United States Court of Appeals
For the First Circuit
No. 00-1292
UNITED STATES,
Appellee,
v.
JOHN C. LARRABEE,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Torruella, Chief Judge,
Bownes, Senior Circuit Judge,
and Lynch, Circuit Judge.
John D. Donovan, Jr., with whom Jennifer A. Drohan and Ropes
& Gray were on brief, for appellant.
Diane C. Freniere, Assistant United States Attorney, with
whom Donald K. Stern, United States Attorney, was on brief, for
appellee.
February 14, 2001
BOWNES, Senior Circuit Judge. The defendant, John C.
Larrabee, was convicted of securities fraud after a jury trial
and sentenced to twenty-one months imprisonment, followed by
supervised release for a term of two years. He was also fined
$20,000. On appeal, the defendant argues that his conviction
should be reversed and his sentence vacated because the evidence
was insufficient as a matter of law. Finding the evidence
sufficient to support the conviction, we affirm the district
court.
I.
We describe the facts briefly here, but delve into them
in greater detail where necessary for our discussion. Larrabee
was employed as Director of Fiduciary Services by the Boston law
firm of Bingham Dana & Gould (“Bingham Dana”). Larrabee, as
Director of Fiduciary Services, controlled the selection of
stockbrokers for the placing of securities trades on behalf of
the trust accounts managed by Bingham Dana. D'Angelo was
employed as a stockbroker by PaineWebber, Inc. and Larrabee
directed a large share of Bingham Dana's business to D'Angelo.
D'Angelo and Larrabee also shared a personal and financial
relationship.
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From almost December 7, 1995 until December 12, 1995,
Bingham Dana represented Bank of Boston in connection with a
potential merger with BayBanks. This was a highly confidential
transaction. Though few attorneys at Bingham Dana were involved
in the transaction, Larrabee had daily contact with at least
one, John Brown. Brown visited Larrabee's office frequently to
check stock prices and monitor Brown's personal account.
Computer records indicate that Larrabee opened Brown's account
summary on Larrabee's computer at 3:27 p.m. and 3:28 p.m. on
December 12, 1995.
At 3:29 p.m., one minute after opening Brown's account
summary, Larrabee placed a call to D'Angelo. The call lasted
one minute and twelve seconds. Immediately after Larrabee's
call, D'Angelo called his trading assistant, Krista Floramo, and
entered orders to purchase approximately 11,000 shares of
BayBanks stock, priced at $85 per share, for his own account and
those of other family members and his girlfriend. When the
trades were slow to be executed, he instructed Floramo to call
a PaineWebber trader in New York to urge prompt execution.
D'Angelo remained on the line until the trades were executed
just prior to the market close at 4:00 p.m. This particular
purchase and trading pattern was unusual for D'Angelo. This
purchase was nearly twice as large as his previous trades.
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Moreover, Floramo purchased 400 shares of BayBanks stock for her
own account because of the unusual pattern of trades. To her
knowledge, D'Angelo never had bought across all of his family
accounts at once.
After the market closed on December 12, 1995, Bank of
Boston and BayBanks announced their merger. As a result of the
merger, BayBanks stock price increased by $8 per share before
the market opened on December 13, 1995. Before the market
opened on December 13, D'Angelo placed orders to sell all the
shares he purchased the previous evening. D'Angelo realized a
profit for those accounts of approximately $86,750.
PaineWebber attorneys questioned both D'Angelo and
Floramo about those trades. D'Angelo attempted to speak with
Floramo about her interview and unsuccessfully attempted to
contact Larrabee. Larrabee and D'Angelo eventually spoke for
approximately eight minutes on the morning of December 14, 1995.
PaineWebber officials contacted a Bingham Dana attorney, Gerald
Rath, to inform him of their suspicions and that Larrabee's name
would likely surface in an SEC investigation. Bingham Dana
attorneys then spoke with Larrabee about his contact with
D'Angelo.
