17-3355 USA v. Klein (Schulman)
United States Court of Appeals for the Second Circuit _______________
AUGUST TERM, 2018
(Argued: October 22, 2018 Decided: January 10, 2019)
Docket No. 17‐3355
_______________
UNITED STATES OF AMERICA, Appellee,
—v.—
Tibor Klein, Defendant,
ROBERT SCHULMAN, Defendant‐Appellant. _______________
Before: KATZMANN, Chief Judge, KEARSE and CHIN, Circuit Judges.
Defendant‐appellant Robert Schulman appeals from an October 4, 2017 judgment convicting him, following a jury trial, of one count of conspiracy to commit securities fraud and one count of securities fraud. On appeal, Schulman argues that the district court erroneously denied his motion pursuant to Federal Rule of Criminal Procedure 29 to vacate his convictions. According to Schulman,
his convictions cannot stand because the government adduced insufficient evidence at trial of his criminal intent. Because the jury was not required to credit Schulman’s deposition testimony that he intended only to brag when he tipped his friend and financial advisor about an upcoming merger, and the evidence taken as a whole permitted the jury to find beyond a reasonable doubt that Schulman intended his communication to lead to trading in securities of the company in question, we disagree. Accordingly, we AFFIRM the judgment of the district court. _______________
MARK D. HARRIS (John E. Roberts, on the brief), Proskauer Rose LLP, New York, New York, for Defendant‐Appellant.
DAVID C. PITLUCK, Assistant United States Attorney (Jo Ann M. Navickas and Julia Nestor, Assistant United States Attorneys, on the brief), for Richard P. Donoghue, United States Attorney for the Eastern District of New York, Brooklyn, New York, for Appellee.
ROBERT A. KATZMANN, Chief Judge:
This securities fraud case calls upon us to review whether there was
sufficient evidence of criminal intent to sustain a judgment of conviction against
a tipper who did not directly trade on material, non‐public information but
rather shared it with a tippee who did. Robert Schulman appeals from a
judgment entered October 4, 2017 in the United States District Court for the
Eastern District of New York (Azrack, J.) convicting him, after a jury trial, of one
count of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371,
and one count of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff. The
jury found, in relevant part, that Schulman engaged in a conspiracy to trade in
the securities of a company called King Pharmaceuticals (“King”) using material,
non‐public information that he obtained through his representation of King
while a partner at the law firm of Hunton & Williams (“Hunton”). Schulman’s
sole contention on appeal is that the government adduced insufficient evidence
at trial of his criminal intent.
Schulman’s arguments focus on a comment Schulman says he made to his
friend and financial advisor Tibor Klein: “[I]t would be nice to be king for a day.”
App. 251. Schulman concedes that, in making this comment, he “disclosed non‐
public information to a friend who was also his financial advisor.” Appellant’s
Br. at 4. But, according to Schulman, his comment was merely a “joke,” App. at
251, or, as he argues now, “a boastful, imprudent” remark, Appellant’s Br. at 4.
He contends that no reasonable jury could conclude beyond a reasonable
doubt—in light of his testimony that he communicated nothing more about King
or its ongoing merger talks, see App. at 252 (“I would have never told him . . .
there’s a potential merger.”); id. (“[T]hat’s the extent of what I would have
communicated to him.”)—that he disclosed this information “with the
expectation that [Klein would] trade on it,” United States v. Martoma, 894 F.3d 64,
79 (2d Cir. 2017); see also Salman v. United States, 137 S. Ct. 420, 428 (2016).
We disagree. The evidence here, taken as a whole, is sufficient to support
the jury’s verdict. The jury was entitled to discredit Schulman’s testimony in a
prior deposition that he intended only to brag and that he told Klein nothing
about King’s ongoing merger talks. Extensive circumstantial evidence supports
an inference that Schulman communicated more to Klein than that “it would be
nice to be king for a day” and that Schulman expected Klein to use the non‐
public information he shared with him to trade in King securities. Accordingly,
the judgment of the district court is AFFIRMED.
BACKGROUND
On August 4, 2016, a grand jury in the Eastern District of New York
charged Robert Schulman and Tibor Klein with securities fraud and conspiracy
to commit securities fraud. On February 24, 2017, the district court granted
Klein’s motion to sever his trial from Schulman’s, and on March 6, 2017,
Schulman’s trial commenced. At trial, the Government introduced, inter alia, the
testimony of a cooperating witness, Michael Shechtman; sworn statements
Schulman made to the U.S. Securities and Exchange Commission (“SEC”) in a
deposition on August 27, 2012; and notes taken during Schulman’s meeting with
the U.S. Attorney’s Office (“USAO”) on May 19, 2015. Schulman called, among
others, his wife, Ronnie Schulman. Neither Robert Schulman nor Klein testified
at trial.
