Illinois District Court Reaffirms Rule 10b5-1 Standard and Denies Motion to Dismiss Insider Trading Charges
The US District Court for the Northern District of Illinois denied a motion to dismiss a 16-count indictment for insider trading, finding the government adequately alleged each element of the offense.
Steven Dombrowski was the Director of Audit at Allscripts Healthcare Solutions, Inc., a publicly traded company. The government alleged that Dombrowski’s position gave him access to material, nonpublic information, including advance knowledge of an April 2012 report that Allscripts’ earnings were lower than expected. Before the report was released, Dombrowski purportedly used his wife’s trading account to trade Allscripts stock and netted a profit of about $286,000.
Dombrowski filed a motion to dismiss the insider trading charges. Citing cases that includedUnited States v. Smith, 155 F.3d 1051, 1066 (9th Cir. 1998) and SEC v. Adler, 137 F.3d 1325, 1337 (11th Cir. 1998), Dombrowski argued that, to prove he had traded “on the basis of” inside information, the government had to show he “used [such] information or that the information caused him to trade as he did,” and not he merely traded “while possessing inside information.”
The District Court denied the motion, finding that Smith, Adler and the like had been decided prior to the promulgation in 2000 of Rule 10b5-1, and it is now clear under that Rule that “awareness” of inside information is sufficient. As such, the government need not allege that a defendant “used” inside information. The District Court also noted that the indictment provided sufficient detail such that Dombrowski was aware of the charges and able to mount a defense against them.
United States v. Dombrowksi, Case No. 14-CR-41 (N.D. Ill. July 15, 2014).