Fraud Offenses – A government agency’s confidential non-public information constitutes “property” for the purposes of fraud offenses under Title 18.
Fraud Offenses – A defendant does not have to receive a personal benefit to be convicted for securities fraud and wire fraud brought under Title 18.
Four defendants brought a consolidated appeal after being convicted of wire fraud, securities fraud, and other white collar crimes. Specifically, government employees for the Center for Medicare and Medicaid had fed David Blaszczak, a “political intelligence consultant for hedge funds,” confidential nonpublic information which Blaszczak in turn gave to a “healthcare-focused hedge fund.” That hedge fund then traded based on the CMM information.
On appeal, the Second Circuit first held that confidential government information, such as the Medicare and Medicaid information at issue here, constitutes “property” for purposes of wire fraud and securities fraud.” The Court rejected the defendants’ arguments that the information was not property given the agency’s “purely regulatory interest” in the information. “Property,” the Court explained, does not have to be purely economic or commercial in nature, and the agency had spent time and resources into creating the information and maintaining its confidentiality. Crucially, the agency also had a “proprietary right to exclude” others from possessing the information.
The Court also held that the “personal benefit” test established in Dirks v. SEC, 463 U.S.C. 646 (1983), does not apply to wire fraud and securities fraud under Title 18. In Dirks, the Supreme Court held that an insider trader cannot be convicted of securities fraud under Title 15 unless the government proves that he breached his fiduciary duties by disclosing “material, nonpublic information in exchange for a ‘personal benefit.’”
The Court noted that neither Title 18 fraud and Title 15 fraud, both which apply to certain types securities fraud, explicitly mention anything regarding a “personal benefit.” And while they are similar in text and theories of fraud, the Court distinguished the “judge-made doctrine” in Dirks as “premised on the Exchange Act [Title 15]’s statutory purpose,” which the Court noted was far broader than the wire fraud statute. The Court concluded that, outside of the statutory context of Title 15, the personal-benefit test “finds no support” for being applied to Title 18 fraud offenses. Accordingly, the district court did not err by refusing to instruct the jury on the personal-benefit test for the defendant’s charges under Title 18.
On Appeal from the Southern District of New York
Opinion by Sullivan, joined by Droney
Dissent by Kearse
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