Appellee Kevin Heron, Chief Insider Trading Compliance Officer for semiconductor manufacturer Amkor Technology, Inc., was convicted of three counts of securities fraud, as well as one count of conspiracy to commit securities fraud, based on a purported conspiracy with his neighbor, Stephen Sands, a low-level employee of Neoware, to exchange inside information concerning their respective companies. After the jury’s verdict convicting Mr. Heron on all counts, the District Court for the Eastern District of Pennsylvania granted his motion for a judgment of acquittal on three of the four counts, including the count of conspiracy to commit securities fraud. The District Court reasoned that a conspiracy to commit securities fraud was a legal impossibility because Mr. Sands, as a low-level employee, was not an insider and therefore not in a position to provide material, non-public information.
After the government appealed, the Third Circuit Court of Appeals reversed and reinstated the conviction. The Third Circuit held that in order to prove conspiracy, the government was required to show that (i) an agreement existed between Mr. Sands and Mr. Heron to exchange and, for trading purposes, use material, non-public information concerning their respective companies, and (ii) at least one overt act in furtherance of that agreement occurred. In reversing the judgment of acquittal on the count of conspiracy to commit securities fraud, the court ruled that whether Mr. Sands was an insider, and therefore legally capable of engaging in securities fraud, was irrelevant to the conspiracy charge. The court reasoned that it is “the conspiratorial agreement itself, not the underlying substantive acts,” or the ability to perform them, “that forms the basis for conspiracy charges.”
In addition, the Third Circuit ruled that, even if proof of Mr. Sands’ insider status was required to prove a conspiracy charge, there was ample evidence from which a jury could have found that he was an insider. The court reasoned that Mr. Sands’ position at Neoware was not determinative of his insider status. Instead, the court held, insider status is determined from a person’s relationship with the corporation that makes it more probable than not that the individual has access to inside information. In the instant case, the court concluded that there had been sufficient evidence to show that Mr. Sands had access to inside information and agreed to share that information with Mr. Heron. (U.S. v. Heron, Nos. 08-1061, 08-1622, 2009 WL 868017 (3rd Cir. April 2, 2009))