The opinion of the court was delivered by: Richard J. Holwell, District Judge:
MEMORANDUM OPINION AND ORDER
On May 11, 2011, a jury found defendant Rajaratnam guilty of five counts of conspiracy to commit securities fraud and nine counts of securities fraud. Before the Court is Rajaratnam's renewed motion pursuant to Federal Rule of Criminal Procedure 29 for a judgment of acquittal on all counts. For the following reasons, the motion is denied in its entirety.
On January 20, 2011, a grand jury returned a second superseding indictment charging Rajaratnam with five counts of conspiring to trade on the basis of inside information and nine substantive counts of insider trading. Trial began on March 8, 2011 and continued for eight weeks. The evidence adduced at trial is summarized in relevant part below.
On April 6, 2011, at the close of the government's case, Rajaratnam moved pursuant to Rule 29 for judgment of acquittal on all counts. (See Tr. 3684.) The Court reserved decision on the motion pursuant to Federal Rule of Criminal Procedure 29(b). On April 18, 2011, at the close of the evidence, Rajaratnam renewed his motion for judgment of acquittal on all counts. (See Tr. 5142.) The Court again reserved decision.
On May 11, 2011, the jury found Rajaratnam guilty on all counts. On May 25, 2011, Rajaratnam again renewed his motion  for judgment of acquittal on all counts.
Under Rule 29, "the court on the defendant's motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." Fed. R. Crim. P. 29(a). "A district court may enter a judgment of acquittal on this basis only if 'after viewing the evidence in the light most favorable to the prosecution and drawing all reasonable inferences in the government's favor, it concludes no rational trier of fact could have found the defendant guilty beyond a reasonable doubt.'" United States v. Ghailani, 761 F. Supp. 2d 167, 171 (S.D.N.Y. 2011) (quoting United States v. Reyes, 302 F.3d 48, 52 (2d Cir. 2002)). Put another way, "the court may enter a judgment of acquittal only if the evidence that the defendant committed the crime alleged [must be] nonexistent or so meager that no reasonable jury could find guilt beyond a reasonable doubt in order for a court to acquit." United States v. Guadagna, 183 F.3d 122, 130 (2d Cir. 1999) (internal quotation marks omitted).
This "standard places a heavy burden on the defendant. . . ." United States v. Bullock, 550 F.3d 247, 251 (2d Cir. 2008). And this is particularly true in a conspiracy case where "deference to the jury's findings is especially important . . . because a conspiracy by its very nature is a secretive operation, and it is a rare case where all aspects of a conspiracy can be laid bare in court with the precision of a surgeon's scalpel." United States v. Santos, 541 F.3d 63, 70 (2d Cir. 2008).
"The essence of conspiracy is the agreement and not the commission of a substantive offense." United States v. Gore, 154 F.3d 34, 40 (2d Cir. 1998). "The prosecution must establish three elements in order to prove a conspiracy: (1) an agreement between two or more persons to commit an unlawful act; (2) the defendant's knowing and intentional membership in the conspiracy; and (3) the commission of an 'overt act' in furtherance of the conspiracy." United States v. Hamilton, 538 F.3d 162, 174 (2d Cir. 2008). With respect to the first two elements, "the government must show that two or more persons entered into a joint enterprise for an unlawful purpose, with awareness of its general nature and extent." United States v. Torres, 604 F.3d 58, 65 (2d Cir. 2010). That is, "[t]he record must . . . permit a rational jury to find: (1) the existence of the conspiracy charged, (2) that the defendant had knowledge of the conspiracy, and (3) that the defendant intentionally joined the conspiracy." Santos, 541 F.3d at 70 (internal citations omitted). "Both the existence of a conspiracy and a given defendant's participation in it with the requisite knowledge and criminal intent may be established through circumstantial evidence." United States v. Stewart, 485 F.3d 666, 671 (2d Cir. 2007). "However, in order to prove conspiracy . . . it is also true that the Government must show 'more than evidence of a general cognizance of criminal activity, suspicious circumstances, or mere association with others engaged in criminal activity.'" United States v. Ogando, 547 F.3d 102, 107 (2d Cir. 2008) (quoting United States v. Samaria, 239 F.3d 228, 233 (2d Cir. 2001)). Nevertheless, "coconspirators need not have agreed on the details of the conspiracy, so long as they agreed on the essential nature of the plan." United States v. McDermott, 245 F.3d 133, 137 (2d Cir. 2001). In the context of a multi-level conspiracy to trade on the basis of inside information, these principles mean that "the most basic element of a single conspiracy" is "an agreement to pass inside information to [an immediate tippee] and possibly to another person, even if unknown." Id. at 138.
