United States District Court, N.D. California
ORDER RE POST-TRIAL AND REMEDY MOTIONS Re: Dkt. Nos.
JACQUELINE SCOTT CORLEY United States Magistrate Judge
Securities and Exchange Commission (“SEC”) charge
that Defendants Sasan Sabrdaran and Farhang Afsarpour engaged
in insider trading in violation of the antifraud provisions
of the Securities Exchange Act of 1934. Following a
three-week trial, the jury returned a verdict in the
SEC's favor. Now pending before the Court are
Defendants' joint motion for judgment as a matter of law,
or in the alternative, a new trial and the SEC's
post-trial remedies motion. (Dkt. Nos. 170,
175.) Having had the benefit of oral argument
on March 23, 2017, and having carefully considered the
parties' written submissions, including their post-oral
argument submissions, the Court DENIES Defendants' motion
and GRANTS IN PART the SEC's remedies motion as set forth
alleged that Defendants engaged in insider trading when Dr.
Sabrdaran, an employee of pharmaceutical company InterMune,
Inc., tipped his long-time friend Afsarpour to material,
non-public information about the progress through the
European regulatory approval process of Esbriet, one of
InterMune's products, and Afsarpour then acted on that
tip by engaging in transactions in connection with InterMune
securities. After receiving the nonpublic information about
Esbriet's EU approval on the eve of the public
announcement in December 2010, Afsarpour-who lives in the
UK-placed certain online financial bets on the price changes
in InterMune stock and options; specifically, he placed
spread bets through a London-based company called IG Index
and also bought InterMune stock via his stockbroker in New
York. Afsarpour urged others to invest in InterMune as well,
some of whom did.
Sabrdaran served on the InterMune team seeking marketing
approval for Esbriet from the European Medicines Agency.
Afsarpour is a close personal friend of Dr. Sabrdaran, and
they communicated by phone, email, Facebook and other means
frequently to discuss developments in their lives,
philosophy, and other personal issues. They also tried to
visit each other when one of them was present in the
other's country. Afsarpour contended that he started
placing spread bets on InterMune stock in November 2010 based
on his own research about the company. He insisted that,
based on publicly available information, he believed that
InterMune would receive approval from the European Medicines
Agency during the first quarter of 2011 to market and sell
Esbriet in the European Union, and that this approval would
be announced during the first quarter of 2011. He maintained
that he did not receive any material nonpublic information
from Dr. Sabrdaran or anyone else regarding InterMune.
in the case, the Court granted in part and denied in part
Defendants' motions to dismiss and denied their motion to
strike portions of the initial complaint. (Dkt. No. 36.)
Defendants argued, among other things, that the transactions
at issue involve spread bets, which are not
“securities” for the purposes of a Section 10(b)
and Rule 10(b)-5 violation. The Court concluded that the SEC,
with minimal amendment, could plausibly allege that
Afsarpour's spread bets were “in connection
with” securities by alleging that IG Index had hedged
his spread bets, which the SEC amended to do. After
discovery, the Court denied the SEC's motion for partial
summary judgment on the same issue, holding that to establish
a securities violation under Section 10(b) and Rule 10(b)-5,
the SEC need not necessarily prove that Afsarpour
subjectively knew that his fraudulent activity was “in
connection with” the purchase or sale of a security,
but that a reasonable trier of fact might not find that
Afsarpour's spread bets necessarily met that test.
began on October 17, 2016. The parties agreed that Defendants
shared a very close friendship; beyond that, the SEC and
Defendants presented very different accounts. The SEC
elicited testimony and proffered documentary evidence
connecting the confidential and public announcements about
Esbriet, communications between Defendants, and
Afsarpour's trading activity. For example, there was
testimony that Dr. Sabrdaran communicated with Afsarpour
shortly after receiving a confidential, internal InterMune
email stating that the European Medicines Agency had given
the green light for Esbriet-the “As Good As It
Gets” email. There was testimony that Afsarpour
executed very few trades on InterMune until mid-December
2010, the eve of Esbriet's imminent approval
announcement; that the days leading up to the announcement he
encouraged friends to invest heavily in InterMune; and that
the day before the public announcement he invested more
heavily than ever before, in more highly leveraged
transactions than ever before, using credit cards to fund his
bets, which he had never done before. The SEC entered emails
into the record in which, the day before the public
announcement, Afsarpour wrote to friends telling them to get
their money in that day before it was too late.
SEC's case-in-chief, the jury heard from Dan Welch,
InterMune's CEO, who described the company's business
and confidentiality policies generally. Steven Porter and
Marianne Porter, doctors and InterMune executives, repeated
InterMune's confidentiality policies, explained the
process of regulatory review before the European Medicines
Agency generally and for Esbriet in particular, described Dr.
