           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                   Fifth Circuit

                                                                            FILED
                                                                        September 16, 2008

                                       No. 07-20455                   Charles R. Fulbruge III
                                                                              Clerk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                                                  Plaintiff – Appellee
v.

BRUCE E. SNYDER, JR.

                                                  Defendant – Appellant



                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:03-CV-4658


Before SMITH, WIENER, and HAYNES, Circuit Judges.
PER CURIAM:*
       This    case    involves     civil   securities     fraud    allegations      against
Defendant-Appellant Bruce Snyder, the former vice president and chief
accounting officer of Waste Management, Inc. (“WMI”). The Securities and
Exchange Commission (“SEC”) alleged that Snyder filed a materially false and
misleading Form 10-Q for the first quarter of 1999 because it overstated income
and included certain “nonrecurring” adjustments to income without appropriate



       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                  No. 07-20455

disclosure. The SEC also alleged that Snyder committed insider trading when
he sold stock after filing the allegedly false Form 10-Q.
      Snyder argued to the jury that he did not act with scienter because he
reasonably believed that the overstated income was immaterial and that the
adjustments were recurring and need not have been disclosed.              Snyder
established that WMI’s outside accountant, Arthur Andersen (“AA”), conducted
an unaudited review of the 10-Q before it was filed. Snyder argued that if
outside accountants believed the disclosures in the 10-Q were adequate, he was
not severely reckless for believing the same.
      After a four week trial, the jury returned a verdict against Snyder on all
claims. Snyder asks this court to reverse and render a judgment in his favor, or
in the alternative, for a new trial. Finding error in the jury instructions, we
REVERSE and REMAND for a new trial.
                              I. BACKGROUND
      On July 16, 1998, USA Waste Services, Inc., completed a merger with
Waste Management, Inc. to create WMI. Snyder was chief accounting officer of
the merged company.       The company was organized into five geographic
operating areas, each of which was overseen by an area vice president.
      Following the merger, WMI reaffirmed its earnings outlook for 1999,
saying it expected earnings to be $3.00 to $3.05 per share for the year. Rod
Proto, WMI’s chief operating officer, scheduled a meeting in mid-November 1998
to discuss the company’s budget for 1999. The chief executive officer, chief
financial officer, five area vice presidents, Proto, and Snyder attended the
meeting. The financial results discussed during the meeting were disappointing.
Although the company predicted earnings per share of $3.00 to $3.05 for 1999,
the area vice presidents projected earnings totaling only $1.98 per share.
Several of the areas reported first quarter results that would be tens of millions
of dollars below their respective targets. The area vice presidents described the


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targets as aggressive and very difficult to achieve. Proto pressed the area vice
presidents to get to $2.92 per share for the year.
      On April 26, 1999, Proto organized a conference call with Snyder and the
area vice presidents to discuss the first quarter numbers in advance of a May 6
call with investors. Proto indicated during the call that investors expected
earnings of close to sixty cents per share for the first quarter. Snyder’s notes of
the call indicate that Proto said “we need help now” and “we need operating
results, not just journal entries.” They also discussed the anticipated second
quarter performance during the call. Three of the four area vice presidents who
were on the call predicted significant shortfalls from their second quarter budget
targets. Snyder’s handwritten notes from the call reflect that the projected
revenue for WMI’s second quarter was running short by $110 million, or eleven
cents per share. Snyder wrote “Acctg Solutions?” in the margin next to his
discussion of the shortfall.
      On May 13, 1999, Snyder signed WMI’s Form 10-Q for the first quarter of
1999, which was then filed with the SEC. WMI stated in the Form 10-Q that its
earnings per share for the first quarter would be sixty-one cents per share, only
one cent short of market expectations. WMI’s Form 10-Q for the first quarter of
1999 formed the basis of the SEC’s case against Snyder. Four days after signing
the Form 10-Q, Snyder sold 5500 shares of WMI stock.
      The preparation of the financial statements in the Form 10-Q was
governed by generally accepted accounting principles (“GAAP”), including the
SEC’s Regulation S-X. 17 C.F.R. § 210 (2006). If a company’s earnings include
adjustments that are not normal and recurring, that fact had to be disclosed in
the financial statements under Regulation S-X even though they are
appropriately accounted for as income in the financial statements. Among other
things, Regulation S-X provided:



