Court Enters Judgment of Acquittal for Lawyer Previously Convicted of Insider Trading

Environmental lawyer wins acquittal in US insider trading case

A federal judge in Chicago has acquitted an environmental lawyer of insider trading charges after his co-conspirator was found innocent of the same crime.

U.S. District Judge Manish Shah on Tuesday entered a judgment of acquittal for David Sargent, a former faculty member at Loyola University Chicago’s School of Environmental Sustainability.

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Sargent was convicted in mid-January by a federal jury after prosecutors said he received nonpublic information about the earnings of Chegg Inc, an education technology company, to make $110,000 in profit on trades of Chegg stock.

But the same jury at the same trial acquitted Christopher Klundt, a former Chegg manager who allegedly tipped off Sargent before the earnings news became public.

Sargent argued that his conviction and Klundt’s acquittal were based on the same evidence, charges and jury instructions.

Ex-Gibson Dunn Lawyer Costa Gets Two Months in Prison for Insider Trading

A visiting Brazilian attorney who was employed by Gibson, Dunn & Crutcher in the US must spend two months in prison after pleading guilty to insider trading in shares of companies represented by the law firm.

Romero Cabral Da Costa Neto, 33, was sentenced by US District Judge Carl J. Nichols in Washington Wednesday. “In my view, the conduct here is egregious,” said Nichols. Costa’s decision to trade on confidential information wasn’t “spur of the moment or reactive,” he added.

The sentence was less than what prosecutors had asked Nichols to impose. Prosecutors had pushed for an eight-month prison term, on the low end of the guidelines range.

Costa, who didn’t work on mergers, accessed his law firm’s computer system and used search terms to find inside information, said Kevin Rosenberg, an attorney for the government. “Mr. Costa didn’t just happen upon this information. Mr. Costa was stealing information from other law firm partners,” Rosenberg said.

Burned Investors Ask ‘Where Were the Auditors?’ A Court Says ‘Who Cares?’

One of the country’s most influential courts has asked the nation’s top securities regulator for its views on an uncomfortable subject: whether audit reports by outside accounting firms actually matter.

The court already ruled that, at least in one case, they didn’t. That case, where an insurer overstated profits and an auditor signed off on its books, led to an investor lawsuit against the auditor that was dismissed. In its ruling, the court said the audit report was so general an investor wouldn’t have relied on it.

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The ruling, by a three-judge panel of the Second U.S. Circuit Court of Appeals, prompted three former SEC officials to tell the court it got the answer wrong. They asked the court to reconsider its decision, noting that the SEC in a previous enforcement case had said that “few matters could be more important to investors” than whether a company’s financial statements had been subjected to a properly conducted annual audit.

The court responded by inviting the SEC to file a brief expressing its views on the former officials’ arguments. The SEC in a court filing said that “the commission has an interest in ensuring its views on this issue are considered by the court.” Its brief is due Feb. 16. An SEC spokeswoman declined to comment.

First Person to be Convicted of Insider Trading in the History of the State

The first person to be convicted of insider trading in the history of the State has been fined £60,000 sterling at Dublin Circuit Criminal Court.

Declan Service, of Sunnyvale Avenue, Portrush, Co Antrim, has been told he faces a potential term of imprisonment of 18 months when his sentence is finalised next February.

The 63-year-old carer pleaded guilty to engaging in insider dealing on dates between May 18 and 22, 2020, when he used sensitive market information to sell shares before that information was made public.

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He told gardaí: “I truthfully didn’t realise I had done anything wrong. I acted innocently in my mind. It’s not in my DNA to do something I know to be illegal.”

Hometown Deli Head Targeted by Einhorn Pleads Guilty to Fraud

A man who orchestrated a scheme that inflated the value of a small New Jersey deli to more than $100 million pleaded guilty to fraud.

James T. Patten on Wednesday admitted he committed securities fraud and conspiracy in a hearing before US District Judge Christine P. O’Hearn in Camden, New Jersey, according to prosecutors.

Patten, 64, was one of three men charged in September 2022 with scheming to artificially inflate the price of two companies through manipulative trading, including Hometown International Inc. That company’s only asset was “Your Hometown Deli” in Paulsboro, New Jersey, just across the Delaware River from the Philadelphia airport.

Goldman Insider Trader Ordered to Pay Bank $390,000 in Costs

A former Goldman Sachs Group Inc. vice president sentenced to three years in prison for insider trading must also pay the bank more than $390,000 to cover its legal costs.

Brijesh Goel was ordered to pay that amount Wednesday by a federal judge in New York. Goldman said it incurred that expense cooperating with investigations into Goel’s conduct by the Manhattan US attorney’s office and the Securities and Exchange Commission. The bank hired law firm Milbank LLP to handle the matter.

UK Crypto Hub Plans Takes Next Step as Government Discusses Digital Securities Sandbox

The U.K. government said it plans to continue working with the financial services and technology industries to establish the legislation needed to pave the way for digital securities as it pursues its goal of becoming a hub for the crypto industry.

The design of a planned digital securities sandbox (DSS) that lets companies test new products with real customers under regulatory supervision was generally welcomed by respondents to a consultation distributed in July, the Treasury said Wednesday. Many respondents emphasized the need for the rules within the sandbox to remain flexible so it can adapt to novel use cases. They also asked for more clarity about tax treatment within the sandbox.

Eight things to remember when negotiating a disgorgement resolution

Prior to engaging in resolution discussions or negotiations with the DOJ, SEC, or other regulators, counsel should invest time and resources to develop and advocate a defensible “net profit” calculation. Understanding and analyzing the drivers of these calculations can yield incredibly favorable results in the form of significantly reduced disgorgement resolutions; but doing so can be complicated, particularly when the revenue and expenses at issue are associated with complex contracts, transactions, or other commercial arrangements. Moreover, corporate expenses are often recognized, measured, and attributed using involuted cost pooling or other allocation methodologies.

The specific exercise that defense and corporate counsel need to perform is nuanced, and first requires the identification of revenues at issue….

With this in mind, we suggest eight things for defense counsel to consider when modeling disgorgement scenarios for corporate clients and preparing to engage with the government on the topic of net profits. While our suggestions are directed at the defense bar, corporate counsel and executives should also be mindful of the opportunities that exist to drive an improved disgorgement result.

Delaware Court: High Barrier for Oversight Claims Against Officers

In a January 25, 2023, opinion in the McDonald’s case that has become known as McDonald’s I, Delaware Vice Chancellor Travis Laster held, as discussed in detail here, that liability for breach of the duty of oversight can extend to corporate officers as well as to directors. While there have been subsequent cases that have raised breach of the duty of oversight claims against officers, there have been no published decisions analyzing the duty of oversight as pertains to officers — that is, until now.

In a short December 14, 2023, opinion that emphasizes the high bar for oversight claims against officers, Vice Chancellor Lori Will dismissed claims that the personal transportation device company Segway brought against its former President. VC Will expressly rejected any suggestion that the standard to plead an oversight breach claim against a corporate officer is any lower than the high standards applicable to oversight claims against directors. A copy of VC Will’s opinion can be found here.