I. Trial Evidence
The evidence at trial included the following. Schulman was a Washington
D.C.‐based partner in Hunton’s patent group. Klein was the principal of Klein
Financial Services, a registered investment advisor based in Long Island, New
York. In or about 2000, Schulman and his wife, Ronnie Schulman, hired Klein.
The Schulmans gave Klein discretionary authority over their investment
accounts, meaning that Klein could trade securities without first obtaining the
Schulmans’ permission. For his efforts, the Schulmans paid Klein one percent of
their portfolio per year, an arrangement akin to those Klein had with other
clients.
Approximately three times each year, Klein traveled to the Schulmans’
home in McLean, Virginia to discuss the Schulmans’ finances. On these
occasions, Klein arrived Friday afternoon, visited with Ronnie Schulman before
Robert Schulman got home from work, and then had dinner with the Schulmans.
After dinner, the Schulmans and Klein discussed the Schulmans’ investment
accounts, including, albeit “very rarely,” individual stocks. App. at 805. Klein
then spent the night in the Schulmans’ guest room.
The Schulmans and Klein had become friends. As Ronnie Schulman
explained, although her husband was “not close with Tibor in the personal way
that I was,” her husband and Klein went to baseball games, went out to dinner
when Schulman travelled to New York for business, and would share a beer or
glass of wine. Id. at 821. The Schulmans also introduced Klein to their friends,
who subsequently also invested with Klein.
The Schulmans were “generally pleased” with Klein’s services, although
they were concerned that Klein had been too “bearish” in the years following the
2008 financial crisis. Id. at 241. The jury also learned that, in April, May, and June
2010, Klein made several purchases of Enzo Pharmaceuticals (“Enzo”) in
Schulman’s IRA account. Enzo was Schulman’s client at the time, and Klein
knew that. When Schulman was asked about these trades by the SEC in 2012, he
said that he “remember[ed] being a little upset” at Klein when Klein told him
about these purchases, “because . . . the CEO [of Enzo] is a certifiable lunatic.” Id.
at 245. He added: “I remember being a little upset, but I don’t remember what
happened with that. I think he sold it at some point after that.” Id. Several years
later, in 2015, when Schulman was asked about these trades by the USAO he said
that he believed “it was improper . . . to own shares in a client” and that he
“reprimanded Klein not to [trade in securities of his clients] in the future.” Id. at
242.
Schulman’s convictions relate to his representation of King. In July 2010,
Schulman was preparing for summary judgment and trial in a patent lawsuit
involving King, when King’s in‐house counsel informed another Hunton partner
that King was looking to settle the case and that King was in merger discussions
with Pfizer. On August 4, 2010, that partner and another Hunton lawyer, David
Kelly, met with Pfizer’s lawyers in New York as part of Pfizer’s due diligence.
Thereafter, Schulman learned of the potential merger from Kelly. Kelly told
Schulman to keep the information confidential.
Less than ten days later, on Friday, August 13, Klein traveled to the
Schulmans’ home in Virginia for one of their regular meetings. Klein arrived in
the afternoon, had dinner with the Schulmans, spent the night in their guest
room, and departed the next morning. Schulman, in his SEC deposition,
admitted to telling Klein about King. Specifically, Schulman said:
[T]here was one evening when Mr. Klein was at my house where I did mention, and I kind of made a joke with him, “boy, it would be nice to be king for a day.” And I made some joke with him about that. And at that point I would have never told him anything about their meeting, there’s a potential merger, it would have been much more of the nature of “hey, wouldn’t it be great to be king for a day, ha, ha, ha,” kind of like telling him, like acting like I am a big shot and I know this thing. But that’s the extent of what I would have communicated to him.
Id. at 251‐52. Schulman provided a similar explanation to the USAO in his 2015
interview. Id. at 240‐41.
Ronnie Schulman, the only person to testify at trial who was present that
evening, said that she could not remember anything being said about King. In
particular, Ronnie Schulman said that she did not hear her husband say, “I’d like
to be king for a day,” but that, even if he had said it, she may not have picked up
on it as significant because it would have just been “silly talk.” Id. at 831‐32.
