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United States of America v. Joseph Contorinis

August 17, 2012

UNITED STATES OF AMERICA, APPELLEE,
v.
JOSEPH CONTORINIS, DEFENDANT-APPELLANT.



Appeal from a conviction by a jury in the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge), for conspiracy to commit securities fraud and insider trading.

The opinion of the court was delivered by: Winter, Circuit Judge:

11-3-cr

United States v. Contorinis

Argued: January 5, 2012

Before: WINTER, HALL, and CHIN, Circuit Judges.

Appellant challenges the jury instructions, admission of evidence concerning the trading activity of other alleged tippees, and the amount of the forfeiture order. We affirm the conviction, vacate the forfeiture order, and remand.

17 Joseph Contorinis appeals from his conviction by a jury 18 before Judge Sullivan for conspiracy to commit securities fraud 19 and insider trading and from the district court's forfeiture 20 order in the amount of $12.65 million. Appellant claims error 21 in: (i) a jury instruction that allegedly did not adequately 22 convey the definition of material, nonpublic information; (ii) 23 the admission of evidence of contemporaneous trades by 24 individuals who received inside information from the same 25 source as appellant; and (iii) the amount of the forfeiture 26 order entered by the district court. We hold that the district 27 court properly instructed the jury on the definition of 28 material, nonpublic information and acted within its discretion 29 in admitting evidence concerning the trades by other 30 individuals. However, we conclude that the court erred in 31 ordering appellant to forfeit gains acquired by his employer 32 but not by him. We therefore affirm appellant's conviction but 33 vacate the forfeiture order and remand for further proceedings.

1 BACKGROUND

2 Given the jury's verdict, we view the evidence and 3 inferences drawn therefrom in the light most favorable to the 4 government. United States v. Chavez, 549 F.3d 119, 124 (2d 5 Cir. 2008).

6 During the relevant time period, appellant was employed, 7 with Michael Handler, as a co-portfolio manager of the Jeffries 8 Paragon Fund ("Fund"). The Fund invested in companies in the 9 retail and personal products sectors. As portfolio managers, 10 Handler and appellant made investment decisions but did not 11 control disbursements of profits.

12 Sometime in 2000, appellant met and befriended Nicos 13 Stephanou, who became an investment banker in the Mergers and 14 Acquisitions group at UBS in 2002. Thereafter, appellant and 15 Stephanou spoke on the telephone often, sometimes as much as 75 16 times a month. Stephanou regularly provided confidential 17 information to several friends. These "tippees" included a 18 California employee of a semiconductor company, an individual 19 working in an import/export business in New York, and two 20 individuals living in Cyprus.

21 On September 2, 2005, Albertsons grocery store chain 22 ("ABS") announced that it was exploring options to increase 23 shareholder value, including a possible sale of the company. 24 Appellant then purchased a large amount of ABS stock on behalf 25 of the Fund. On the same day, Stephanou was assigned to a team 1 at UBS that was to represent a potential purchaser of ABS. 2 Stephanou testified that he informed appellant of his role, and 3 that appellant asked Stephanou to keep him informed about the 4 deal.

5 Subsequently, on November 22, Stephanou received 6 information suggesting that it was then more likely than not 7 that an acquisition of ABS would occur. Stephanou conveyed 8 that information to appellant and his other friends. On the 9 same day, appellant purchased 250,000 shares of ABS on behalf 10 of the Fund. He testified that this purchase was motivated by 11 a worse than expected earnings report by ABS. Stephanou's 12 other tippees also purchased shares around this time.

13 On December 6, Stephanou learned that the likelihood of 14 the deal had been drastically reduced. Nevertheless, appellant 15 purchased 126,000 shares of ABS the following morning. He 16 testified that he believed that offers at the end of the 17 bidding period, December 7, the next day, would increase the 18 stock price. Appellant became unavailable for a few hours, and 19 Handler began to sell ABS stock. Handler testified that he 20 sold the stock because he mistakenly believed the bidding 21 period was over. When appellant became available, appellant 22 continued to sell. The Fund sold the vast majority of its 23 position in ABS on December 7, closed out its long position on 24 ...


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