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      Any unaudited interim financial statements furnished shall reflect
      all adjustments which are, in the opinion of management, necessary
      to a fair statement of the results for the interim periods presented.
      . . . If all such adjustments are of a normal recurring nature, a
      statement to that effect shall be made; otherwise, there shall be
      furnished information describing in appropriate detail the nature
      and amount of any adjustments other than normal recurring
      adjustments entering into the determination of the results shown.
17 C.F.R. § 210.10-01(b)(8) (emphasis added).
      The management discussion and analysis (“MD&A”) in the Form 10-Q,
which was separate from the financial statements, was governed by Item 303 of
Regulation S-K. 17 C.F.R. § 229.303 (2006). Instruction 4 to Paragraph (b) of
Item 303 provided that the company’s “discussion of material changes in results
of operations shall identify any significant elements of the registrant’s income
or loss from continuing operations which do not arise from or are not necessarily
representative of the registrant’s ongoing business.” Id.
      The SEC argued to the jury that the Form 10-Q overstated WMI’s income
and contained undisclosed nonrecurring accounting adjustments intended to
close the gap between investor expectations and WMI’s true financial
performance. The accounting adjustments can be divided into two categories:
(1) adjustments identified by WMI’s outside accountants as troublesome before
Snyder signed the Form 10-Q; and (2) adjustments about which AA raised no
concerns before the Form 10-Q was signed.
               a. Accounting Adjustments Identified by
              WMI’s Outside Accountants as Troublesome
                  Before Snyder Signed the Form 10-Q
      AA, WMI’s outside accountant, was hired to perform a quarterly review in
connection with WMI’s first quarter Form 10-Q for 1999. In that role, AA
performed an unaudited review of WMI’s first quarter 1999 financial results,
including a review of WMI’s journal entries, to determine if there were any
questions. If it disagreed with WMI’s accounting treatment or had a question,

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AA would make proposed adjusting journal entries (“PAJEs”), which are
proposed revisions to the financial statements.
      AA proposed five PAJEs in connection with its review of the first quarter
Form 10-Q, four of which would have reduced WMI’s reported income if adopted.
Although the fifth PAJE would have increased WMI’s reported income if
adopted, the SEC argued that the entire adjustment, including the increase
proposed by WMI, should have been disclosed as nonrecurring.
      PAJE 1: Change in life of burners. The first PAJE related to a change in
the estimate of the useful life of certain waste-to-energy plants. AA concluded
that $5.7 million of the adjustment related to a prior period and should not have
been included in first quarter income.
      PAJE 2: Change in treatment of outage costs. The second PAJE related
to an income adjustment associated with a change in how WMI accounted for
certain costs that were incurred when WMI’s plants were annually shut down
for repairs and maintenance. AA concluded that $2.2 million of the adjustment
related to a prior period and should not have been included in first quarter
income.
      PAJE 3: Conforming landfill entries. The third PAJE related to three
landfills operated by Whellabrator Technologies, Inc. (“WTI”) prior to the USA
Waste/Old Waste merger. WTI made an adjustment because the landfills had
been accounted for in a way that was different from all of WMI’s other landfills,
and WMI decided to conform the accounting to its other landfills. AA concluded
that the $20.3 million adjustment should have been recorded under “Merger
Costs and Unusual Items” rather than as a reduction of operating costs.
      PAJE 4: Change in landfill reserves. The fourth PAJE involved a change
in estimates to certain reserves at two landfills. AA concluded that adjustments
made to two landfills were to closure or post-closure reserves, but that WMI had
improperly recorded the adjustment on a cumulative basis rather than

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accounting for the adjustment prospectively. This adjustment increased income
by $12.1 million.
      After WMI reviewed AA’s PAJEs, WMI “elected to pass the entries.” AA’s
first four proposed adjustments would have reduced WMI’s reported income by
$40.3 million. The fifth PAJE would have increased WMI’s income by $10
million, but as discussed below, that increase was to an accounting adjustment
that the SEC contends should have been disclosed as nonrecurring. Snyder
determined that the accounting errors identified by AA were immaterial to
WMI’s total reported income. AA concurred that “the passing of these entries
does not have the effect of making the Company’s consolidated financial
statements materially misleading.” On May 6, 1999, AA issued its “Report of
Independent Public Accountants,” explaining that it had reviewed WMI’s
financial statements. Based on its review (and with full knowledge that WMI
had passed on the PAJEs), AA gave a “negative assurance” that it was “not
aware of any material modifications that should be made to the financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.”
             b. Accounting Adjustments About Which
      AA Raised No Concerns Before the Form 10-Q Was Signed
      After Snyder signed the Form 10-Q for the first quarter of 1999, WMI
continued to be concerned that it would not meet its earnings forecast for the
second quarter. After another meeting to discuss WMI’s financial performance
on June 9, 1999, Snyder exercised options to acquire 8700 shares and instructed
the broker to sell 2700 of the shares.
      On July 6, 1999, WMI issued a press release advising that it had lowered
its earnings projections for the second quarter and for the full year. WMI
further lowered its second quarter projections downward in a July 29, 1999 press
release. WMI’s stock price plummeted.