On Sunday, August 15, Klein called Shechtman, his childhood best friend,
and a financial advisor at Ameriprise Financial (“Ameriprise”), but could not
reach him. The next day, Klein reached Shechtman and asked him what he
would do if he thought he had inside information. Shechtman asked Klein what
he was talking about. Klein said: “Pfizer’s buying King Pharmaceuticals.” Id. at
335. Shechtman asked Klein if he had spoken to Frank Marzano, one of Klein’s
former colleagues, about King, and Klein told Shechtman that Marzano
“wouldn’t touch this.” Id. at 337‐38. Shechtman did not ask Klein about the
source of his information because he “didn’t want to know the answers.” Id. at
336. Klein did not mention any publicly available information that might justify
purchasing King securities at the time he initially shared the material, non‐public
information with Shechtman.
Shechtman then purchased $15,000 of King options, some expiring
September 18, 2010 and some expiring October 16, 2010. Shechtman also
purchased $45,000 of King stock for himself and his wife. Klein purchased 65,150
King shares for $585,217 in various accounts including accounts belonging to
him, the Schulmans, and forty‐eight clients, including the Schulmans’ friends
and Klein’s parents. Klein’s purchases for the Schulmans totaled $26,899, 7.35
percent of Robert Schulman’s IRA.
On October 12, 2010, Pfizer announced its acquisition of King. Shechtman
immediately sold his King stock and options, for a profit of more than $110,000.
Klein sold his King stock for a profit of approximately $8,000, and the King stock
he had purchased for his family and clients for a profit of $328,038. Schulman’s
share of these profits was around $15,500, an over 50 percent return in less than
two months.
A few weeks later, an Ameriprise compliance officer approached
Shechtman, telling him there was a serious problem. When Shechtman heard
this, he “went numb,” because he “immediately knew it was about the trades.”
Id. at 366. At first, Shechtman lied, saying that he had been looking at King for a
while and had spoken with some fellow advisors about King who thought it was
a good investment. Later, Shechtman sent an email to Ameriprise compliance
officers disclosing that he had spoken with Klein about King, in case
investigators noticed his numerous phone calls with Klein. A week later,
Shechtman told Klein about the Ameriprise investigation. As Ameriprise had
asked Shechtman for information backing up his story, such as research reports
or notes, Klein sent an email to a “junk email” address shared by Shechtman and
his wife containing some research about King. Around this time, Klein also sold
all of Schulman’s Enzo shares.
Following an investigation, the SEC charged Shechtman and Shechtman
admitted liability. Shechtman also agreed to cooperate with the USAO and to
plead guilty to conspiracy to commit securities fraud. The SEC then charged
Klein in the fall of 2013, at which point the Schulmans fired Klein. Ronnie
testified that she and her husband had not fired Klein earlier, for example, after
learning that Klein had traded in King securities in their accounts or after Robert
was deposed by the SEC, because they “trusted” Klein and “believed there was
an innocent explanation” for all that had happened. Id. at 839‐40.
II. Post‐Trial Proceedings
Schulman moved for a judgment of acquittal after the government rested,
arguing, among other things, that the evidence did not establish that he intended
for Klein to trade in King securities. The district court denied Schulman’s motion.
Schulman renewed his motion for a judgment of acquittal at the conclusion of the
evidence, and the district court again denied the motion. Thereafter, the district
court charged the jury, and, a little over a day later, the jury returned guilty
verdicts on both counts.
Schulman then moved for a judgment of acquittal pursuant to Federal
Rule of Criminal Procedure 29. Schulman argued, inter alia, that no reasonable
jury could have inferred that he told Klein more than the “king for a day”
comment and that no reasonable jury could have found that he had intended
Klein to trade on it. The district court denied Schulman’s motion by reasoned
opinion. Thereafter, the district court sentenced Schulman on both counts to
three years’ probation to run concurrently, a $50,000 fine, forfeiture in the
amount of $15,527, and 2,000 hours of community service. This appeal timely
followed.
DISCUSSION
We review de novo a district court’s order denying a Rule 29 motion
addressing the sufficiency of the evidence. United States v. Khalil, 857 F.3d 137,
139 (2d Cir. 2017). In challenging the jury’s verdict, a Rule 29 movant “bears a
heavy burden.” Martoma, 894 F.3d at 72.1 A reviewing court must “credit[] every
inference that could have been drawn in the government’s favor,” id., and
“affirm the conviction so long as, from the inferences reasonably drawn, the jury
might fairly have concluded guilt beyond a reasonable doubt.” United States v.
Reifler, 446 F.3d 65, 94 (2d Cir. 2006).