Sabrdaran's role in the group that worked on
Esbriet's drug safety, and discussed who knew about its
approval before the news became public. Dr. Spencer Hudson,
another doctor on the Esbriet team, also testified about what
he and the other members of the team knew as they shepherded
the drug through the approval process. They testified that
InterMune learned on December 10, 2010 that the European
Medicines Agency would announce Esbriet's approval on
December 17, 2010.
from InterMune employees, two employees from IG Index
testified. Bridget Messer, a financial services attorney who
is the company's chief commercial officer, discussed the
“spread bets” that IG Index offers, explaining
how the company often hedges its customers' spread bets,
how the contracts each customer-including Afsarpour-signs in
advance of placing any spread bets inform them that IG Index
might hedge, and how IG Index's internal compliance
department investigated trades in InterMune in December 2010
and froze Afsarpour's account.
company's chief information officer, Jonathan Noble, also
testified, further explaining how spread bets work. He also
described Afsarpour's IG Index spread bets and identified
instances where IG Index hedged his bets, which he stated it
did for a majority of his transactions. He noted that, prior
to December 10, 2010, Afsarpour placed only three InterMune
orders that were actually executed, whereas between then and
December 17, 2010, he placed many more executed trades; and
testified that Afsarpour made much riskier InterMune
investments after December 10, 2010. As of the close of
business on December 15, 2010, Afsarpour had approximately
£145, 000 on InterMune in his IG Index account. Of that
amount, £20, 000 pounds were deposited through credit
cards that day. In contrast, Afsarpour made no credit card
transactions from October 11 through December 9, 2010. Noble
testified that an IG Index employee had telephone
conversations with Afsarpour on December 13 and 14, 2010, and
the jury heard recordings of those phone calls. As to
hedging, Noble testified that IG Index did not itself
purchase InterMune stock to hedge Afsarpour's bets.
Instead, for some of the spread bets IG Index entered into
contracts for difference (“CFDs”) with a French
brokerage in London called Cheuvreux and instructed that
company to trade in the underlying stock; Noble did not know
if Cheuvreux actually purchased the underlying stock on a
U.S. market. He testified that IG Index hedged other spread
bets through similar transactions with a brokerage called
Michael Burkoff testified that Afsarpour purchased 75 shares
of InterMune stock through him on December 16, 2010, that the
purchase was Afsarpour's idea, and that Afsarpour had
called him months earlier to discuss InterMune for the first
investigative attorney Drew Panahi testified extensively
about the agency's investigation into Afsarpour's
InterMune trades. Through Panahi, the jury was shown charts
of Afsarpour's trades and his phone calls with Dr.
Sabrdaran, which coincided, and his emails with the SEC where
he denied knowing anyone at InterMune. Panahi told the jury
that Afsarpour's profits from spread bets placed between
December 10 and December 17, 2010 totaled $877, 510.53.
According to Panahi, Afsarpour said he knew IG Index would
hedge his spread bets. An SEC economist, Dr. Carmen Taveras,
also testified as an expert on the SEC's behalf. The jury
was shown charts she prepared showing Afsarpour's daily
payments into his IG Index account and how the percentage of
his IG Index accounts dedicated to InterMune changed over
time, largely after December 10, 2010.
jury also heard from a number of Afsarpour's
friends-either live or via videotaped deposition-who
testified to what Afsarpour told them about InterMune and how
they responded: by giving Afsarpour money to invest or
opening their own brokerage accounts to do so. One invested
$60, 000 in InterMune on December 16, 2010-her first and last
time betting on stocks.
close of the SEC's case, both parties moved for judgment
as a matter of law. The Court denied the SEC's motion for
judgment as a matter of law that Afsarpour's spread bets
were “in connection with” securities for the
purposes of liability based on evidence that IG Index hedged
the spread bets. Defendants moved on two separate grounds.
First, Defendants argued that there was no evidence that
Afsarpour knew or had reason to know that Dr. Sabrdaran
breached a duty of confidentiality or trust as required to
show a tip for the purposes of a Section 10(b) and Rule 10b-5
violation. The Court denied the motion, concluding that there
was sufficient circumstantial evidence that there was a tip.
Second, Defendants moved for judgment as a matter of law on
the claims based on Afsarpour's spread bets, contending
that (1) there was no evidence that Afsarpour knew his spread
bets would be hedged; and (2) objecting to the chart the SEC
used to show IG Index's hedging activity, without which,
they argued, there was no evidence that IG Index ever hedged
the spread bets. The Court denied the motion.