Section 10(b) of the Securities Exchange Act of 1934 makes it . . . unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange--(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b). Rule 10b--5 promulgated by the SEC makes it . . . unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud. . . .
17 CFR § 240.10b--5(a) (1996).
Section 10(b) and Rule 10b-5 "are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a 'deceptive device' under § 10(b) . . . because 'a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation.'" United States v. O'Hagan, 521 U.S. 642, 651-52 (1997) (brackets in original) (quoting Chiarella v. United States, 445 U.S. 222, 228 (1980)).
"The ambit of Rule 10b-5's prohibition on insider trading extends beyond the insiders who themselves have a fiduciary duty, but also to the 'tippee' recipients of insider information from those who are insiders." SEC v. Ballesteros Franco, 253 F. Supp. 2d 720, 726 (S.D.N.Y. 2003). "An individual is liable as a tippee under Rule 10b-5 if (1) the tipper possessed material nonpublic information regarding a publicly trade company; (2) the tipper disclosed this information to the tippee; (3) the tippee traded in securities while in possession of the information; (4) the tippee knew*fn1 . . . that the tipper had violated a fiduciary duty by providing the information to the tippee; and (5) the tippee benefitted from the disclosure of the information by the tipper." Id. (citing SEC v. Warde, 151 F.3d 42, 47 (2d Cir. 1998)).
"Information is material if 'there is a substantial likelihood that a reasonable [investor] would consider it important in deciding how to [invest].'" Id. (brackets in original) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988)); see also United States v. Cusimano, 123 F.3d 83, 88 (2d Cir. 1997) ("It is well settled that in order for information to be material' for purposes of § 10(b) and Rule 10b-5, there must be a substantial likelihood that a reasonable investor would view it as significantly altering the 'total mix' of information available."). "This inquiry is guided both by the probability that an event will occur and the anticipated magnitude of the event relative to the totality of the company's activity." Id.
"Information becomes public when disclosed 'to achieve a broad dissemination to the investing public generally and without favoring any special person or group,'" SEC v. Mayhew, 121 F.3d 44, 50 (2d Cir. 1997) (quoting Dirks, 463 U.S. at 653 n.12), "or when, although known only by a few persons, their trading on it 'has caused the information to be fully impounded into the price of the particular stock.'" Mayhew, 121 F.3d at 50 (quoting United States v. Libera, 989 F.2d 596, 601 (2d Cir. 1993)). "The issue is not the number of people who possess it but whether their trading has caused the information to be fully impounded into the price of the particular stock." Id. Thus "information may be considered public for Section 10(b) purposes even though there has been no public announcement and only a small number of people know of it." Id. That is because "[o]nce the information is fully impounded in price, such information can no longer be misused by trading because no further profit can be made." Id.
In addition, "[t]o constitute non-public information under the act, information must be specific and more private than general rumor." United States v. Mylett, 97 F.3d 663, 666 (2d Cir. 1996). Hence it is not the law that "any predictions made by an insider can constitute the basis for insider trading simply because a tippee relies upon them and their source, and they subsequently come true." Id.
As for the required benefit to the insider/tipper, it can be financial or tangible: "there may be a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the particular recipient." Dirks, 463 U.S. at 664. However, "[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend." Id. In that case, "[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient." Id.
Finally, the Court is persuaded by Judge Sweet's decision in State Teachers Retirement Board v. Fluor Corporation, 592 F. Supp. 592, 594 (S.D.N.Y. 1984), that "knowledge of tipper breach [of fiduciary duty] . . . necessitates tippee knowledge of each element, including the personal benefit, of the tipper's breach." Id. at 594 (emphasis in original). The Court reaches that conclusion because, under the Supreme Court's decision in Dirks v. SEC, 463 U.S. 646 (1983), "[d]erivative liability can attach only if the tippee recognizes that the relationship between tipper and tippee is such that the tippee has effectively become a participant after the fact in the insider's breach.'" Fluor Corp., 592 F. Supp. at 594-95 (quoting Dirks, 463 U.S. at 659). "Consequently, unless the tippee knew . . . that the tipper had satisfied the elements of tipper liability, the tippee cannot be said to be a knowing participant in the tipper's breach." Fluor Corp., 592 F. Supp. at 595.*fn2 The Court so instructed the jury here.