Moreover, in considering Schulman’s sufficiency challenge, we do not
evaluate the evidence piecemeal or in isolation. We view the evidence “in
conjunction” and uphold Schulman’s conviction “if any rational trier of fact
could have found the essential elements of the crime beyond a reasonable
doubt.” Id. at 94‐95; see Jackson v. Virginia, 443 U.S. 307, 319 (1979). While
“specious inferences are not indulged,” United States v. Lorenzo, 534 F.3d 153, 159
1 Unless otherwise indicated, in quoting cases, all internal quotation marks, alterations, footnotes, and citations are omitted.
(2d Cir. 2008), we “defer to the jury’s determination of the weight of the evidence
and the credibility of the witnesses, and to the jury’s choice of the competing
inferences that can be drawn from the evidence,” Reifler, 446 F.3d at 94. In a close
case, where “either of the two results, a reasonable doubt or no reasonable doubt,
is fairly possible, [we] must let the jury decide the matter.” United States v.
Autuori, 212 F.3d 105, 114 (2d Cir. 2000).
In an insider trading case, the government must prove that the insider will
personally benefit from the disclosure to the tippee. See Martoma, 894 F.3d at 73.
Personal benefit can be established in a number of ways, including by illustrating
the nature of the relationship between the tipper and the tippee or the tipper’s
receipt of something of value. The critical question regards the tipper’s purpose:
did the tipper share the material non‐public information with the tippee
intending that the tippee use the information to improperly trade in securities?
See id. at 79 (a tipper is liable under 15 U.S.C. § 78j(b) if the tipper discloses
material, non‐public information “with the expectation that the tippee will trade
on it”); see also United States v. Gansman, 657 F.3d 85, 92 (2d Cir. 2011) (“In
prosecuting a putative ‘tipper’ under the misappropriation theory of insider
trading, the government must prove as an element of the offense that the tipper
conveyed material nonpublic information to his ‘tippee’ with the understanding
that it would be used for securities trading purposes.”).2 Schulman argues that
“[t]he Government presented no evidence [at trial], either direct or
circumstantial, that [he] intended for Klein to trade on” his tip about King.
Appellant’s Br. at 26. According to Schulman, the evidence merely “suggests that
[he] made a misguided comment to a friend in an effort to show off that he knew
something that the public did not.” Id. at 22.
We disagree. This is a case where it is essential to view the various pieces
of evidence together. Although Schulman told the SEC that he had
communicated “nothing” more than that he wished he could be king for a day,
App. at 240—a comment that, by itself, is innocuous—the jury was entitled to
disbelieve that he communicated nothing more. The district court properly
2 As relevant here, 15 U.S.C. § 78j(b) prohibits the use of “any manipulative or
deceptive device or contrivance” to contravene an SEC rule, including Rule 10b‐5. See 17 C.F.R. § 240.10b‐5. Rule 10b‐5 bars “undisclosed trading on inside corporate information by individuals who are under a duty of trust and confidence that prohibits them from secretly using such information for their personal advantage.” Salman v. United States, 137 S. Ct. 420, 423 (2016). “These persons also may not tip inside information to others for trading.” Id.
instructed the jury to draw “reasonable inferences,” id. at 1290, and “us[e]
common sense,” id. at 1317. As a matter of common sense, Schulman had to have
communicated additional information for Schulman to concede to the SEC that
his king‐for‐a‐day comment was in fact “a reference to King Pharmaceuticals,” id.
at 241. An oral statement does not usually reflect capitalization. Nonetheless,
Klein apparently recognized that by “king” Schulman meant “King.” Common
sense also would lead a rational juror to conclude that Schulman had to have
communicated additional information to Klein for Klein to have promptly called
Shechtman, cited “inside information” about King and Pfizer, id. at 335, and
begun buying King stock. Indeed, this precise issue was argued to the jury, see id.
at 1231‐32, 1265, and was resolved by the jury against Schulman.
Further, the trial record is replete with evidence supporting an inference
that Schulman told Klein information about King so that Klein would trade on it.
For example, a reasonable jury could infer that Schulman intended Klein to trade
from the evidence that (1) Klein was Schulman’s money manager, with
discretionary authority over Schulman’s accounts, and that Schulman told Klein
about King during a meeting to discuss his investment portfolio; (2) after
meeting with Schulman, Klein immediately bought hundreds of thousands of
dollars of King stock, including in Schulman’s account and in the accounts of
Schulman’s friends; and (3) Klein, on behalf of Schulman, had previously
purchased stock in one of Schulman’s clients, Enzo.
