DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient


Posted on November 14, 2019, by Mary P. Hansen and Antoinette Snodgrass in DOJ, Insider Trading, SEC. Comments Off on DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient

Last week, the Southern District of New York dropped its prosecution of Richard Lee, a former portfolio manager at SAC Capital who, in 2013, entered a guilty plea to trading on material nonpublic information that he gained from corporate insiders. The court recently ruled that Mr. Lee’s guilty plea must be vacated to conform with the ruling in United States v. Newman, 773 F.3d 438, 450-51 (2d Cir. 2014), abrogated on other grounds by Salman v. United States, 137 S. Ct. 420 (2016). Newman held that a tippee who traded on material nonpublic information must have knowledge that the insider acted for personal benefit in disclosing the information. Thus, in 2017, Mr. Lee moved to withdraw his guilty plea on the grounds that (1) he was innocent; (2) had he known additional information, he would not have pleaded guilty; and (3) his guilty plea was insufficient in light of Newman. Rejecting the first two, the court agreed with Mr. Lee that his guilty plea was insufficient under Newman.

Concurrent to his 2013 guilty plea with the DOJ, Mr. Lee also reached an agreement with the SEC. SEC v. Lee, 13-CV-05185 (RMB) (S.D.N.Y.). On September 12, 2013, the Court in that matter entered a judgment against Lee, enjoining him from future violations of the securities laws, and ordered him to pay disgorgement of $130,144.91, prejudgment interest of $57,777.23, and a civil penalty of $130,144.91. Mr. Lee was also barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical ratings agency.

Prosecutors filed the request to dismiss on the basis that the evidence is now 10 years old and that Mr. Lee settled with the SEC. More specifically, the prosecutors explained that dismissing the pending charges was “in the public interest,” considering that “(1) the amount of time that has passed since the trades at issue and the resulting difficulty in securing evidence related to elements of the charged offenses; and (2) the SEC’s judgment and bar against Lee.”





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