On June 30, 1998, a federal grand jury returned a nine-
count indictment against co-defendants, John C. Larrabee and
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James L. D'Angelo, charging each with securities fraud in
violation of 15 U.S.C. §§ 78j(b), 78ff(a) and aiding and
abetting in violation of 18 U.S.C. § 2. The defendants were
tried separately and both were found guilty on all counts. Both
filed notices to appeal, but D'Angelo has since withdrawn his
appeal.
Larrabee seeks to reverse his conviction, arguing that
“[t]he evidence was not sufficient to prove beyond a reasonable
doubt that Larrabee 'appropriated' material nonpublic
information such that he could have 'misappropriated' that
information.” (italics in original). He further argues that
“[t]he evidence was not sufficient to prove beyond a reasonable
doubt that Larrabee 'misappropriated' material nonpublic
information for 'use' in 'connection with the purchase or sale
of a security.”
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II.
At the conclusion of the government's case, the
defendant moved for judgment of acquittal pursuant to Fed. R.
Crim. P. 29(a). The defendant failed, however, to renew his
motion at the close of his case, as is required. See United
States v. Concemi, 957 F.2d 942, 950 (1st Cir. 1992) (when the
defendant does not renew its motion for acquittal, it is
considered waived). The jury returned a verdict against the
defendant; the defendant now challenges the sufficiency of the
evidence. Because the defendant failed to renew his challenge
after the close of the evidence, we review his challenge on
appeal for clear and gross injustice. United States v. Stein,
233 F.3d 6, 20 (1st Cir. 2000); United States v. Santiago, 83
F.3d 20, 23 (1st Cir. 1996); Concemi 957 F.2d at 950. Even if
the challenge were adequately presented, the evidence is more
than sufficient to rationally support the verdict.
On appeal, we must determine whether the evidence,
taken in the light most favorable to the
government--a perspective that requires us
to draw every reasonable inference and to
resolve credibility conflicts in a manner
consistent with the verdict--would permit a
rational trier of fact to find each element
of the crimes charged beyond a reasonable
doubt.
United States v. Santana, 175 F.3d 57, 62 (1st Cir. 1999);
Santiago, 83 F.3d at 23. This burden can be met by “either
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direct or circumstantial evidence, or by any combination
thereof.” Santiago, 83 F.3d at 23; see also United States v.
Sargent, 229 F.3d 68, 75 (1st Cir. 2000) (“[A] plaintiff is not
required to produce direct evidence: circumstantial evidence .
. . is just as appropriate as direct evidence and is entitled to
be given whatever weight the jury deems it should be given under
the circumstances within which it unfolds.”) (internal quotation
marks omitted); United States v. Valerio, 48 F.3d 58, 63 (1st
Cir. 1995) (“[P]roof may lay entirely in circumstantial
evidence.”).
The government brought this case under a
misappropriation theory of insider trading. See United States
v. O'Hagan, 521 U.S. 642 (1997). Under a misappropriation
theory,
a person commits a fraud “in connection
with” a securities transaction, and thereby
violates § 10(b) and Rule 10b-5, when he
misappropriates confidential information for
securities trading purposes, in breach of a
duty owed to the source of the information.
Under this theory, a fiduciary's
undisclosed, self-serving use of a
principal's information to purchase or sell
securities, in breach of a duty of loyalty
and confidentiality, defrauds the principal
of the exclusive use of the information. . .
. [T]he misappropriation theory outlaws
trading on the basis of nonpublic
information by a corporate “outsider” in
breach of a duty owed not to a trading
party, but to the source of the information.
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Id. at 652-53 (internal citation omitted). This can be, and
often is, proven by circumstantial evidence. See, e.g.,
Sargent, 229 F.3d at 74-75. After careful review of the entire
record, we find that the evidence was sufficient for a jury to
conclude beyond a reasonable doubt that Larrabee possessed
material, nonpublic information concerning a merger between Bank
of Boston and BayBanks and that he conveyed that information to
D'Angelo, a stockbroker, with whom he had a close personal and
financial relationship.