Defendants' cases-in-chief, the jury heard from expert
witness Torben Voetmann, a financial consultant, who opined
that Afsarpour's betting behavior was consistent with
publicly available information-i.e., that Afsarpour
traded on InterMune based on following signals from the
market and publicly available information about the European
Medicines Agency-and did not change before and after the
December 10, 2010 phone call with Dr. Sabrdaran.
jury also heard extensive testimony from Defendants
themselves. Both testified that they communicate regularly
about all sorts of topics, but not work. Afsarpour testified
that he did not know Dr. Sabrdaran worked at InterMune when
he made the investments and that he came across InterMune by
accident when his daughter's boyfriend, Tom Rogerson,
asked him to look up a stock under the ticker symbol
“ITNM, ” and he mistakenly entered
“ITMN”-InterMune's symbol. Rogerson testified
at trial that he did not remember any such request.
event, Afsarpour testified that he has long engaged in day
trading, making daily investments based on following the
markets and engaging in technical analysis to determine the
performance of a stock. He further testified that Dr.
Sabrdaran never disclosed any non-public information about
Esbriet's approval process to him, that he instead made
InterMune investments based on his own research, and that it
never came up in conversation that Afsarpour was placing
spread bets on InterMune until after it happened. According
to Afsarpour, Dr. Sabrdaran became very angry and upset with
him once he learned that Afsarpour had invested in InterMune.
During its investigation Afsarpour initially told the SEC he
did not know anyone who worked at InterMune and removed Dr.
Sabrdaran from his list of friends on Facebook before turning
that list over to the SEC.
Sabrdaran testified that he always took seriously
InterMune's confidentiality policies and that he never
discussed InterMune, let alone Esbriet's regulatory
approval process, with Afsarpour. He offered explanations for
the phone calls with Afsarpour that had nothing to do with
InterMune or Esbriet. On cross-examination, Dr. Sabrdaran
acknowledged that he erased the hard drive from his laptop
and deleted certain Facebook messages from Afsarpour before
turning his messages over to the SEC, but contended that he
did so to protect his privacy, not to hide anything from the
Commission. Dr. Sabrdaran explained that he had since been
fired from InterMune and had not found work as a physician or
drug safety executive in the pharmaceutical industry.
parties renewed their motions for judgment as a matter of law
at the close of evidence; the Court again denied the motions
and sent the case to the jury.
jury deliberated for one day then returned a verdict in favor
of the SEC, answering all five questions on the verdict form
in the affirmative. (Dkt. No. 165; see also Dkt.
Nos. 161-1, 163-1.) Specifically, the jury found that (1) Dr.
Sabrdaran breached a duty of trust and confidence to
InterMune by intentionally disclosing material, non-public
information concerning InterMune to Afsarpour; (2) Afsarpour
knew, or should have known, that Dr. Sabrdaran disclosed
material, non-public information to him in violation of Dr.
Sabrdaran's duty to maintain confidentiality; (3) Dr.
Sabrdaran personally benefitted from the disclosure to
Afsarpour; (4) Afsarpour knew, or should have known, that Dr.
Sabrdaran disclosed the material, non-public information to
him for Dr. Sabrdaran's personal benefit; and (5)
Afsarpour used the material, non-public information Dr.
Sabrdaran disclosed to him to engage in transactions that
were in connection with a purchase or sale of a security.
joint motion for judgment as a matter of law or, in the
alternative, a new trial followed. (Dkt. No. 170.) The SEC
thereafter filed its motion for remedies and final judgments
to be imposed against Defendants. (Dkt. No. 175.) The Court
agreed to hear the motions together. After oral argument, the
SEC submitted notices of supplemental authority notifying the
Court of insider trading cases where a court ordered joint
and several disgorgement against a tipper who received no
direct portion of the ill-gotten profits. (Dkt. Nos. 183,
187.) In addition, at the Court's invitation, Defendants
submitted a supplemental brief addressing, in part, the
revised arguments and calculations that the SEC raised for
the first time in its reply brief in support of its remedies
motion. (Dkt. No. 188.)
Motion for Judgment as a Matter of Law, or in the
Alternative, a New Trial
move for a new trial under Rules 50(b) and 59 on the grounds
that the jury's verdict was contrary to the weight of the
evidence and that the Court erroneously instructed the jury
on the “personal benefit” and “in
connection with” requirements.