1.Count One: The Galleon Conspiracy
Count One charged Rajaratnam with conspiring with certain then-current and former Galleon employees, and others, to commit insider trading. With respect to this count, the government presented evidence that Rajaratnam agreed to trade on the basis of inside information he had received from several sources.
First, the government sought to prove that Rajaratnam conspired to trade on the basis of inside information he received from Adam Smith, a Galleon analyst and portfolio manager with whom he worked closely. Smith himself testified that he tipped Rajaratnam to inside information regarding merger activity at Integrated Circuit Systems (ICST), ATI Technologies, Inc. ("ATI"), and Vishay Intertechnology Inc ("Vishay"). Smith testified that he had learned this information from Kamal Ahmed, an investment banker at Morgan Stanley which served (or bid for contracts to serve) as a financial advisor in transactions with those companies. This testimony was corroborated at least in part by a wiretapped phone call in which Smith told Rajaratnam that "Kamal" had told him that Morgan Stanley had bid to work on a transaction involving Vishay. (GX 692, 692T.) Smith also testified that Rajaratnam told him that he called Kris Chellam, an executive at Xilinx who later joined Galleon, to obtain Xilinx's revenue and earnings data before the company publicly announced that information. (Tr. 2614-15).
"The law is well established that a federal conviction may be supported 'by the uncorroborated testimony' of even a single accomplice witness 'if that testimony is not incredible on its face and is capable of establishing guilt beyond a reasonable doubt.'"
United States v. Florez, 447 F.3d 145, 155 (2d Cir. 2006) (quoting United States v. Parker, 903 F.2d 91, 97 (2d Cir. 1990)). In addition, "[b]oth the existence of a conspiracy and a given defendant's participation in it with the requisite knowledge and criminal intent may be established through circumstantial evidence." Stewart, 485 F.3d at 671. A reasonable jury could have found Rajaratnam guilty as to Count One on the basis of Smith's testimony alone.
Rajaratnam argues that "there is no evidence before the jury . . . that Mr. Rajaratnam knew this was anything other than a routine channel check . . . that Mr. Smith was supposed to be doing as an analyst and later a portfolio manager at Galleon." (Tr. 3686.) Rajaratnam is incorrect. For one, Smith testified that he understood Rajaratnam to have been aware that he was receiving inside information. For another, Smith's reference to "Kamal" by his first name in the wiretapped call regarding Vishay suggested that Rajaratnam knew who "Kamal" was. Indeed, Smith testified that it was his understanding that Rajaratnam knew that "Kamal" was Kamal Ahmed and that he and Rajaratnam had never discussed any other person named Kamal. (Tr. 2604.)
What is more, the government introduced several e-mails in which Smith referred to ICST and its putative merger partner Integrated Device Technology ("IDT") as the "Eyes." (GX 2454, 2455, 2456.) Two of the e-mails contained phrases such as "we are still on track" and "game on" that appeared to refer to the progress of a transaction. A third e-mail referred to "May 16" and the government introduced a contemporaneous e-mail received by Ahmed indicating that the company planned to announce the merger on that date. (GX 2457.) The cryptic homonym in these e-mails appears to suggest that Smith felt a need to conceal the names of the companies and that Rajaratnam would understand the code-two facts from which the jury could infer that Smith and Rajaratnam had secret information. Indeed, Smith testified that he used the code name to conceal the names of ICST and IDT and that Rajaratnam generally instructed him and others at Galleon to be vague when communicating sensitive information in writing. (Tr. 2498, 2502, 2597). Smith also testified that Rajaratnam asked him to send e-mails to establish a written record of "a reason other than the acquisition to buy the stock of" ATI. (Tr. 2597; see also GX 2402.)
The government also sought to prove that Rajaratnam conspired to trade on the basis of inside information he received from Rajat Gupta, a member of the board of directors of Goldman Sachs. Specifically, the government sought to prove that Gupta tipped Rajaratnam regarding (1) Berkshire Hathaway's agreement on September 23, 2008 to invest $5 billion in Goldman Sachs during the onset of the financial crisis; and (2) Goldman Sachs's intention to announce losses for the third quarter of 2008-the first time that the firm had ever posted a loss.