The defendant argues that proof of “opportunity” or
“access” to material, nonpublic information is not the same as
proving actual possession. That is correct, but does not carry
the day. While the defendant is correct that opportunity alone
does not constitute proof of possession, opportunity in
combination with circumstantial evidence of a well-timed and
well-orchestrated sequence of events, culminating with
successful stock trades, creates a compelling inference of
possession by the tipper. See, e.g., SEC v. Warde, 151 F.3d 42,
46-49 (2d Cir. 1998); SEC v. Singer, 786 F. Supp. 1158, 1164
(S.D.N.Y. 1992); SEC v. Musella, 578 F. Supp. 425, 440-41
(S.D.N.Y. 1984).
After reviewing the record, and “resolving all doubts
and credibility issues in favor of the [government],” Sargent,
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229 F.3d at 75, we find that there was compelling evidence for
a jury to determine that Larrabee possessed material, nonpublic
information. We examine myriad factors, including (1) access to
information; (2) relationship between the tipper and the tippee;
(3) timing of contact between the tipper and the tippee; (4)
timing of the trades; (5) pattern of the trades; and (6)
attempts to conceal either the trades or the relationship
between the tipper and the tippee.
The evidence presented at trial, when pieced together,
painted a picture which allowed the jury to conclude beyond a
reasonable doubt that Larrabee possessed material, nonpublic
information about the Bank of Boston-BayBanks merger. Larrabee
had the opportunity to access the information. See Sargent, 229
F.3d at 76 (tipper had access to the information because he
shared a small office with the source of the confidential
information). Larrabee was the Director of Fiduciary Services
at Bingham Dana. Beginning on December 7, 1995, Bingham Dana
represented Bank of Boston in connection with a potential merger
with BayBanks. This was a highly confidential transaction, with
only eight attorneys involved. Two of those eight attorneys,
John Brown and Donald Abrams, worked on the seventeenth floor,
as did Larrabee. Copies of documents pertaining to the bank
merger were left in their “IN” boxes, located in the main
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hallway of the floor and copies were made in the copying room
located across from Larrabee's office. The names of the banks
involved in the merger were often substituted with code names,
but eventually documents were circulated with the correct party
names.
Larrabee had daily contact with John Brown. Brown
visited Larrabee's office frequently to check stock prices and
monitor Brown's personal account. Computer records indicate
that Larrabee opened Brown's account summary on Larrabee's
computer at 3:27 p.m. and 3:28 p.m. on December 12, 1995. Brown
testified that he did not recall telling Larrabee about the bank
merger, but admitted that he could not “say with absolute
certainty that [he] didn't say something inadvertently” to
Larrabee.
While Larrabee's access to the information is not
enough to prove that he actually possessed it, when we look
further, the inferences taken as a whole, are compelling.
First, we note the relationship between Larrabee and D'Angelo.
See Warde, 151 F.3d at 45, 48-49 (tipper and tippee had close
personal friendship); Musella, 578 F. Supp. at 441 (tipper and
tippee were close personal friends). Larrabee and D'Angelo
share a personal, financial and professional relationship.
Larrabee and D'Angelo had been friends for a long time and their
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families had spent various weekends, holidays and vacations
together. For example, the two families celebrated many New
Year's Eves together, including the year prior to this
transaction. The Larrabees had an “open invitation” to
D'Angelo's vacation home and visited it both with D'Angelo and
without him.
The two men also shared a financial relationship.
There is evidence in the record that D'Angelo made various
payments to Larrabee either directly or indirectly. For
example, D'Angelo gave the Larrabee children monetary Christmas
presents. The record indicates that D'Angelo made some college
tuition payments for Larrabee's children and wrote a check for
$1,600 payable to Larrabee's Fidelity Investments account. The
two college tuition payments for Larrabee's son totaled almost
$23,500, and were made by bank check. A payment of $4,403 was
made for the daughter's tuition. Larrabee did not disclose this
financial relationship, in violation of Bingham Dana's conflict
of interest policy.
Their relationship also had a professional component.