50(b) motion is appropriate when the evidence permits only
one reasonable conclusion, and that conclusion is contrary to
that of the jury. Martin v. Cal. Dep't of Veterans
Affairs, 560 F.3d 1042, 1046 (9th Cir. 2009). The court
must view the evidence in the light most favorable to the
nonmoving party and draw all reasonable inferences in that
party's favor, EEOC v. Go Daddy Software, Inc.,
581 F.3d 951, 961 (9th Cir. 2009), and the court “may
not make credibility determinations or weigh the
evidence.” Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 150 (2000). A “jury's
verdict must be upheld if it is supported by substantial
evidence, which is evidence adequate to support the
jury's conclusion, even if it is possible to draw a
contrary conclusion.” Pavao v. Pagay, 307 F.3d
915, 918 (9th Cir. 2007).
Rule 59, a court has the discretion to grant a new trial
“for any reason for which a new trial has heretofore
been granted in an action at law in federal court.”
Fed.R.Civ.P. 59(a)(1)(A). The grounds for a new trial
include: (1) a verdict that is contrary to the weight of the
evidence; (2) a verdict that is based on false or perjurious
evidence; or (3) to prevent a miscarriage of justice.
Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th
Cir. 2007) (quotation marks and citation omitted). Erroneous
evidentiary rulings and errors in jury instructions are also
grounds for a new trial. See Ruvalcaba v. City of Los
Angeles, 64 F.3d 1323, 1328 (9th Cir. 1995).
Rule 59 motion for a new trial is based on insufficiency of
the evidence, the court may weigh the evidence and assess the
credibility of witnesses and need not view the evidence from
the perspective most favorable to the prevailing party.
See Landes Constr. Co. v. Royal Bank of Canada, 833
F.2d 1365, 1371 (9th Cir. 1987). The decision to grant a new
trial motion lies within the court's discretion. See
Merrick v. Paul Revere Life Ins. Co., 500 F.3d 1007,
1013 (9th Cir. 2007). But “the court is not justified
in granting a new trial merely because it might have come to
a different result from that reached by the jury.”
Roy v. Volkswagen of Am., Inc., 896 F.2d 1174, 1176
(9th Cir. 1990) (internal quotation marks and citation
omitted). Rather, a new trial should be granted where, after
“giv[ing] full respect to the jury's findings, the
judge on the entire evidence is left with the definite and
firm conviction that a mistake has been committed” by
the jury. Landes Contr. Co., 833 F.2d at 1365.
The Jury's Verdict that Dr. Sabrdaran Intentionally
or Recklessly Disclosed Material, Non-Public
Information to Afsarpour was not Contrary to the Weight of
first contend that the Court should order a new trial because
the jury's finding that Dr. Sabrdaran tipped Afsarpour is
contrary to the weight of the evidence. Defendants urge that
the SEC presented no direct evidence of a tip and the
circumstantial evidence was weak, and thus that the verdict
rested only on “strained inferences and
speculation” of a tip.
here, Section 10(b) and Rule 10b-5 are violated under the
“misappropriation theory” of insider trading when
“an individual misappropriates confidential information
for securities trading purposes, in breach of a duty owed to
the source of the information.” O'Hagan,
521 U.S. 642, 652 (1997). Among other elements, to establish
that a defendant is liable for insider trading under this
theory, the SEC must prove that the tipper defendant-here,
Dr. Sabrdaran- breached a duty of confidentiality in sharing
information with the tippee-Afsarpour. Aaron v. SEC,
446 U.S. 680, 691 (1980). Defendants challenge the jury's
finding that the SEC proved this latter element.
Defendants first fault the SEC for failing to present any
direct evidence that Dr. Sabrdaran shared a tip, direct
evidence is not necessary. See SEC v. Truong, 98
F.Supp.2d 1096, 1097-98 (N.D. Cal. 2000); see also SEC v.
Horn, No. 10-cv-955, 2010 WL 5370988, at *4 (N.D.
Ill.Dec. 16, 2010) (“Direct evidence of insider trading
is, indeed, rare; and the SEC is entitled to prove its case
through circumstantial evidence.”) (collecting cases).
But it “may not base insider trading actions on
strained inferences and speculation.” Id.
(citation omitted). In meeting its burden, the SEC must
identify the facts that the tippee allegedly possessed.