We reject Schulman’s arguments that Klein’s role as his financial advisor,
and Klein’s conversations with Shechtman and purchases of King stock
following the meeting with Schulman are irrelevant. A rational jury could infer
from the fact that Klein managed Schulman’s money and worked as a
professional stock trader that Schulman intended Klein to trade on a stock tip he
shared with him. The fact that Klein and Schulman were also close friends does
not detract from the relevance of Klein’s profession; in fact, it supplies an
additional motive for Schulman’s tip. Similarly, a rational jury could infer from
the fact that Klein purchased hundreds of thousands of dollars in King securities
immediately after meeting with Schulman, including over twenty‐five thousand
dollars of King stock in Schulman’s account, that Klein was acting in accordance
with Schulman’s intent. This is true even though there were “virtually no
communications” between Schulman and Klein in the months following
Schulman’s disclosure. Appellant’s Br. at 29. The jury was not required to accept
Schulman’s contrary interpretation of the facts—that Klein’s purchase of stock
for Schulman was reckless and unthinking—as there is ample evidence in the
record that Klein behaved in a calculated manner in trading on the information
about King.
We also reject Schulman’s argument that Klein’s prior purchase of Enzo
stock is irrelevant. A reasonable jury could infer from the fact that Klein had once
traded in the stock of Schulman’s clients that he might be expected to do so
again. And, as Schulman was aware of Klein’s trading in Enzo, the jury could
further infer that when Schulman told Klein about King, he expected Klein to act
on the information. In making these inferences, a reasonable jury could consider
Schulman’s varying explanations for his disapproval of Klein’s prior purchase of
Enzo stock. Specifically, when Schulman was first interviewed by the SEC in
2012, he testified, “I remember being a little upset at [Klein for buying Enzo
stock,] because I think that the CEO [of Enzo] is a certifiable lunatic.” App. at 245.
But several years later, Schulman told the USAO that the reason he criticized
Klein for buying Enzo stock was that it was improper to own shares of a client.
See id. at 242. The jury could reasonably view Schulman’s second explanation as a
conscious attempt to sanitize his first explanation, which had criticized only the
economic soundness of the investment, not its legality or propriety.
In addition, Schulman’s first, and perhaps more genuine explanation,
provides further context for the king‐for‐a‐day comment. For example, the jury
could reasonably infer from the Enzo evidence that, while Klein knew that
Schulman had been upset at him for buying Enzo shares because the CEO was a
“lunatic,” Klein understood that Schulman’s stating a wish to be “[K]ing for a
day” meant that buying King shares was, in fact, given Schulman’s inside
information, a good idea.
In this regard, it is also relevant that Schulman thought that Klein’s
investments in 2009 and 2010 had been “too bearish,” id. at 241, since Schulman’s
desire to invest more aggressively, along with his view of Klein’s Enzo purchase
as unwise, could be viewed as fueling a desire by Schulman to help Klein achieve
greater returns in Schulman’s portfolio. And while Schulman argues that $15,000
was so insignificant a fraction of his overall net worth that it could not have been
an incentive for him to tip Klein, that sizable net worth entitled the jury to
disbelieve Schulman’s preferred explanation that he made his king‐for‐a‐day
comment simply to “show off.” Appellant’s Br. at 22.
Finally, Schulman contends that he is entitled to a judgment of acquittal
because the evidence supporting the inference that he intended Klein to trade on
his tip about King is, at the very least, in equipoise with evidence supporting an
inference that he intended merely to boast. But it is not. Schulman cites mainly
the absence of evidence of any follow‐up conversations with Klein. This absence
of evidence at best supports an inference that Schulman did not intend for Klein
to trade for Schulman’s benefit. It says little, if anything, about whether
Schulman intended Klein to trade for Klein’s benefit, an independent basis upon
which a rational jury could have found Schulman guilty.3 Moreover, we know of
no requirement in insider trading law that the government adduce evidence of
multiple conversations between co‐conspirators, or that the government provide
direct testimonial evidence regarding a defendant’s intent. See Lorenzo, 534 F.3d
3 The Government argued at trial that Martoma’s “personal benefit” requirement was satisfied both because Schulman intended to receive a financial benefit and because Schulman intended to make a “gift” to Klein. The district court instructed the jury on both theories.
at 159 (the government “is entitled to prove its case solely through circumstantial
evidence”).
CONCLUSION
After conducting an independent review of the record and considering the
evidence as a whole, we conclude that a rational trier of fact could have found
that Schulman acted with the requisite intent beyond a reasonable doubt. We
have considered all of Schulman’s contentions on appeal and have found in them
no basis for reversal. Accordingly, the judgment of the district court is
AFFIRMED.