Larrabee, as Director of Fiduciary Services, controlled the
selection of stockbrokers for the placing of securities trades
on behalf of the trust accounts managed by Bingham Dana. The
evidence shows that Larrabee directed a large share of Bingham
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Dana's business to D'Angelo. In fact, Larrabee estimated that
he gave seventy-five to eighty percent of Bingham Dana's
business to D'Angelo. Bingham Dana was D'Angelo's largest
client.
The timing of the events is also significant. See
Warde, 151 F.3d at 47-48 (timing of purchases coincided with
contact between tipper and tippee); Adler, 137 F.3d 1325, 1340
(11th Cir. 1998) (suspicious timing of phone calls and trades);
cf. SEC v. Truong, 98 F. Supp. 2d 1086, 1097-99 (holding that
there was no insider trading when, inter alia, trading did not
occur immediately after the calls, but throughout the following
week); see also Musella, 578 F. Supp. at 441 (timing of trades
significant). Here, the evidence shows that Larrabee opened the
account summary of John Brown at 3:27 p.m. and 3:28 p.m. on
December 12, 1995. One minute later, at 3:29 p.m., Larrabee
called D'Angelo. The call lasted one minute and twelve seconds.
Immediately thereafter, D'Angelo called his trading assistant,
Krista Floramo. They spoke for fourteen minutes and D'Angelo
placed an order for approximately 11,000 shares of BayBanks
stock.
The pattern of the stock purchase is another piece in
the puzzle. See Sargent, 229 F.3d at 73 (largest investment of
the year); Warde, 151 F.3d at 48 (“uncharacteristic, substantial
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and exceedingly risky investments” suggested insider trading);
Musella, 578 F. Supp. at 441 (unusual trade pattern).
Immediately after Larrabee called D'Angelo on December 12, 1995,
D'Angelo called his trading assistant, Floramo, and entered
orders to purchase approximately 11,000 shares of BankBanks
stock, priced at $85 per share, for his own account and those of
other family members and his girlfriend. D'Angelo purchased
approximately $870,048 worth of BayBanks stock. This purchase
was nearly twice as large as any of his previous trades.
Immediately after talking with D'Angelo, Floramo called her
husband and then purchased 400 shares of BayBanks stock for her
personal account.
When the trades were slow to execute, D'Angelo
instructed Floramo to call a PaineWebber trader in New York to
urge prompt execution. Floramo testified that she did not
recall any other time, in all the years that she worked for him,
when D'Angelo asked her to do this. D'Angelo remained on the
line until the trades were executed just prior to the close of
the market at 4:00 p.m. Floramo testified that this trade was
unusual for D'Angelo: i.e., the amount of shares and the fact
that they were purchased for his family accounts.
After the market closed on December 12, 1995, BayBanks
and Bank of Boston announced their merger. BayBanks' stock
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would be converted into shares of Bank of Boston. As a result,
BayBanks stock price increased $8 per share before the market
opened on December 13, 1995. Before the market opened on
December 13th, D'Angelo placed orders to sell all of the shares
he purchased the previous evening. D'Angelo, his family and
girlfriend realized a profit for those accounts of approximately
$86,750.
We also find significant the efforts of D'Angelo and
Larrabee to conceal their relationship and the purchases made by
D'Angelo. See Warde, 151 F.3d at 47 (“[Defendant's] resort to
deceptive trading practices supports an inference that he was
trading illegally on insider information.”). The afternoon
after Bank of Boston and BayBanks announced their merger, Eric
Selzer, managing attorney at PaineWebber, contacted D'Angelo to
inquire why D'Angelo purchased BayBanks stock the previous day.
They spoke for approximately thirty minutes. D'Angelo then
informed Floramo that he had been questioned by PaineWebber
attorneys and that she might be questioned as well. Thereafter,
the PaineWebber attorney called Floramo to discuss D'Angelo's
trading of BayBanks stock. The call lasted from five to ten
minutes.
After work, Floramo contacted her own attorney. That
evening, Floramo arrived home to find three messages from
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D'Angelo. Floramo returned his call. D'Angelo asked her about
her conversation with the PaineWebber attorney, but she
responded that she could not speak to him on the matter.