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      WMI’s board created an Executive Committee to investigate the missed
projections. Ralph Whitworth, chairman of the board, became aware that
certain “soft” items included in the second quarter projections did not relate to
WMI’s ongoing business, but instead related to accounting changes or
nonrecurring items. He asked Snyder to come up with a list of similar income
items that were included in WMI’s first quarter reported income.
      Snyder created a list of accounting adjustments in August 1999 titled
“Nonrecurring adjustments,” which was admitted during trial as Exhibit 92.
The adjustments listed in Exhibit 92 totaled $101 million of reported income for
WMI in the first quarter of 1999 and were not disclosed in the Form 10-Q. Both
Snyder and AA were aware of all the adjustments listed in Exhibit 92 when
Snyder signed the Form 10-Q for the first quarter of 1999. In addition to the
four PAJEs discussed above, Snyder listed three other accounting adjustments
under the title “Nonrecurring adjustments.”
      Reduction of Reserves for Seven Eastern Area Landfills. After
listing the four PAJEs discussed above, the fifth adjustment identified on
Exhibit 92 was made up of seven individual adjustments to reserves for landfills
in the company’s eastern area, adding $24 million to WMI’s first quarter pre-tax
earnings. Although AA was aware of this adjustment in connection with its first
quarter review, it did not flag it for correction. John King, an AA audit manager,
testified that it was only after being asked to do additional procedures by WMI’s
board of directors later that summer (around the time that Exhibit 92 was
created) that AA “became aware of new and different facts that ultimately led
us to conclude that the adjustments–or some portion of the adjustments were
inappropriate.”
      For several landfills WMI reduced closure or post-closure reserves, but it
did not account for them prospectively. According to King, the “accounting was
inappropriate” and not representative of the company’s ongoing business.


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Another two landfills, Cuyahoga and Deep Valley, had been closed and then
reopened. WMI reversed its closure/post-closure reserves. AA agreed that some
reversal was appropriate but not to the extent the company had taken it. King
testified that the adjustment was not representative of WMI’s ongoing business.
In the case of two landfills, DSI and East Kentucky, there appears to be no
explanation for the adjustments.
      Change in Accounting for Vickery Deepwell. The sixth adjustment
identified on Exhibit 92 was a change in accounting for a landfill called Vickery
Deepwell. WMI changed its accounting from viewing two facilities as separate
to viewing them as one integrated facility. According to King, the resulting $12
million increase in pre-tax earnings was a “unique” event, and not
representative of ongoing business. Stephen Brown, an AA partner, agreed that
the adjustment made to the Vickery reserve was “an example of something that’s
a nonrecurring adjustment to a reserve.”
      Reduction of International Environmental Reserves. The seventh
adjustment identified on Exhibit 92 pertained to a reduction of environmental
reserves for foreign sites that had not been reviewed for more than five years.
The adjustment added $25 million to operating income. Charles Williams,
WMI’s vice president of environmental engineering, testified that typically the
company looked at the reserves quarterly, and that five years was a “very long
period of time to us.” This was a “special case and something that probably
would not repeat itself.”
      The SEC argued to the jury that these three categories of accounting
adjustments should have been disclosed as nonrecurring in the first quarter
Form 10-Q.
      On August 3, 1999, WMI issued another press release:
      An ongoing review, with our independent auditors, is being made of
      the recording in the first quarter of 1999 of remedial reserves for
      landfills and other assets managed as part of the International

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      operating unit and by the Eastern Area of the Company’s North
      American operations, and of changes made in the residual values of
      landfills formerly managed by Whellabrator Technologies, Inc. This
      review may demonstrate that approximately $95 million ($0.09
      diluted EPS) of non-recurring pretax income items were included in
      operating income (as reported and as adjusted) for the quarter
      ended March 31, 1999. The results of this review will be discussed
      in the Company’s August 16, 1999 filings with the SEC. Depending
      on the outcome of the review, the Company may restate its Form
      10-Q for the period ended March 31, 1999.
      The adjustments identified on Exhibit 92 and discussed above were then
reviewed by AA. The results of the investigation were reported in an August 16,
1999 press release and in WMI’s second quarter Form 10-Q, which disclosed that
WMI overstated its first quarter income by $30.2 million, slightly less than the
total amount of overstated income identified by AA in the PAJEs. In addition,
the MD&A stated that “[f]or the six months ending June 30, 1999, operating
costs and expenses were favorably impacted by $58 million in the three months
ended March 31, 1999 attributable to downward revisions in remediation
liabilities to certain of the Company’s operations.” Of this $58 million, $23
million was “attributable to revisions of reserves associated with the Company’s
Eastern Area” and $35 million was “attributable to revisions of remediation
liabilities associated with the Company’s international operations.”
      The SEC sued Snyder claiming that WMI’s first quarter Form 10-Q
mistated WMI’s income and failed to disclose a material amount of nonrecurring
adjustments, in violation of section 10(b) of the Securities Exchange Act of 1934
(“Exchange Act”) and SEC Rule 10b-5, and that he aided and abetted WMI’s
filing of a materially false and misleading Form 10-Q for the first quarter of
1999, in violation of Section 20(e) of the Exchange Act. The SEC also alleged
that Snyder committed insider trading in violation of Section 17(a) of the
Securities Act of 1933, Section 10(b) of the Exchange Act, and SEC Rule 10b-5
in connection with two sales of WMI stock that occurred after he signed and filed