On that score, the government presented evidence that Gupta called Rajaratnam just seconds after Goldman Sachs board meetings at which the Berkshire Hathaway investment and unprecedented losses had been discussed, and that Rajaratnam traded Goldman Sachs shares just minutes after his calls with Gupta. The government also introduced three wiretapped calls. In the first, Gupta told Rajaratnam about information discussed at a Goldman Sachs board meeting, statements which suggest that Gupta was willing to disclose the inner workings of the Goldman board. (GX 534, 534TR.) In the second call, Rajaratnam told George Lau, a Galleon employee based in Singapore, that he had received a call at 3:58 P.M.-the exact time that Gupta called following a board meeting at which the Berkshire Hathaway investment was approved-"saying something good might happen to Goldman." (GX 627, 627TR.) And in the third call, Rajaratnam stated that he "heard yesterday from somebody who is on the board of Goldman Sachs that they are going to lose $2 per share." (GX 678, 678T.)
Rajaratnam argues that relying on the calls and trading records without any direct evidence of the content of the calls asks the jury to engage in impermissible speculation. (Tr. 3688.)However, the Court of Appeals has rejected that proposition. See McDermott, 245 F.3d 133.
In McDermott, the Second Circuit considered the insider trading conviction of McDermott, a corporate executive, for tipping Gannon, with whom he was having an affair. Neither McDermott nor Gannon (nor Pomponio, whom Gannon tipped during the course of another affair) testified. Rather, "[t]he Government built its case against McDermott almost entirely on circumstantial evidence linking records of telephone conversations between McDermott and Gannon with records of Gannon's and Pomponio's trading activities." Id. at 136. Specifically, the government presented evidence
(1) that McDermott and Gannon were having an affair involving incessant telephone conversations; (2) that Gannon, who was up until this point an amateur trader, opened a trading account funded by monies given to her by McDermott; (3) that during the alleged conspiracy period, Gannon traded twenty-one times in twelve different stocks based upon McDermott's recommendations; (4) that Gannon traded in non-blue chip stocks, many of which were banks subject to non-public negotiations with [McDermott's company]; (5) that Gannon was quite successful in her trading and in the timing of her trades; (6) that telephone conversations between Gannon and McDermott coincided with Gannon's trading activity; and (7) that Gannon shared her recommendations with Pomponio.
Id. at 138. "Although the government was unable to produce direct evidence of the content of any conversation during which McDermott transferred material, non-public information to Gannon," the Second Circuit held "that rational minds could infer such a conclusion from the above evidence." Id. at 139. That was because "[c]ircumstantial evidence is a legitimate form of evidence in this Circuit, and in fact-intensive cases . . . requiring careful examination of trading records and a myriad of public information, the jury is the appropriate body to determine a defendant's guilt or innocence." Id.
The government's proof as to Rajaratnam and Gupta is materially indistinguishable from the proof in McDermott. The government presented evidence that Rajaratnam and Gupta were friends, partners in a financial outfit called New Silk Route, and prospective colleagues in a new Galleon fund called Galleon International; that Gupta and Rajaratnam spoke within minutes of Goldman Sachs board meetings; and that Rajaratnam made substantial trades closely following these phone calls. While Rajaratnam was surely not an amateur trader, the government introduced wiretapped calls in which Rajaratnam, like Gannon, shared the information with others. This evidence was sufficient for the jury to conclude that Rajaratnam conspired to trade on the basis of inside information regarding Goldman Sachs. Accordingly, the jury had evidence several times over to find Rajaratnam guilty beyond a reasonable doubt as to Count One.
2.Count Two: The Rajaratnam-Khan Conspiracy
Count Two charged that Rajaratnam conspired with Roomy Khan, a former Galleon employee, to trade on inside information regarding Polycom, Hilton and Google. Specifically, the government alleged that Rajaratnam and Khan conspired to trade on the basis of information Khan obtained regarding (1) Polycom's January and April 2006 earnings announcements; (2) the Blackstone Group's acquisition of Hilton; and (3) Google's July 2007 earnings announcement. The government alleged that Khan obtained the inside information from Sunil Bhalla, a Polycom employee; Deep Shah, a Moody's analyst assigned ...