December 11, 2019

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DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient

Last week, the Southern District of New York dropped its prosecution of Richard Lee, a former portfolio manager at SAC Capital who, in 2013, entered a guilty plea to trading on material nonpublic information that he gained from corporate insiders. The court recently ruled that Mr. Lee’s guilty plea must be vacated to conform with the ruling in United States v. Newman, 773 F.3d 438, 450-51 (2d Cir. 2014), abrogated on other grounds by Salman v. United States, 137 S. Ct. 420 (2016). Newman held that a tippee who traded on material nonpublic information must have knowledge that the insider acted for personal benefit in disclosing the information. Thus, in 2017, Mr. Lee moved to withdraw his guilty plea on the grounds that (1) he was innocent; (2) had he known additional information, he would not have pleaded guilty; and (3) his guilty plea was insufficient in light of Newman. Rejecting the first two, the court agreed with Mr. Lee that his guilty plea was insufficient under Newman.

Concurrent to his 2013 guilty plea with the DOJ, Mr. Lee also reached an agreement with the SEC. SEC v. Lee, 13-CV-05185 (RMB) (S.D.N.Y.). On September 12, 2013, the Court in that matter entered a judgment against Lee, enjoining him from future violations of the securities laws, and ordered him to pay disgorgement of $130,144.91, prejudgment interest of $57,777.23, and a civil penalty of $130,144.91. Mr. Lee was also barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical ratings agency.

Prosecutors filed the request to dismiss on the basis that the evidence is now 10 years old and that Mr. Lee settled with the SEC. More specifically, the prosecutors explained that dismissing the pending charges was “in the public interest,” considering that “(1) the amount of time that has passed since the trades at issue and the resulting difficulty in securing evidence related to elements of the charged offenses; and (2) the SEC’s judgment and bar against Lee.”

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About this Author

Mary P. Hansen, White Collar Criminal Defense Attorney, Drinker Biddle Law Firm
Partner

Mary Hansen is a partner on the firm’s White Collar Criminal Defense & Corporate Investigations team, where she focuses her practice on defending clients in regulatory investigations as well as white collar criminal proceedings in the securities industry.  She also assists clients with internal investigations and compliance and prevention strategies.

Prior to joining the firm, Mary was an Assistant Director of the U.S. Securities & Exchange Commission’s Division of Enforcement, where she was a member of the division’s Market Abuse and...

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Antoinette Snodgrass, Drinker Biddle Law Firm, Philadelphia, Corporate Law Attorney
Associate

Antoinette Snodgrass assists clients with various stages of legal proceedings and trial preparation by conducting legal research and drafting legal memoranda, discovery requests and responses, motions, settlements, and briefs.

Antoinette is a contributor to the firm's SEC Law Perspectives Blog, which provides reports, discussions, and analyses on noteworthy trends in enforcement and regulatory activity of the U.S. Securities and Exchange Commission (SEC) and other agencies, such as the U.S. Commodity Futures Trading Commission (CFTC).

While in law school, Antoinette served as a judicial intern for the Honorable Joel H. Slomsky, Eastern District of Pennsylvania; a legal intern for the Pennsylvania Office of Attorney General, Bureau of Consumer Protection; a legal intern for the United States Attorney’s Office, Eastern District of Pennsylvania; and a judicial intern for the Honorable Thomas P. Rogers, Montgomery County Court of Common Pleas.

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