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the materially misleading first quarter Form 10-Q. Snyder argued to the jury
that he did not act with scienter because three outside accountants believed the
disclosures in the Form 10-Q were adequate.
      After a four week trial, the jury found that Snyder filed a materially false
and misleading Form 10-Q and that he aided and abetted WMI’s filing of a
materially false and misleading Form 10-Q. The jury also found that Snyder
committed insider trading when he sold WMI stock on May 17, 1999 and on June
9, 1999. After the verdict, Snyder moved for judgment as a matter of law,
contending that reasonable jurors could not have reached those verdicts based
on the evidence presented. The district court denied Snyder’s motion, finding
that the record contained sufficient evidence to support the jury verdicts and
emphasizing that the court’s role was not to make credibility determinations or
weigh the evidence.
      Snyder now appeals the final judgment entered against him.
                               II. DISCUSSION
      Snyder argues that there was no evidence supporting the jury’s finding of
scienter and requests this court to reverse and render judgment in his favor on
all claims. In the alternative, Snyder argues that a new trial is required because
of erroneous jury instructions. We address each issue in turn.
                       A. Sufficiency of the Evidence
      We first address whether the SEC produced sufficient evidence to support
the jury’s finding that Snyder acted with scienter. Snyder argues his motion for
judgment as a matter of law should have been granted because the accounting
errors identified by AA before the Form 10-Q was filed were immaterial and both
he and AA reasonably believed that the other adjustments identified by the SEC
were recurring and did not need to be disclosed. We hold that there was
sufficient evidence to support the jury’s findings that Snyder acted with scienter.



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        This court reviews the denial of a motion for judgment as a matter of law
de novo. Evans v. Ford Motor Co., 484 F.3d 329, 334 (5th Cir. 2007). “‘Although
our review is de novo, . . . our standard of review with respect to a jury verdict
is especially deferential.’” Id. (alteration in original) (quoting Flowers v. S. Reg’l
Physician Servs. Inc., 247 F.3d 229, 235 (5th Cir. 2001)). We review “all of the
evidence in the record, drawing all reasonable inferences in favor of the
nonmoving party.” Id. This court “‘may not make credibility determinations or
weigh the evidence.’” Id. (quoting Reeves v. Sanderson Plumbing Prods., Inc.,
530 U.S. 133, 150 (2000)). Thus, in reviewing the record as a whole, the court
“must disregard all evidence favorable to the moving party that the jury is not
required to believe.” Id. “[J]udgment as a matter of law should only be granted
if ‘the facts and inferences point so strongly and overwhelmingly in the movant’s
favor that reasonable jurors could not reach a contrary conclusion.’” Coffel v.
Stryker Corp., 284 F.3d 625, 630 (5th Cir. 2002) (quoting Flowers, 247 F.3d at
235).
        In order to establish that Snyder is liable, either for filing a false or
misleading Form 10-Q, or for aiding and abetting WMI’s filing of the Form 10-Q,
the SEC had to show that he acted with scienter, “‘a mental state embracing
intent to deceive, manipulate, or defraud.’” Goldstein v. MCI Worldcom, 340
F.3d 238, 245 (5th Cir. 2003) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185,
193 n.12 (1976)). The scienter element can be satisfied by a showing of “severe
recklessness.” Id. This court has repeated the definition of severe recklessness
for this circuit on several occasions:
        those highly unreasonable omissions or misrepresentations that
        involve not merely simple or even inexcusable negligence, but an
        extreme departure from the standards of ordinary care, and that
        present a danger of misleading buyers or sellers which is either
        known to the defendant or is so obvious that the defendant must
        have been aware of it.


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Id. at 245-46 (internal quotation marks omitted); Abrams v. Baker Hughes Inc.,
292 F.3d 424, 430 (5th Cir. 2002); Nathenson v. Zonagen Inc., 267 F.3d 400, 408
(5th Cir. 2001); see also Broad v. Rockwell Int’l Corp., 642 F.2d 929, 961 (5th Cir.
1981) (en banc). Snyder contends that this Court should apply a “no reasonable
accountant” formulation of the severe recklessness standard, which was adopted
by the court in SEC v. Price Waterhouse, 797 F. Supp. 1217, 1240 (S.D.N.Y.
1992). We decline to adopt an explicit “no reasonable accountant” requirement
and, instead, apply this court’s well established definition of severe recklessness.
      Snyder is correct that the SEC cannot satisfy its burden of proving scienter
by demonstrating that he was aware of some accounting errors that, with the
benefit of hindsight, turned out to be significant. The SEC had the burden of
proving that Snyder acted with scienter with regard to both the truth and the
materiality of the allegedly misleading statements. See Fine v. Am. Solar King
Corp., 919 F.2d 290, 297 (5th Cir. 1990) (“[T]he mere publication of inaccurate
accounting figures, or a failure to follow GAAP, without more, does not establish
scienter. The party must know that it is publishing materially false information,
or the party must be severely reckless in publishing such information.”).
      Snyder argues that the SEC proved only that he was aware of $40.3
million of improperly reported income identified by AA in the PAJEs, which he
contends was not clearly material. Snyder contends there was no evidence that
he was severely reckless in failing to disclose the other $61 million of accounting
adjustments that the SEC argued were nonrecurring. Without the allegedly
nonrecurring accounting adjustments, Snyder claims there is no evidence that
he acted with severe recklessness with regard to a material amount of WMI’s
income.
      Even assuming that the improperly reported income identified by AA in
the PAJEs was immaterial by itself, there was sufficient evidence to support the
jury’s findings. The SEC offered abundant evidence that Snyder acted with