Truong, 98 F.Supp.2d at 1098.
has met its burden. The timing of Defendants' phone
calls, Afsarpour's trading activity, Afsarpour's
communications with other friends that emphasized the
deadline to invest was right before the imminent public
announcement, as well as evidence that Afsarpour was so sure
that the price of InterMune stock would rise that he
convinced a number of friends who had never invested in the
stock market before to invest large sums of money, support a
reasonable inference that Dr. Sabrdaran told Afsarpour that
InterMune was about to obtain regulatory approval for
Esbriet. While Dr. Sabrdaran himself told the jury that he
never disclosed insider information to Afsarpour, the jury
was not required to believe him. The jury heard evidence that
Dr. Sabrdaran had lied to his InterMune boss about a ski trip
in Switzerland. The jury also may have found it less than
credible that Dr. Sabrdaran never discussed his job with his
close friend. Similarly, Afsarpour's story that he simply
happened upon InterMune while entering the ticker symbol for
another company on Rogerson's request was unlikely and
not corroborated by Rogerson, which gave the jury grounds to
discount Afsarpour's credibility, as well. It was not
against the weight of the evidence for the jury to conclude
that Dr. Sabrdaran tipped Afsarpour about Esbriet's
also argue that the SEC “made the jury and the defense
guess as to when the alleged tip actually occurred” and
“waited until its . . . rebuttal closing argument . . .
to reveal that if an actionable tip occurred in this case, it
occurred on December 10, 2010.” (Dkt. No. 170 at 9-10
(record citation omitted).) Not so. The SEC's theory from
the beginning was that Dr. Sabrdaran shared information with
Afsarpour during their phone calls in the week leading up to
the public Esbriet approval announcement. Indeed, the
SEC's expert witness, Dr. Taveras, testified that she
reached her opinion that Afsarpour must have traded on inside
information based on the assumption that the tip occurred on
December 10, 2010.
identify evidence that supports their position that Afsarpour
traded not on the basis of material, non-public information,
but based on his own technical analysis of InterMune stock
and publicly available information about the timing of
regulatory approval announcements in the European Medicines
Agency. A reasonable factfinder could infer that there was no
insider trading based on this evidence. But, taken in the
context of the entire trial, and in particular given
Defendants' credibility problems and the weight of the
circumstantial evidence, it does not leave the Court with the
“definite and firm conviction” that the jury made
a mistake in finding that there was insider trading. See
Landes Constr. Co., 833 F.2d at 1371.
The “Personal Benefit” Requirement
next argue that the Court's instruction about the
“personal benefit” requirement was improper and,
in any event, the jury's finding that Dr. Sabrdaran
tipped Afsarpour for a personal benefit was contrary to the
weight of the evidence.
Court's Instruction was Proper
Court instructed the jury that to find that Defendants
engaged in insider trading the SEC must prove by a
preponderance of the evidence that they used a device, scheme
or artifice to defraud in connection with the purchase or
sale of a security and that they “acted
intentionally.” (Dkt. No. 160 at 88; see also
Dkt. No. 154 at 22 (Court's Second Proposed Jury
Instructions).) Explaining tipper and tippee liability, the
Court instructed that “[a]s to Dr. Sabrdaran, the SEC
must establish: . . . [t]hat Dr. Sabrdaran breached his duty
of trust and confidence to InterMune by disclosing material,
non-public information to Mr. Afsarpour in exchange for a
personal benefit.” (Dkt. No. 160 at 90-91
(emphasis added); see also Dkt. No. 154 at 27.) The
Court also instructed the jury that “[a]s to Mr.
Afsarpour, the SEC must establish: . . . [t]hat Mr. Afsarpour
knew or should have known that Dr. Sabrdaran had breached his
duty of trust and confidence for Dr. Sabrdaran's personal
benefit.” (Dkt. No. 160 at 92; see also Dkt.
No. 154 at 30.)
Court defined “personal benefit” for the jury as
A personal benefit for these purposes includes anything of
value, including money or friendship, and may be inferred
when an insider makes a gift of nonpublic information to a
friend. Personal benefit includes not only monetary gain,
such as a cut of the take or a gratuity from the tippee, but
also a reputational benefit or the benefit one would obtain
from simply making a gift of confidential information to a
trading relative or friend. The benefit does not need to be
financial or tangible in nature; it could include, for
example, maintaining a useful networking contact, improving
the tipper's reputation, obtaining future financial
benefits, or making a gift of confidential information to a
trading relative or friend.
(Dkt. No. 160 at 91-92; see also Dkt. No. 154 at
29.) The Court also gave instructions on the level of
intentional conduct required to prove insider trading,
To establish that Dr. Sabrdaran and Mr. Afsarpour acted with
intent to deceive, manipulate, or defraud, the SEC must prove
that Dr. Sabrdaran and Mr. Afsarpour acted knowingly or
recklessly and did not act inadvertently, carelessly, or by
mistake. “Reckless” means highly unreasonable
conduct that is an extreme departure from ordinary care,
which is either known to the defendant or is so obvious that
the defendant must have been aware of it.
