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U.S. v. WILLIS
December 2, 1991
UNITED STATES OF AMERICA, PLAINTIFF,
ROBERT HOWARD WILLIS, DEFENDANT.
The opinion of the court was delivered by: Cedarbaum, District Judge.
For the third time, defendant has moved to dismiss the
indictment in this case.*fn1 Familiarity is assumed with my
previous opinion denying defendant's earlier motions. That
opinion is reported at 737 F. Supp. 269 (1990). I shall not
repeat my extensive discussion of the charges set out in the
indictment or of the misappropriation theory of liability under
Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder on which the government relies in
this prosecution. I shall only note that the gravamen of the
charges is that the defendant, who is a practicing
psychiatrist, traded on material, nonpublic information
confided to him by his patient as part of a course of
treatment, and that the indictment charges that the patient
received the information from her insider husband "in a
relationship of trust and confidence." Indictment, ¶ 12.
In my previous opinion, I considered the decision of the
Second Circuit in United States of America v. Robert Chestman,
903 F.2d 75 (2d Cir. 1990) ("Chestman I"). The Second Circuit
has reconsidered Chestman I, and recently issued an in banc
decision, United States of America v. Robert Chestman,
947 F.2d 551 (2d Cir. 1991) ("Chestman II"). Defendant grounds this
motion on his contention that Chestman II requires dismissal of
Thus, the only issue now before me is the effect of
Chestman II on the indictment in this case. Chestman II was not
decided on the face of the indictment, but rather, after a
trial at which the facts were fully developed. I turn first to
the facts proved in that case as stated in the majority opinion
of the Second Circuit.
Robert Chestman is a stockbroker. Keith Loeb
first sought Chestman's services in 1982, when
Loeb decided to consolidate his and his wife's
holdings in Waldbaum, Inc. (Waldbaum), a publicly
traded company that owned a large supermarket
chain. During their initial meeting, Loeb told
Chestman that his wife was a granddaughter of
Julia Waldbaum, a member of the board of directors
of Waldbaum and the wife of its founder. Julia
Waldbaum also was the mother of Ira Waldbaum, the
president and controlling shareholder of Waldbaum.
From 1982 to 1986, Chestman executed several
transactions involving Waldbaum restricted and
common stock for Keith Loeb. To facilitate some of
these trades, Loeb sent Chestman a copy of his
wife's birth certificate, which indicated that his
wife's mother was Shirley Waldbaum Witkin.
On November 21, 1986, Ira Waldbaum agreed to
sell Waldbaum to the Great Atlantic and Pacific
Tea Company (A & P). The resulting stock purchase
agreement required Ira to tender a controlling
block of Waldbaum shares to A & P at a price of
$50 per share. Ira told three of his children, all
employees of Waldbaum, about the pending sale two
days later, admonishing them to keep the news
quiet until a public announcement. He also told
his sister, Shirley Witkin, and nephew, Robert
Karin, about the sale, and offered to tender their
shares along with his controlling block of shares
to enable them to avoid the administrative
difficulty of tendering after the public
announcement. He cautioned them "that [the sale
was] not to be discussed," that it was to remain
In spite of Ira's counsel, Shirley told her
daughter, Susan Loeb, on November 24 that Ira was
selling the company. Shirley warned Susan not to
tell anyone except her husband, Keith Loeb,
because disclosure could ruin the sale. The next
day, Susan told her husband about the pending
tender offer and cautioned him not to tell anyone
because "it could possibly ruin the sale."
The following day, November 26, Keith Loeb
telephoned Robert Chestman at 8:59 a.m. Unable to
reach Chestman, Loeb left a message asking
Chestman to call him "ASAP." According to Loeb, he
later spoke with Chestman between 9:00 a.m. and
10:30 a.m. that morning and told Chestman that he
had "some definite, some accurate information"
that Waldbaum was about to be sold at a
"substantially higher" price than its market
value. Loeb asked Chestman several times what he
thought Loeb should do. Chestman responded that he
could not advise Loeb what to do "in a situation
like this" and that Loeb would have to make up his
That morning Chestman executed several purchases
of Waldbaum stock. At 9:49 a.m., he bought 3,000
shares for his own account at $24.65 per share.
Between 11:31 a.m. and 12:35 p.m., he purchased an
additional 8,000 shares for his clients'
discretionary accounts at prices ranging from
$25.75 to $26.00 per share. One of the
discretionary accounts was the Loeb account, for
which Chestman bought 1,000 shares.
Before the market closed at 4:00 p.m., Loeb
claims that he telephoned Chestman a second time.
During their conversation Loeb again pressed
Chestman for advice. Chestman repeated that he
could not advise Loeb "in a situation like this,"
but then said that, based on his research,
Waldbaum was a "buy." Loeb subsequently ordered
1,000 shares of Waldbaum stock.
Chestman II, 947 F.2d at 555.
Based on the foregoing evidence, the Second Circuit reversed
Chestman's conviction for aiding and abetting Loeb's
misappropriation from his wife ...
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