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severe recklessness in not disclosing the accounting adjustments alleged to have
been nonrecurring. In the aggregate, the accounting errors identified by AA in
the PAJEs and the alleged nonrecurring accounting adjustments that were not
disclosed total more than $101 million.               This total amount was obviously
material, which Snyder does not dispute.
       The SEC’s evidence of scienter consisted primarily of the expert testimony
of Sally L. Hoffman, a Certified Public Accountant and Certified Fraud
Examiner, as well as a number of documents to which Hoffman referred.
Hoffman opined that the nondisclosure of certain adjustments to income in the
footnotes and MD&A section of WMI’s Form 10-Q for the first quarter of 1999
made the Form 10-Q materially misleading. Hoffman testified that, to someone
with Snyder’s training, education, information, and experience with WMI, it
would have been obvious that not disclosing these adjustments in the Form 10-Q
rendered it materially misleading. Although Snyder asserts that Hoffman’s
opinion was conclusional,1 Hoffman testified as to the particular accounting
rules that required disclosure of certain adjustments in WMI’s Form 10-Q, the
nature of these adjustments, the reasons why the applicable rules required
disclosure of these specific adjustments, and how the nondisclosure of these
adjustments rendered the Form 10-Q false and misleading.



       1
         Many of Snyder’s arguments appear to be belated attempts to challenge the
admissibility of Hoffman’s opinions under FED. R. EVID. 702 and Daubert v. Merrell Dow
Pharms., Inc., 509 U.S. 579 (1993), rather than challenges to the sufficiency of the evidence.
Because Snyder did not object to the admissibility of Hoffman’s testimony concerning the
accounting practices at issue, that issue has been forfeited. Foradori v. Harris, 523 F.3d 477,
508 (5th Cir. 2008). Nonetheless, this court looks “to the basis of the expert’s opinion, and not
the bare opinion alone,” to determine whether there is legally sufficient evidence to support a
jury verdict. Guile v. United States, 422 F.3d 221, 227 (5th Cir. 2005) (internal quotation
marks omitted); see also Stevenson v. E.I. DuPont De Nemours & Co., 327 F.3d 400, 406 (5th
Cir. 2003). Our review of expert testimony for sufficiency of the evidence is not as rigorous as
it would be under a properly preserved challenge to the admissibility of the testimony under
Daubert. See In re Joint E. & S. Dist. Asbestos Litig., 52 F.3d 1124, 1132-33 (2d Cir. 1995).
In the present case, Hoffman’s testimony was clearly supported by the evidence.

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       SEC’s Exhibit 82A is one example of information known to Snyder prior
to the filing of the Form 10-Q, and consists of an April 26, 1999 memorandum
sent to Snyder and other WMI officers.2 It contains a list of “closure/post closure
adjustments” for WMI’s eastern area, totaling approximately $47.3 million in the
aggregate. Hoffman testified that changes in closure and post-closure costs are
types of adjustments that are not representative of WMI’s regular business, and
that the adjustments listed in Exhibit 82A were notable because they all
increased WMI’s income. Hoffman testified that this exhibit would have raised
a red flag for Snyder that WMI’s income from the eastern area included
approximately $47.3 million in adjustments that were not representative of
WMI’s usual business, and which, when aggregated with other adjustments,
would need to be disclosed in the Form 10-Q.
       Snyder argues that Hoffman’s testimony relating to Exhibit 82A is based
upon erroneous and conclusional assumptions. He claims that Hoffman based
her conclusion that the $47.3 million consisted of adjustments to closure and
post-closure costs on the fact that the list was titled “Closure/Post Closure
Adjustments,” rather than on her own research into the nature of WMI’s eastern
area adjustments. Snyder asserts that the eastern area adjustments were
adjustments to remediation reserves appropriately accounted for as income in
the first quarter. Snyder also asserts that Hoffman’s testimony is illogical
because, if Hoffman were correct that the adjustments shown in Exhibit 82A
were adjustments to closure/post-closure costs, then AA should have listed all
$47.3 million as PAJEs. Snyder further urges that Hoffman’s testimony relating
to Exhibit 82A is contradicted by AA’s conclusion that $23 million of the eastern
area adjustments were properly made to WMI’s environmental remediation

       2
         Although we discuss Snyder’s attacks on the evidence document by document, as the
parties have in their briefs, we note that our decision is based on the evidence as a whole and
is not a decision concerning the validity of each independent piece of evidence. United States
v. Garza, 990 F.2d 171, 175 (5th Cir. 1993).

