States or any State.” Id.
Recordings in violation of Title III are inadmissible as evidence.
18 U.S.C. § 2515; United States v. Horton, 601 F.2d 319, 324 (7th
Cir. 1979); Fleming v. United States, 547 F.2d 872, 874 (5th Cir.
1977). The question presented here is whether, when a call is made
in furtherance of an insider trading conspiracy but is recorded in
the ordinary course of business, the recording is inadmissible
under Title III.
It is undisputed that Barai had a hearing impairment, and
consented to his subordinates listening in on, recording, or
transcribing his telephone conversations for his and their benefit.3
2
The term “intercept” is defined under Title III as the
“acquisition of the contents of any wire, electronic, or oral
communication through the use of any electronic, mechanical, or other
device.” 18 U.S.C. § 2510(4). A carve-out in the definition of
“electronic, mechanical, or other device” exempts recordings made in
the ordinary course of business from Title III’s prohibition. 18
U.S.C. § 2510(5) (defining “electronic, mechanical, or other device”
as “any device or apparatus” capable of intercepting wire
communications other than “any telephone or telegraph instrument,
equipment or facility, or any component thereof” used by a subscriber
of such service in the “ordinary course of [the subscriber’s]
business”).
3
Jiau, in her pro se reply brief, alleges that the government had
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The recordings and transcriptions were therefore made in the
ordinary course of business and therefore admissible under
§ 2510(5)(a)(i). See Arias v. Mut. Cent. Alarm Serv., Inc., 202
F.3d 553, 559 (2d Cir. 2000) (finding ordinary course exception
applicable where “[l]egitimate business reasons support the . . .
recording of [such] calls”); see also 18 U.S.C. § 2510(5)(b)
(permitting recordings made through “a hearing aid or similar
device being used to correct subnormal hearing to not better than
normal”). The recordings were also made with the consent of Barai,
a party to the communication, and therefore admissible under
§ 2511(2)(d).
Jiau argues that the interceptions were made in furtherance of
illegal insider trading and inadmissible because Barai would not
have been able to understand the insider information without the
recordings. This argument conflates the purpose of the
communications with the purpose of the recordings. It is the
learned from a proffer by Barai on March 17, 2011 that Kurt Haatch,
his assistant, made the recordings on his own accord, that the
recordings were not made in the ordinary course of business, and that
Jason Pflaum, who later discovered Haatch’s recordings, had not made
any recordings himself. This information, she contends, constitutes
exculpatory material that was not disclosed by the government until
her sentencing. She argues further that since Freeman was also on the
calls, Barai did not need another person to listen in on, record, or
transcribe the calls. Jiau’s principal brief on appeal does not raise
these arguments, nor does the government address them. After
reviewing the record, we find no clear error in the district court’s
finding that Haatch had recorded two calls so Barai could have “all
the details” and that Barai asked Pflaum to listen in on other calls.
Jiau, 794 F. Supp. 2d at 487. In any event, there is no evidence to
suggest the recordings and transcriptions were made with the intent to
harm Jiau.
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latter that controls. Notwithstanding that some of Barai’s
recorded calls were made to carry out illegal insider trading, in
deciding whether a violation of Title III occurred, we look to why
the calls were recorded and not why the calls were made. The
carve-out within § 2511(2)(d), which renders inadmissible consented
recordings made for the purpose of perpetrating “criminal” or
“tortious” acts, is to be construed narrowly. It is confined to
instances where the recording party intends to use the recording to
harm or injure a recorded party, such as to blackmail, threaten, or
publicly embarrass the recorded party. See In re DoubleClick Inc.
Privacy Litig., 154 F. Supp. 2d 497, 514-15 (S.D.N.Y. 2001)
(summarizing the legislative intent and history of § 2511(2)(d) and
related case law). Hence, a Title III violation exists “if, at the
time of the recording, the [recording party] plans to use the
recording to harm the other party to the conversation.” Caro v.
Weintraub, 618 F.3d 94, 100 (2d Cir. 2010). On the other hand,
“[i]f, at the moment he hits ‘record,’ the offender does not intend
to use the recording for criminal or tortious purposes [against the
other party], there is no violation.” Id. In summary, the fact
that an illegal enterprise was discussed in the recorded
conversation is not determinative of a violation under
§ 2511(2)(d), United States v. McTiernan, 695 F.3d 882, 890 (9th
Cir. 2012), because we look to the “intended use of the recordings”
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to determine the purpose of the recording. In re High Fructose
Corn Syrup Antitrust Litig., 216 F.3d 621, 626 (7th Cir. 2000).
When Barai’s subordinates made the recordings and
transcriptions, there was no indication that they intended to use
the interceptions to harm Jiau, unlike in United States v. Vest,
where a Title III violation was found because the recording was
made to blackmail the recorded official to ensure his performance
of his agreed role in a bribery scheme. 639 F. Supp. 899, 905-08
(D. Mass. 1986). Hence, the recordings and transcriptions at issue
are also not inadmissable under § 2511(2)(d).
B. Sufficiency of Evidence
Jiau contends that the evidence at trial was insufficient to
prove that (a) her tippers personally benefited from their
disclosure of insider information; (b) Barai’s firm acted on her
information to carry out trades of Marvell stock on May 23 and 27-
29, 2008; and (c) the information she supplied to her tippees met
the materiality requirement of the securities laws.
We review the sufficiency of the evidence de novo and ask
“whether, after viewing the evidence in the light most favorable to
the prosecution, any rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt.” United
States v. Espaillet, 380 F.3d 713, 718 (2d Cir. 2004) (quotation
marks omitted). “[A] judgment of acquittal” is warranted “only if
the evidence that the defendant committed the crime alleged is
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nonexistent or so meager that no reasonable jury could find guilt
beyond a reasonable doubt.” Id. (quotation marks omitted). Ample
evidence supported each of the contested factual findings.