(Dkt. No. 160 at 93-94; see also Dkt. No. 154 at
Defendants disputed the personal benefit instruction and
offered their own, they conceded in their pre-trial
submission that the SEC's proposed instruction-which the
Court adopted in relevant part-“is consistent with the
Ninth Circuit's decision in United States v.
Salman, 792 F.3d 1087 (9th Cir. 2015).” (Dkt. No.
94 at 7 n.1.) Defendants instead offered an instruction based
on the Second Circuit's decision in United States v.
Newman, 773 F.3d 438 (2d Cir. 2014), in which that court
held that to prove receipt of a personal benefit sufficient
to establish Section 10(b) and Rule 10b-5 insider trading
liability, the SEC must prove that the tipper gained
something of actual pecuniary value from the tip, or that the
tipper and tippee had a meaningfully close relationship that
generated an exchange that was objective, consequential, and
represented at least a potential gain of a pecuniary or
similar nature. Newman, 773 F.3d at 452-53.
Defendants made clear that they offered the
Newman-based instruction with the hope that the
Supreme Court would accept that approach and reject the Ninth
after trial, the Supreme Court decided United States v.
Salman, 137 S.Ct. 420 (2016). The Court reaffirmed its
earlier holding in Dirks v. SEC, 462 U.S. 646
(1983), that a tipper breaches his fiduciary duty, and thus
exposes himself to liability, when he “personally will
benefit, directly or indirectly, from his disclosure”
of inside information. Salman, 137 S.Ct. at 427
(quoting Dirks, 462 U.S. at 664). The Supreme Court
explained that “[t]his personal benefit can
‘often' be inferred ‘from objective facts and
circumstances, ' . . . such as ‘a relationship
between the insider and the recipient that suggests a
quid pro quo from the latter, or an intention to
benefit the particular recipient.” Salman, 137
S.Ct. at 427 (quoting Dirks, 462 U.S. at 664). The
Court held that in particular, “‘[t]he elements
of fiduciary duty and exploitation of nonpublic information
also exist when an insider makes a gift of confidential
information to a trading relative or friend.'”
Salman, 137 S.Ct. at 427 (emphasis in original)
(quoting Dirks, 462 U.S. at 664). In
Salman, as in Dirks, the Supreme Court
reasoned that such conduct exposed the tipper to liability
the same as if he had traded on the inside information and
then provided the proceeds as a gift to the close friend or
relative. 137 S.Ct. at 427-28; Dirks, 462 U.S. at
667. Salman expressly rejected the Second
Circuit's more narrow interpretation of the personal
benefit requirement, 137 S.Ct. at 428-the interpretation
Defendants advanced in their proposed jury instruction-and
affirmed the Ninth Circuit's decision in Salman,
792 F.3d 1087 (9th Cir. 2015), the case to which Defendants
conceded the jury instruction conformed.
for the first time, Defendants focus on the absence of an
instruction that the tipper intended to benefit the
tippee. Defendants insist that Dirks and
Salman establish two separate standards: one for a
“direct” personal benefit and one for an
“indirect” personal benefit. The
“gift-giving principle” that Dirks and
Salman recognized is an example of
“indirect” personal benefit and, according to
Defendants, it requires the SEC to establish the tipper's
intent to benefit the tippee. (Dkt. No. 170 at 14-19).
Defendants thus argue that the “jury instructions
erroneously suggested that an intent to benefit the recipient
was not required to satisfy the personal benefit requirement
in any way.” (Dkt. No. 170 at 13.) They then combine
intent to benefit the tippee with the tipper's personal
benefit, contending that “the jury was improperly
instructed that if Dr. Sabrdaran tipped [ ] Afsarpour without
intending to benefit [ ] Afsarpour and in exchange for
nothing but friendship itself, the jury could find that the
personal benefit requirement was satisfied” and
“[t]hat is not the law.” (Id. at 20.)
jury instruction challenge fails for several reasons. First,
neither Dirks nor Salman requires an
instruction about intent to benefit the recipient. To the
contrary, the Supreme Court explained that the required
personal benefit for the tipper can be inferred from various
“objective facts and circumstances, ”
“‘such as a relationship between the insider and
the recipient that suggests a quid pro quo from the
latter, or an intention to benefit the particular
recipient.'” 137 S.Ct. at 427 (quoting
Dirks, 463 U.S. at 664) (second emphasis added). The
personal benefit requirement is also satisfied “when an
insider makes a gift of confidential information to a trading
relative or friend.” 137 S.Ct. at 427 (quoting
Dirks, 463 U.S. at 664). Thus, a showing of a
tipper's intent to benefit the recipient may be
sufficient to show a personal benefit, but it is not
Defendants never objected to the personal benefit instruction
on this ground before or during the trial; the only objection
they raised was that the tipper's personal benefit had to
be financial or tangible, as in Newman.