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reserves. Each of these arguments goes to the credibility and weight to be
accorded Hoffman’s testimony, not to the sufficiency of the evidence. See Coffel,
284 F.3d at 631. That Hoffman based her opinion on the assumption that
Exhibit 82A meant what it said is not a basis for reversal.
      In addition to Exhibit 82A, Hoffman discussed the SEC’s Exhibit 88,
another schedule of eastern area adjustments, this time totaling approximately
$70 million. Hoffman testified that the descriptions of the items on this schedule
as “correction[s] of error” and the terms “correct” and “correcting” show that
these items were corrections of error, which, when aggregated with other
adjustments, were required to be disclosed. Hoffman opined that Snyder’s
knowledge of these “correction” entries should have made it obvious to him that
the adjustments had to be disclosed in the Form 10-Q.
      Snyder contends that Hoffman’s characterization of all of the items as
corrections of error mistakenly rests upon the description of only one item
(relating to the Vickery Deepwell landfill) as a “correction of error.” Snyder
asserts that Hoffman’s characterization of the adjustments is contradicted by
AA’s conclusions that almost all of the eastern area adjustments related to
remediation reserves and would not require disclosure.
      Hoffman’s testimony and the exhibit itself constitute circumstantial
evidence that Snyder knew that at least some of the adjustments should be
characterized as corrections of error, which should have been disclosed in the
Form 10-Q if material when aggregated with other adjustments. Snyder’s
remaining arguments again go to the credibility and weight of Hoffman’s
testimony and do not warrant reversal.
      Additionally, Hoffman testified that the SEC’s Exhibit 92, a list of
“Nonrecurring adjustments” prepared by Snyder after the filing of the Form
10-Q, showed that Snyder was aware that several adjustments to WMI’s income
were not representative of WMI’s ongoing business, and that these adjustments,


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when aggregated, were material to WMI’s first quarter 1999 income. Hoffman
testified that each of the adjustments should have been disclosed because they
were nonrecurring, regardless of whether the adjustments were proper.
According to Hoffman’s testimony, it would have been obvious to an accountant
with Snyder’s training that these adjustments, which were not representative
of WMI’s regular business, were material in the aggregate and were required to
be disclosed in the Form 10-Q.
      Snyder contends that there is no evidence that he ever believed that items
five through seven listed in Exhibit 92 were unusual items that were required
to be disclosed, or that the failure to disclose these items was an extreme
departure from the ordinary standard of care. This argument ignores the
circumstantial evidence produced at trial. Snyder personally typed Exhibit 92,
including the title “Nonrecurring adjustments.” Although Snyder argues that
Exhibit 92 was really just a list of things he thought the board might want to
investigate, the jury was free to disregard his explanation and believe that
Snyder meant what he wrote when he described the adjustments as
“nonrecurring.” Hoffman testified at length as to each item listed in Exhibit 92,
reaching the conclusion that each item was not representative of WMI’s usual
and ongoing business. Accountants at AA also provided testimony that the
adjustments listed on Exhibit 92 were not representative of WMI’s ongoing
business and should have been disclosed.
      In addition to the documents discussed above, the SEC offered substantial
evidence that Snyder was motivated to mislead WMI investors into believing
that WMI was performing at analysts’ expectations, and that he thought
accounting adjustments like those discussed in Exhibit 92 could help make up
for anticipated shortfalls.      For example, the SEC introduced Snyder’s
handwritten notes from an April 26, 1999 discussion with WMI’s area vice
presidents and other officers as evidence of his awareness that the first quarter


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adjustments had boosted WMI’s earnings. On the final page of the notes, Snyder
wrote that “we need operating results, not just JEs,” which he testified referred
to journal entries, like the adjustments listed in Exhibit 92. Similarly, the SEC
referred to Snyder’s discussion of the anticipated shortfall and a notation of
“Acctg Solutions?” in the margin of the page.
      To rebut the SEC’s evidence, Snyder points to the testimony of AA
accountants John King, Steve Brown, and Phil Wedemeyer, who testified that
they did not believe WMI’s Form 10-Q was materially false or misleading. As
part of their engagement with WMI, the AA accountants read the entire first
quarter Form 10-Q before it was filed, including the financial statements,
footnotes, and the MD&A.        After this review, AA issued its Report of
Independent Public Accountants, which stated that, “[b]ased on our review, we
are not aware of any material modifications that should be made to the financial
statements . . . for them to be in conformity with generally accepted accounting
principles.”
      Snyder argues that AA’s approval of the Form 10-Q is fatal to the SEC’s
case because it demonstrates that reasonable accountants could find that the
Form 10-Q was not materially misleading, and therefore, that Snyder could not
have acted with severe recklessness. We disagree. AA’s review of the Form 10-Q
was limited and involved no analysis of whether all required disclosures had
been made in the MD&A section. In addition, the jury also could have found the
testimony of AA’s accountants to be less credible than the evidence offered by the
SEC, or it could have concluded that AA was itself severely reckless.
      Additionally, Snyder’s contentions that AA later concluded that some of
the adjustments were “appropriately accounted for as income in the first
quarter” and “agreed with WMI’s treatment of Vickery Deepwell as an
adjustment to remediation reserves properly taken as income in the first quarter
1999” may indicate that AA agreed that the adjustments could be included in


