The First, First Circuit Court To Opine On A Newman Challenge

And the Insider Trading Charges Stick

On May 12, 2015, in United States v. Douglas Parigian, U.S. District Court Judge Denise Casper became the first judge in the First Circuit to opine on a challenge to insider trading charges premised upon the Second Circuit's controversial ruling in United States v. Newman, 773 F.3d 438 (2d Cir. 2014). And the decision denied Parigian's motion to dismiss and held that under the facts of that case, Newman did not warrant dismissal despite that (1) there was no allegation that the "insider-tipper" received any benefit in exchange for the transmittal of the inside information, and (2) the alleged personal benefit to the "tippee" who subsequently tipped several rounds of inside information to Parigian was a steak dinner that the tippee would purportedly receive in the future.

The Parigian Case

The facts of the Parigian case at first blush appear to be classic insider trading. There are a group of golfing buddies. One of them is Douglas Parigian and another one is Eric McPhail. There is an insider - "Person A" - a senior executive at American Superconductor Corporation ("AMSC"), a company that produced wire, hardware and software for the wind power industry. According to the Superseding Indictment, beginning in July 2009, Person A disclosed material, nonpublic information about AMSC to McPhail, McPhail passed the information to Parigian and other golfing buddies, and they all traded on the information and made money. As luck would have it for the government, there are a series of emails chronicling the information flow, such as the following:

On July 9, McPhail sent an email "Try this one ... AMSC ... watch it on July 30th." (Superseding Indictment ¶ 14). Between July 9 and July 24, Parigian bought 1200 shares of AMSC stock. (Id. ¶ 19). On July 30, AMSC announced positive earnings and its share price shot up. Between July 30 and 31, Parigian sold 1000 AMSC shares and made about $9,000. (Id.). On July 30, McPhail emailed: "Nice profitable day for the boys. So when should I report in on which restaurant and massage parlor I want to be treated to?" (Id. ¶ 20). On September 29, McPhail sent an email: "Well boys ... went to the Sox game with a friend of mine tonight. He seems to think that AMSC has a $100 Million deal with China that should be signed very shortly ...This announcement should spike them close to 10%. Furthermore, circle October 29th for the next big day ... it could/should be as good as the last one...