To hold Jiau criminally liable for insider trading, the
government had to prove each of the following elements beyond a
reasonable doubt: (1) the insider-tippers (Nguyen and Ng) were
entrusted the duty to protect confidential information, which (2)
they breached by disclosing to their tippee (Jiau), who (3) knew of
their duty and (4) still used the information to trade a security
or further tip the information for her benefit, and finally (5) the
insider-tippers benefited in some way from their disclosure. See
Dirks v. SEC, 463 U.S. 646, 659-64 (1983); SEC v. Obus, 693 F.3d
276, 289 (2d Cir. 2012).
1. Tippers’ breach of duty and benefit
Jiau argues that the evidence was insufficient to establish
that her two insider-tippers, Nguyen and Ng, benefited personally
from the disclosures they made to her. Instead, she asserts, the
trial evidence showed only that Nguyen gave her NVIDIA’s earnings
data “out of sheer desperation” to stop her relentless pestering of
him for information and Ng shared similar data from Marvell because
he was lonely and valued her friendship. Appellant Reply Br. 7.
These arguments are unavailing.
“Personal benefit” is “broadly defined . . . [to] include[]
not only ‘pecuniary gain,’” Obus, 693 F.3d at 285 (quoting Dirks,
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463 U.S. at 663), but also, inter alia, any “reputational benefit
that will translate into future earnings,” Dirks, 463 U.S. at 663,
and “the benefit one would obtain from simply ‘mak[ing] a gift of
confidential information to a trading relative or friend.’” Obus,
693 F.3d at 285 (quoting Dirks, 463 U.S. at 664). The existence of
“a relationship between the insider and the recipient that suggests
a quid pro quo from the latter, or an intention to benefit the
[latter]” may be sufficient to justify an inference of personal
benefit. Id. at 664.
The benefits to Nguyen from tipping were manifold. Jiau
treated him to meals at restaurants and gave him gifts including an
iPhone, live lobsters, a gift card, and a jar of honey. She also
provided Nguyen with insider information about other stocks and the
two formed an investment club.
The evidence of personal benefit to Ng, while less abundant,
is no less dispositive on this issue. Nguyen testified that Jiau
asked him to recruit others into their investment club and he
invited Ng, because Ng liked to trade stocks and had access to
inside information at Marvell. The fact that Ng did not receive
any tips from Jiau’s investment club in return for the tips he gave
is of no moment. In joining the investment club, Ng entered into a
relationship of quid quo pro with Jiau, and thus had the
opportunity to access information that could yield future pecuniary
gain. The proof required to show personal benefit to the tipper is
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modest and is satisfied with respect to both Nguyen and Ng. See
Obus, 693 F.3d at 292 (“In light of the broad definition of
personal benefit set forth in Dirks, this [evidentiary] bar is not
a high one.”).
2. Jiau’s information as the basis for BCM’s
trades in Marvell stock in late May 2008
Jiau denies that BCM used insider information from her to
trade Marvell shares in late May 2008, contending that (a) BCM was
also getting insider information from another tipper, Tai Nguyen;
(b) too little time had elapsed between the time of her phone call
with Barai, who was not in the office on May 23, and the first of
BCM’s orders for Marvell stock; (c) there was no evidence of any
directives from Barai to his staff to make the trades; and (d) BCM
analysts reacted with disbelief to the information she provided and
therefore could not have acted on it. Her arguments ignore and
misinterpret the record evidence, including Jason Pflaum’s
confirmation that the Marvell orders were placed right after the
May 23 phone call, Barai’s expression of gratitude to Jiau on May
29, and Tai Nguyen’s lack of information about Marvell (he supplied
information about NVIDIA). The surprise that the BCM analysts
expressed in reaction to her information could reasonably have been
understood by the jury as astonishment at the gap between Wall
Street’s expectations and the data she reported, which they
nevertheless exploited to build a large position in Marvell. When
viewed in the light most favorable to the government, the evidence
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at trial was easily sufficient for the jury to find that the
essential elements of the insider trading offense had been
established.
3. Materiality of Jiau’s information
Finally, Jiau asserts the government should have called an
expert to explain whether the insider information she provided was
actually material to a reasonable investor. While the decision of
whether to admit or exclude expert testimony is left to the sound
discretion of the district court, Gen. Elec. Co. v. Joiner, 522
U.S. 136, 142-43 (1997), expert testimony that seeks to address
“lay matters which [the] jury is capable of understanding and
deciding without the expert’s help” is not relevant and is
therefore inadmissible, Andrews v. Metro N. Commuter R.R. Co., 882
F.2d 705, 708 (2d Cir. 1989).
In this case, no expert testimony was necessary to help the
jury interpret the materiality of the insider information Jiau
provided to her tippees. The surprise professed by BCM analysts in
reaction to her information regarding Marvell and the trades they
made to exploit that information could have conclusively
demonstrated materiality. Basic Inc. v. Levinson, 485 U.S. 224,
231-32 (1988) (defining materiality as whether a reasonable
investor would have viewed the undisclosed information as having
“significantly altered the total mix of information made available”
(quotation marks omitted)). The jurors did not need an expert to
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tell them that the information Jiau revealed made a noticeable
difference in the investors’ thinking that was manifested in the
reaction of the BCM analysts and their subsequent trading.
III. CONCLUSION
For the foregoing reasons, and for those set forth in the
accompanying summary order, the judgment of conviction and
sentence, apart from the order of forfeiture, are AFFIRMED. As
discussed in the accompanying summary order, the order of
forfeiture and the order denying Jiau’s 2012 pro se Rule 33 motion
are VACATED and the case is REMANDED for further proceedings.
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