                                       17
                                  No. 07-20455

WMI’s income, but they say nothing about whether the adjustments needed to
be disclosed as nonrecurring.        The obligation to disclose nonrecurring
adjustments presupposes that the adjustments were appropriately included in
income in the first place.
      Snyder also relies on WMI’s subsequent revision of the first quarter
numbers. He asserts that the revised numbers reduced income by only a net of
$30.2 million, an immaterial amount. He says the company determined that all
the other adjustments, including the $58 million in adjustments to the eastern
area reserves and the international environmental covenant, were “normal
recurring adjustments.” Snynder ignores that the company also moved another
$14 million to “merger costs,” which meant they were effectively reclassified as
nonrecurring. In addition, the jury was free to disregard WMI’s description of
the adjustments. It certainly is possible that the jury did not view WMI’s
description of the adjustments as credible, particularly because WMI ultimately
decided that it needed to disclose the $58 million in adjustments despite the fact
that it described them as “normal” and “recurring.”
      Bearing in mind our obligation to draw all reasonable inferences in favor
of the jury’s verdict, AA’s role in the preparation of WMI’s Form 10-Q and AA’s
lack of disagreement with Snyder do not mandate a judgment in Snyder’s favor.
Accordingly, we hold that the SEC presented legally sufficient evidence to
support the jury’s findings that Snyder acted with the requisite scienter in filing
the first quarter Form 10-Q.
      Scienter is also an element of an insider trading case. See Dirks v. SEC,
463 U.S. 646, 664 n.23 (1983). Snyder argues that because there is no evidence
that he acted with scienter in filing the Form 10-Q, then he also did not have
scienter with regards to his sales of WMI stock. As discussed above, we hold
that there was sufficient evidence that Snyder acted with scienter in filing the
first quarter Form 10-Q. When drawing all reasonable inferences in favor of the


                                        18
                                   No. 07-20455

SEC, the jury could have concluded that Snyder sold WMI stock with knowledge
that the first quarter Form 10-Q materially inflated WMI’s income and earnings.
         In addition to knowing that the income reported in the Form 10-Q was
inflated and included undisclosed nonrecurring adjustments, Snyder was also
aware from the April 26, 1999 call that four of the five area vice presidents were
predicting that they would miss their earnings targets in the second quarter.
Snyder’s notes calculated an eleven cent per share shortfall, which represented
a thirteen percent drop from the company’s target of eighty-two cents for the
second quarter. Snyder attended a May 3, 1999 meeting during which similar
projections were discussed just two weeks before his May 17, 1999 sale of WMI
stock.
         Snyder argues that the projections were not final and cannot form the
basis of an insider trading claim, relying on two securities class actions from the
Seventh Circuit, In re HealthCare Compare Corp. Sec. Litigation, 75 F.3d 276
(7th Cir. 1996) and Searls v. Glasser, 64 F.3d 1061 (7th Cir. 1995). In those
cases, the court considered whether tentative estimates and loose predictions
were sufficiently certain and reliable to require immediate disclosure by the
company. In re HealthCare, 75 F.3d at 282; Searls, 64 F.3d at 1067. Neither
case concerned insider trading.
         The cases cited by Snyder are inapposite because they do not excuse his
failure to disclose the misstated income and nonrecurring adjustments contained
in the first quarter Form 10-Q, which was final when he sold WMI stock. In
addition, this court has held that forecasts may be material. SEC v. Fox, 855
F.2d 247, 253 (5th Cir. 1988).      As we held in Fox, “the determination of
materiality ‘requires delicate assessments of the inferences a ‘reasonable
shareholder’ would draw from a given set of facts and the significance of those
inferences to him, and these assessments are peculiarly ones for the trier of
fact.’” Id. (quoting SEC v. Mize, 615 F.2d 1046, 1053 (5th Cir. 1980). We held

                                        19
                                   No. 07-20455

in Fox that the fact that insiders had access to certain forecasts “would have
supported a finding of materiality.” Id. In the present case, the jury was
entitled to find that the predictions of significant shortfalls in the second quarter
was information that a reasonable investor would have found important.
      Snyder also argues that he could not have acted with scienter regarding
his sale of WMI stock on June 9, 1999, although he attended a meeting to discuss
WMI’s financial performance the same day. Snyder sold 2,700 shares of WMI
stock, but he exercised 8,700 options to purchase WMI stock, for a net purchase
of 6,000 shares. Although his net purchase is some evidence tending to show
that he did not sell stock on June 9, 1999 on the basis of material, nonpublic
information about WMI’s negative financial performance, the facts and
inferences do not point so strongly and overwhelmingly in Snyder’s favor that
reasonable jurors could not reach a contrary conclusion. For these same reasons,
we also hold that the verdict was not against the great weight of the evidence.
See Shows v. Jamison Bedding, Inc., 671 F.2d 927, 931 (5th Cir. 1982)(To grant
a new trial, the district judge “must be convinced that the verdict is against the
great weight of the evidence.”).
                             B. Jury Instructions
      Snyder argues that the district court erred by instructing the jury that it
was his burden to prove certain “elements” of a reliance-on-accountants defense
before the jury could consider his reliance on AA to negate scienter. The SEC,
citing authority from two other circuits, asserts that the district court’s
instruction was appropriate. Because the district court’s instruction was an
incorrect statement of the law in this circuit and could have affected the outcome
of the case, we reverse and remand for a new trial.
      District courts enjoy substantial latitude in formulating jury instructions.
United States v. Jobe, 101 F.3d 1046, 1059 (5th Cir. 1996). This court applies a
two-part test in considering a challenge to the district court’s jury instructions.

