Insider trading defendant's sentence vacated for further factual proof that he “acted in concert with” or “provided inside information” to his tippee's stockbroker.

US v. Metro, --- F.3d ---, 2018 WL 844823 (3d Cir Feb. 14, 2018)

The Third Circuit vacated the sentence in an insider trading case due to insufficient factual findings in support of the district court’s decision to attribute others’ insider-trading gains to the defendant. Metro used his position at a law firm to give inside information to his close friend Tamayo. Tamayo then called his personal stockbroker Eydelman and gave him Metro’s information. Eydelman then made these trades for Tamayo, as well as for himself, friends, family members, and other clients. In all, Metro’s tips led to illicit gains of over $5.6 million. While Metro personally gained $168,000, the district court found him responsible for $5.6 million.

In insider trading cases, the offense level is enhanced by a defendant’s gain and the gains realized by other individuals whom a defendant “acted in concert with” or “provided inside information” to. U.S.S.G. § 2B1.4, cmt. background. Criminal liability is not co-extensive with sentencing accountability. Although Metro pled guilty to “conspiring with ‘Tamayo, Eydelman, and others’ to violate the securities laws,” his plea only established he learned about Eydelman after the insider trading activity ended and he argued the same at sentencing. “When the scope of a defendant’s involvement in a conspiracy is contested, a district court cannot rely solely on a defendant’s guilty plea to the conspiracy charge, without additional fact-finding, to support attributing co-conspirators’ gains to a defendant.” “Before attributing gains to a defendant under § 2B1.4’s gain analysis, a sentencing court should first identify the scope of conduct for which the defendant can fairly be held accountable for sentencing purposes under § 1B1.3.” The Third Circuit rejected the government’s position that United States v. Kluger, 722 F.3d 549 (3d Cir. 2013) essentially imposed strict liability on tippers.