On February 14, 2018, the United States Court of Appeals for the Third Circuit vacated Steven Metro’s 46-month prison sentence for insider trading and remanded the case to the district court for resentencing. United States v. Metro, No. 16-3813 (3d Cir. Feb. 14, 2018). The Third Circuit held that a sentencing court cannot attribute illicit financial gains to an insider trading defendant for purposes of the United States Sentencing Guidelines (the “Sentencing Guidelines”) when the gains are “actually attributable to someone with whom he was not acting in concert and to whom he did not provide inside information.”

While working as a managing clerk at a prominent New York law firm, Metro allegedly disclosed material nonpublic information to a close friend, Frank Tamayo, who allegedly unbeknownst to Metro, provided this information to his broker. Specifically, the government contended that over a period of four years, Metro advised Tamayo to purchase shares in thirteen distinct companies at specific times. The government claimed that Tamayo provided the relevant information to his broker, who traded stocks on behalf of Tamayo, and that the broker also traded on the information for his own benefit, as well as the benefit of his friends and family, and other brokerage clients. The government asserted that the broker’s trades generated $5,673,682 in illicit gains. Metro ultimately plead guilty to conspiracy to commit securities and tender offer fraud under 18 U.S.C. § 371, and insider trading in violation of 15 U.S.C. § 78(j)(b) and 78ff.

Metro argued that the full amount of illicit gains attributed to the scheme by the government should not be attributed to him when calculating his recommended sentence range under the Sentencing Guidelines because he did not learn of the broker’s role in the alleged conspiracy until a year after his last tip to Tamayo. The district court, however, used a range that was in part attributable to the alleged $5,673,682 in illicit gains, without determining whether Metro had been aware of the broker’s role in his insider trading conspiracy.

A unanimous panel of the Third Circuit reversed, holding that additional fact-finding was required to support the sentence. The panel emphasized that commentary to section 2B1.4 of the Sentencing Guidelines requires that sentencing in insider trading cases be based on the total increase in value realized by the defendant and “persons acting in concert with the defendant or to whom the defendant provided inside information.” According to the court, the only evidence that Metro had acted “in concert with” the broker was a single, ambiguous wiretapped conversation from a year after Metro provided Tamayo with the last tip offered by the government. The panel held that, although this might be sufficient to attribute the broker’s gains to Metro for purposes of sentencing, the district court needed to expressly make such a finding. The panel remanded the case so that the district court could determine whether the government established by a preponderance of the evidence that Metro acted in concert with or provided inside information to Tamayo’s broker.

United States v. Metro