(See Dkt. No. 94 at 6-8 & n.1.) They never
offered a proposed instruction that addressed their current
position that Dirks requires instructing the jury
that the tipper intended to benefit the tippee. Thus,
Defendants waived the argument, see Fed. R. Civ. P.
51(c), and may only object to the instruction on the grounds
that it constituted plain error. See Fed. R. Civ. P.
51(d)(2). It is not, for the reasons explained above.
reliance on SEC v. Yun, 327 F.3d 1263, 1281 (11th
Cir. 2003), is unpersuasive. There, the court instructed the
jury that to find liability the SEC must establish that the
tipper breached a fiduciary duty by disclosing material
nonpublic information intentionally or severely recklessly
and declined to include the defendants' proposed
instruction about personal benefit. Id. at 1281. The
SEC relied heavily on the “severely reckless”
instruction in its closing argument and the defendants'
attorneys were foreclosed from arguing lack of personal
benefit because of the denied instruction. The Eleventh
Circuit held the instructions were clearly erroneous and the
defendants were entitled to a new trial. Id. at
1282. Unlike Yun, Defendants here do not challenge
the Court's instruction about the level of intent-which
the Ninth Circuit has defined to include recklessness-and the
Court did not fail to instruct the jury about the personal
benefit requirement. Moreover, the Yun opinion does
not provide a detailed description of the complete set of
jury instructions, thus leaving the Court little to work with
in comparing the instructions in this case. Thus, while the
SEC's statements based on erroneous jury instructions in
Yun warranted a new trial, the SEC's statements
throughout closing argument that relied on the Court's
proper jury instructions here do not. Moreover, Yun
focused on whether the instructions adequately recited the
requirement that the tipper disclosed information with the
intent to personally benefit himself, not whether
the court sufficiently instructed the jury that it had to
find the tipper did so intending to benefit the
tippee, the belated argument Defendants make here.
in their supplemental brief, Defendants cite the district
court's jury instructions in SEC v. Gowrish, No.
C 09-5883 SI, Dkt. No. 143 at 6 (N.D. Cal. Feb. 14, 2011).
Gowrish does not suggest that the personal benefit
instruction here was plain error as the SEC's personal
benefit theory there was different: the tipper was not a
close personal friend or relative of the tippee, as here.
See SEC v. Gowrish, No. C 09-05883 SI, 2011 WL
2790482, at *1-2 (N.D. Cal. July 14, 2011),
aff'd, 510 F. App'x 588 (9th Cir. 2013).
Thus, the Supreme Court's pronouncement in
Dirks, as recently reaffirmed in Salman,
that “the elements of fiduciary duty and exploitation
of nonpublic information also exist when an insider makes
a gift of confidential information to a trading relative or
friend, ” Salman, 137 S.Ct. at 427
(emphasis in original; internal quotation marks and citation
omitted), did not apply.
Jury's Verdict was not Contrary to the Weight of the
maintain that even if the jury instruction was proper, the
jury's finding that the SEC satisfied the personal
benefit requirement was contrary to the weight of the
evidence. Not so. The jury heard myriad evidence about
Defendants' extremely close friendship. Defendants talked
to each other regularly about many subjects, recommended
self-help books and seminars to each other, gave each other
advice, and made travel plans together. This was enough for
the jury to conclude that Dr. Sabrdaran likely gave Afsarpour
a gift of insider information to nurture their close
argue that the record “belies the notion [that] Dr.
Sabrdaran disclosed anything with intent to benefit Mr.
Afsarpour” during the December 10, 2010 phone call.
(Dkt. No. 170 at 22.) Defendants highlight: (1) Dr.
Sabrdaran's testimony that he did not know that Afsarpour
was trading in InterMune stocks at that time and
Afsarpour's testimony that he did not tell Dr. Sabrdaran
that he was trading until December 17, 2010 (Dkt. No. 170 at
22; Dkt. Nos. 170-1 at 59, 71-72); (2) Defendants'
testimony that when Dr. Sabrdaran learned for the first time
on December 17, 2010 that Afsarpour was trading in InterMune
stocks he reacted with shock and dismay (Dkt. No. 170 at 22;
Dkt. No. 170-1 at 50-54, 71-74); and (3) Afsarpour's
December 19, 2010 Facebook message telling Dr. Sabrdaran to
“call me say a couple of bad words[, ]” which
Afsarpour explained means to air the negative feelings Dr.
