Shapiro Arato Bach Wins Appellate Reversal of Convictions for Trading on Regulatory Intelligence

On December 27, 2022, the Second Circuit Court of Appeals issued an opinion reversing the criminal convictions of our client, a former partner at Deerfield Management Co.  The case arises out of securities trades that Deerfield made based on information about a federal agency’s contemplated changes to Medicare reimbursement rates.  After the Second Circuit initially affirmed the convictions, Shapiro Arato Bach successfully petitioned the Supreme Court of the United States for a writ of certiorari.  We argued, as we had in the Second Circuit, that the government’s interest in predecisional information is purely regulatory, not proprietary, and thus cannot support a conviction under the federal fraud and conversion statutes.  The petition relied in part on the Supreme Court’s unanimous decision in the “Bridgegate” case, Kelly v. United States, 140 S. Ct. 1565 (2020), holding that federal wire fraud must involve “property,” and not the mere exercise of government regulatory powers.  The Supreme Court granted the petition, vacated the Second Circuit’s judgment, and remanded the case for further consideration in light of Kelly.

On remand, the government conceded that Kelly required vacating the fraud and conversion convictions but opposed our arguments that our client’s conviction under another conspiracy statute also had to be set aside.  The Second Circuit sua sponte invited an amicus curiae to argue that the information at issue was not “property” under Kelly.

In its December 27, 2022 opinion, the Second Circuit reversed all the convictions.  The Court held, among other things, that in light of Kelly the federal fraud and conversion statutes “do not apply to the conduct that was at issue here,” because “obtaining advance information as to what the agency’s preferred regulation would be, and when it would be announced, cannot properly be considered the agency’s money or property.”  Accordingly, the Court remanded the case for dismissal of the fraud and conversion counts.  In addition, the Court rejected the government’s argument for affirming the conspiracy conviction and vacated that conviction, remanding for further proceedings.

Alexandra Shapiro and Daniel O’Neill co-authored the briefs on remand together with counsel for our client’s co-defendants.  The briefs are available here, here, and here.  The Second Circuit’s decision, United States v. Blaszczak, 56 F.4th 230 (2022), is available here.