fiduciary relation

On January 18, 2012, the Government unsealed charges against Todd Newman and Anthony Chiasson. On February 7, 2012, a grand jury returned an indictment, and on August 28, 2012, a twelve-count superseding indictment was filed in the United States District Court for the Southern District of New York charging Newman and Chiasson with conspiracy to commit securities fraud and multiple substantive counts of securities fraud arising from trading in Dell and NVIDIA securities. The Government alleged that analysts obtained material nonpublic earnings information from insiders at Dell and NVIDIA and passed it through multiple levels to portfolio managers at hedge funds. Newman served as a portfolio manager at Diamondback Capital Management and Chiasson served as a portfolio manager at Level Global Investors. The Dell chain ran from Rob Ray in Dell's investor relations department to Sandy Goyal at Neuberger Berman to Jesse Tortora at Diamondback, who relayed the information to Newman and to Sam Adondakis at Level Global, who then passed it to Chiasson. The NVIDIA chain ran from Chris Choi in NVIDIA's finance unit to Hyung Lim to Danny Kuo at Whittier Trust, who circulated it among analysts including Tortora and Adondakis before it reached Newman and Chiasson. Newman and Chiasson stood three and four levels removed from the Dell insider and four levels removed from the NVIDIA insiders. The trades generated approximately $4 million in profits for Diamondback and $68 million in profits for Level Global. No evidence showed that Newman or Chiasson knew the identity of the corporate insiders or whether any personal benefit had been provided to the insiders. At the close of a six-week jury trial before Judge Richard J. Sullivan, Newman and Chiasson moved for judgment of acquittal under Federal Rule of Criminal Procedure 29, arguing insufficient evidence on the personal benefit element and on their own knowledge. The district court reserved decision. On December 17, 2012, the jury returned guilty verdicts on all counts. The district court subsequently denied the Rule 29 motions. Newman was sentenced on May 2, 2013, to 54 months' imprisonment, a $1 million fine, and forfeiture of $737,724. Chiasson was sentenced on May 13, 2013, to 78 months' imprisonment, a $5 million fine, and forfeiture not to exceed $2 million. Both defendants appealed to the United States Court of Appeals for the Second Circuit.

On April 10, 1902, Louisa M. Gerry leased the Hotel Bristol at the northwest corner of Forty-second Street and Fifth Avenue in New York City to Walter J. Salmon for a twenty-year term beginning May 1, 1902, and ending April 30, 1922. The lease required Salmon to convert the building into shops and offices at a cost of two hundred thousand dollars. All alterations became accretions to the land. While negotiating the lease with Gerry, Salmon entered into a joint venture agreement with Morton H. Meinhard. Meinhard agreed to pay half the funds needed to reconstruct, alter, manage, and operate the property. Salmon received sole power to manage, lease, underlet, and operate the building. Net profits were to be divided forty percent to Meinhard for the first five years and fifty percent thereafter. Losses were to be shared equally. The venture operated the reconstructed property at a loss in its early years and later at a profit. It generated substantial returns for both parties until the lease approached its end. In late 1921, Elbridge T. Gerry, who had acquired the reversion and owned adjoining lots on Fifth Avenue and Forty-second Street, approached Salmon alone after failing to interest other parties in a larger development plan. On January 25, 1922, Gerry executed a new lease to Midpoint Realty Company, a corporation owned and controlled by Salmon. The new lease covered the entire tract for twenty years with successive renewal options extending up to eighty years. It required demolition of existing buildings after seven years and construction of a new three-million-dollar building. Annual rents ranged from three hundred fifty thousand to four hundred seventy-five thousand dollars. Salmon personally guaranteed performance until the new building was completed and paid for. Salmon did not inform Meinhard of the negotiations or the new lease until February 1922. Upon learning of it, Meinhard demanded that the lease be held in trust for the venture and offered to share the guaranty obligations. Salmon refused, prompting this suit. A referee awarded Meinhard a twenty-five percent interest in the lease. On cross-appeals the Appellate Division modified the judgment to enlarge the interest to one-half of the entire lease. The defendants appealed. Separately, in 1917 Meinhard had assigned his entire interest in the joint venture agreement to his wife. She reassigned it to him before suit was commenced. Salmon continued to deal with Meinhard on the basis that the enterprise remained subsisting.

In July 1988 Grand Metropolitan PLC retained the Minneapolis law firm Dorsey & Whitney as local counsel in connection with a potential tender offer for the common stock of the Pillsbury Company. James Herman O'Hagan was a partner at Dorsey & Whitney but performed no work on the Grand Met matter. Both Grand Met and the firm took steps to keep the tender offer plans confidential. Dorsey & Whitney withdrew from the representation on September 9, 1988. On August 18, 1988, while the firm still represented Grand Met, O'Hagan began purchasing call options on Pillsbury stock. He continued buying options through September and ultimately held 2,500 unexpired Pillsbury call options. In September he also purchased approximately 5,000 shares of Pillsbury common stock at a price just under $39 per share. On October 4, 1988, Grand Met publicly announced its tender offer. The price of Pillsbury stock rose to nearly $60 per share. O'Hagan sold his options and shares, realizing a profit of more than $4.3 million. The Securities and Exchange Commission investigated the trading and obtained a 57-count indictment charging O'Hagan with mail fraud, securities fraud under § 10(b) and Rule 10b-5 on a misappropriation theory, fraudulent trading in connection with a tender offer under § 14(e) and Rule 14e-3(a), and money laundering. A jury convicted him on all counts and the district court imposed a 41-month prison sentence. A divided panel of the Eighth Circuit reversed all convictions, holding that the misappropriation theory does not support liability under § 10(b) and that Rule 14e-3(a) exceeds the Commission's authority under § 14(e). The Supreme Court granted certiorari.