Sabrdaran harbored against him after learning that he had
been trading in InterMune stock. (Dkt. No. 170 at 22-23; Dkt.
No. 170-1 at 55-59, 117.) Defendants contend that this
testimony reflects that Afsarpour apologized to Dr.
Sabrdaran, and “co-conspirators don't apologize for
what they were doing all along.” (Dkt. No. 170-1 at
86.) Again, in the face of the circumstantial evidence, the
jury reasonably discredited Defendants' accounts. And the
significant evidence about Defendants' longstanding
friendship is enough to reasonably infer that Dr.
Sabrdaran's motivation to tip was to nurture that
bottom, all Defendants do is highlight evidence that
conflicts with the jury's verdict. Based on that evidence
alone, Defendants insist that “loose talk between
friends” is not enough to support the personal benefit
required for insider trading liability. A reasonable
factfinder might have concluded that Dr. Sabrdaran was merely
negligent in disclosing information about Esbriet's
imminent approval and, thus, that his “loose
talk” with Afsarpour led to Afsarpour's trades. But
the evidence at trial supported both conclusions and, given
the weight of the circumstantial evidence, Defendants'
innocent explanation is not the likelier story. When the jury
is presented with competing evidence, it is not the
Court's role to substitute its own view for the
conclusions the jury reached after hearing all the competing
evidence. See Roy, 896 F.2d at 1176. This is
especially true when the fact question is particularly
nuanced as the Supreme Court has noted the personal benefit
requirement is. See Salman, 137 S.Ct. at 429
(“[D]etermining whether an insider personally benefits
from a particular disclosure, a question of fact, will not
always be easy for the [factfinder].”) (citing
Dirks, 463 U.S. at 664). Rather, even if it were a
close call whether Dr. Sabrdaran tipped for a personal
benefit, “it is not quite clear that the jury has
reached a seriously erroneous result” given the
evidence presented at trial. Carrethers v. Bay Area Rapid
Transit, No. 09-1101, 2012 WL 1004847, at *2 (N.D. Cal.
Mar. 26, 2012) (internal quotation marks omitted) (citing
EEOC v. Pape Lift, Inc., 115 F.3d 676, 690 (9th Cir.
Court Declines to Grant Judgment as a Matter of Law Regarding
Defendants argue that because there is no evidence that Dr.
Sabrdaran tipped for a personal benefit, it follows that
there is not substantial evidence that Afsarpour knew or had
reason to know that Dr. Sabrdaran had done so. (Dkt. No. 170
at 23.) As discussed above, the jury's finding that Dr.
Sabrdaran tipped Afsarpour for a personal
benefit-i.e., to nurture their friendship-was not
contrary to the weight of the evidence because the jury heard
significant testimony about the closeness of Defendants'
relationship and there is significant circumstantial evidence
that a tip occurred. This combination is enough for a
reasonable factfinder to conclude that Dr. Sabrdaran tipped
for his personal benefit; indeed, the jury reasonably
concluded as much.
the “personal benefit” jury instructions were
proper, the verdict was not contrary to the weight of the
evidence, and because there was substantial evidence to
support the jury's finding that Dr. Sabrdaran tipped
Afsarpour for a personal benefit, the Court declines to grant
a new trial or enter judgment as a matter of law in
Defendants' favor on this ground.
The “In Connection With” Requirement
a different tack, Defendants next argue that the jury
instruction and evidence about whether Afsarpour's
transactions were “in connection with” the sale
or purchase of securities warrants a new trial or judgment as
a matter of law. The trial record reflects that Afsarpour
engaged in three types of transactions: he purchased
InterMune stock, made spread bets on InterMune stock, and
placed spread bets on InterMune options. Notably,
Defendants concede that Afsarpour's stock purchases meet
the “in connection with” requirement, since he
purchased InterMune stock on a U.S. stock exchange through
his New York-based stockbroker. They nevertheless maintain
that the Court's jury instruction about the “in
connection with” requirement was improper and, even if
it was correct, the verdict must be set aside because there
is insufficient evidence that Afsarpour's spread bets
were “in connection with” U.S. securities.
Court's Instruction Was Proper
Court instructed the jury that “in connection
with” the purchase or sale of a security
means that there was some nexus or relationship between the
allegedly fraudulent conduct and the sale or purchase of
securities in the United States securities market. A
defendant's conduct may be in connection with a purchase
or sale of a security even if the ...