Shapiro Arato Bach Files Petition for Writ of Certiorari in Insider Trading Case
On February 19, 2021, Shapiro Arato Bach filed a petition for writ of certiorari in the Supreme Court of the United States on behalf of our client, Dr. Edward J. Kosinski. The petition presents important questions concerning the federal crime of insider trading.
Dr. Kosinski was a prominent Connecticut cardiologist. He was convicted for trades of Regado Biosciences, Inc. securities that he placed while a principal investigator in Regado’s clinical drug trial. But for over 40 years, Supreme Court cases have held that trading based on nonpublic information is not fraudulent, and thus cannot violate the relevant securities laws, unless the trader was in a fiduciary or similar relationship of “trust and confidence” with either the company that issued the securities or the source of the trader’s information. As a principal investigator, Dr. Kosinski was hired to be independent of Regado, not its fiduciary. While his contract required him to keep information about the study confidential, it also specified that he was not Regado’s agent, nor did it restrict his use of information, other than the obligation not to disclose it. Nonetheless, the district court instructed the jury that the critical element of “trust and confidence” is satisfied “whenever someone agrees to maintain information in confidence,” and the Second Circuit affirmed.
The petition presents the question whether a simple agreement to keep information confidential by itself can establish the fiduciary or similar relationship of “trust and confidence” required to establish insider-trading fraud. Moreover, in affirming Dr. Kosinski’s convictions, the Second Circuit endorsed numerous additional indicators and formulations of a “fiduciary-like” relationship and said it could not articulate any one clear test or measure of proof for when a duty of trust and confidence exists. Applying these various other factors, the court concluded that Dr. Kosinski had a “fiduciary-like relationship” with Regado, and so any error in the jury instruction was “harmless.” The petition thus presents the additional questions (1) whether the Second Circuit’s open-ended, case-by-case approach to the duty element of insider-trading fraud is unconstitutionally vague; and (2) whether, if a jury was erroneously instructed on an element of a criminal offense, a reviewing court may affirm the conviction based upon a theory of guilt that the jury never considered or found proven beyond a reasonable doubt.
Partners Alexandra Shapiro and Daniel O’Neill co-authored the petition, which is available here.