D'Angelo asked her to meet him for coffee the following morning
at the Mobil Mart next to the office. He had never asked her to
do this before. She agreed, but instead went directly to work.
D'Angelo attempted to contact Larrabee at home during
the evening of December 14. Phone records indicate that
Larrabee called D'Angelo at work on the morning of December 14
and the two spoke for approximately eight minutes. D'Angelo
called Larrabee again that evening at home at approximately
9:00-9:30 p.m. Larrabee told D'Angelo that he could not talk
and hung up.
The PaineWebber attorney contacted D'Angelo again in
the morning on December 14. The attorney then called Gerald
Rath, a partner at Bingham Dana, to give him “a heads up.” The
PaineWebber attorney informed Rath that Bingham Dana would
likely receive other calls regarding the D'Angelo trades,
particularly from the SEC. The PaineWebber attorney then
described his suspicions about D'Angelo and Larrabee.
Later that afternoon, Rath and Bingham Dana managing
partner, Jay Zimmerman, met with Larrabee. When asked about his
relationship with D'Angelo, Larrabee told them about their
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professional relationship. Rath testified that he was made to
believe that Larrabee and D'Angelo were not close friends but
they shared “an occasional social relationship.” Rath directly
asked Larrabee about any financial relationship--whether there
were any checks or money back and forth. Larrabee responded
that there was nothing of value with the exception of one $100
Christmas gift from D'Angelo to Larrabee's children. Larrabee
did not mention any of the other payments made by D'Angelo.
Rath also questioned Larrabee about recent contact that he had
with D'Angelo. Rath directly asked Larrabee when the last time
he spoke with D'Angelo. Larrabee responded that it was sometime
earlier in the week. In reality, it was earlier that morning.
We find that there was compelling evidence for a jury
to determine that Larrabee possessed material, nonpublic
information: Larrabee's access to the information; the
relationship between Larrabee and D'Angelo; the timing of the
contacts between Larrabee, D'Angelo and the trades; the pattern
of the trades; and the attempts by Larrabee and D'Angelo to
conceal the trades and their relationship with each other. When
assembled, the pieces of the puzzle create a picture that
supports the inference that Larrabee did possess material,
nonpublic information about the bank merger.
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The defendant also argues that “the evidence of Mr.
Larrabee's 'use' of any 'appropriated' information was
insufficient to establish 'misappropriation' beyond a reasonable
doubt.” (Italics in original). The defendant contends that the
evidence was insufficient for the jury to infer that Larrabee's
tip to D'Angelo was intended for use in connection with the
purchase or sale of a security. The second requirement of an
insider trading violation is that “the misappropriator's
deceptive use of information be in connection with the purchase
and sale of [a] security.” O'Hagan, 521 U.S. 642, 655-56
(alteration in original) (internal quotation marks omitted).
Larrabee argues that even assuming arguendo that he did
possess the material, nonpublic information, the evidence is
insufficient for a jury to infer that he gave that information
to D'Angelo with the intent that D'Angelo use that information
to purchase or sell securities. We disagree. The
circumstantial evidence detailed above more than adequately
supports the conclusion that Larrabee intended that D'Angelo use
the information for purchase or sale of the security.
The tipper's knowledge that he or she was
breaching a duty to the owner of
confidential information suffices to
establish the tipper's expectation that the
breach will lead to some kind of misuse of
the information. This is so because it may
be presumed that the tippee's interest in
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the information is, in contemporary jargon,
not for nothing.
Sargent, 229 F.3d at 77 (quoting United States v. Libera, 989
F.2d 596, 600 (2d Cir. 1993)).
III.
Based on our review of the entire record, we find that
there was sufficient evidence for the jury to conclude beyond a
reasonable doubt that the defendant appropriated material,
nonpublic information and then misappropriated that information
for use in connection with the purchase or sale of a security.
There was no clear and gross injustice, and the defendant's
conviction is, therefore, affirmed.
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