                                         20
                                  No. 07-20455

“The party challenging the instructions must first ‘demonstrate that the charge
as a whole creates a substantial and ineradicable doubt whether the jury has
been properly guided in its deliberations.’”      Navigant Consulting, Inc. v.
Wilkinson, 508 F.3d 277, 293 (5th Cir. 2007) (quoting Russell v. Plano Bank &
Trust, 130 F.3d 715, 719 (5th Cir. 1997)). “Second, even where a jury instruction
was erroneous, ‘we will not reverse if we determine, based upon the entire
record, that the challenged instruction could not have affected the outcome of the
case.’” Id.
      A central theme of Snyder’s defense was AA’s knowledge of the accounting
adjustments and Snyder’s purported reliance on AA’s review of WMI’s financial
statements for compliance with GAAP. Snyder argued that if it was not obvious
to AA that disclosure of the adjustments was required in the footnotes, it could
not have been obvious to Snyder.
      The district court instructed the jury as follows:
      In this case, Mr. Snyder has presented evidence that, in connection
      with WMI’s preparation of the Form 10-Q for the first quarter 1999,
      he relied on the advice of other accountants. A good faith reliance
      on an accountant’s advice is not a defense to securities fraud. It
      simply represents possible evidence of an absence of any intent to
      defraud.
      Mr. Snyder was only entitled to rely on an accountant’s advice if he
      establishes each of the following facts by a preponderance of the
      evidence (note that it is Mr. Snyder who has the burden of proof on
      these elements):
              1.   That Mr. Snyder informed the accountants of all
                   relevant facts;
              2.   That Mr. Snyder did not misrepresent any relevant
                   facts to the accountants;
              3.   That the accountants were asked to give a specific
                   opinion about the particular point that Mr. Snyder
                   claims he relied on;



                                       21
                                       No. 07-20455

              4.      That the accountants actually gave a specific opinion
                      about the particular point that Mr. Snyder claims he
                      relied on.
       Snyder objected to the instruction, pointing out that he had “never
asserted this narrow, affirmative defense” and that it was improper to require
him to adduce specific proof that he asked for and received from AA a specific
opinion on the particular point.3 Snyder offered an alternative instruction that
stated as follows:
       A good faith reliance on an accountant’s advice is not a defense to
       securities fraud. It simply represents possible evidence of an
       absence of any intent to defraud. To decide whether any such
       reliance was in good faith, you may consider whether Mr. Snyder
       sought the advice of a competent accountant concerning the
       material facts allegedly omitted or misrepresented, whether Mr.
       Snyder gave the accountant all the relevant facts known to him at
       the time, and whether Mr. Snyder received an opinion from his
       accountant that he could reasonably rely upon.
       The district court’s instruction was in error. In United States v. Peterson,
101 F.3d 375 (5th Cir. 1996), this court recognized that reliance on counsel’s
advice is not an affirmative defense. Id. at 381. Rather, “[i]t is simply a means
of demonstrating good faith and represents possible evidence of an absence of
any intent to defraud.” Id. In so holding, the court approved of an instruction
that provided as follows:


       3
          Although we conclude that Snyder preserved error, an issue not raised by the SEC in
its brief, we note that this was a very close case. Snyder never specifically stated that the
district court’s instruction improperly shifted the burden of proof. Under FED. R. CIV. P. 51, a
party must object to a proposed jury instruction, “stating distinctly the matter objected to and
the grounds for the objection.” FED. R. CIV. P. 51(c)(1). The “‘objection must be sufficiently
specific to bring into focus the precise nature of the alleged error.’” Navigant Consulting, 508
F.3d at 294 (quoting Delancey v. Motichek Towing Serv., Inc., 427 F.2d 897, 900 (5th
Cir.1970)). Snyder stated in his written objection that he was relying on AA only to rebut the
testimony of Hoffman. Snyder raised similar objections during the charging conference in
response to the SEC’s contention that Snyder had the burden of proof. Given the context of
Snyder’s objection and the fact that he directed the court to the appropriate legal authority,
we hold that the assertion that he was not raising an affirmative defense was sufficiently
specific to bring into focus the nature of the alleged error.

                                              22
                                  No. 07-20455

      Reliance on the advice of an attorney may constitute good faith. To
      decide whether such reliance was in good faith, you may consider
      whether the Defendant sought the advice of a competent attorney
      concerning the material fact allegedly omitted or misrepresented,
      whether the Defendant gave his attorney all the relevant facts
      known to him at the time, whether the Defendant received an
      opinion from his attorney, whether the Defendant believed the
      opinion was given in good faith and whether the defendant
      reasonably followed the opinion.
Id. at 381 n.5 (emphasis omitted).
      We find no meaningful distinction between the reliance on counsel and
reliance on an accountant. Both defensive theories provide an explanation of the
defendant’s conduct tending to negate the element of scienter. Under both
theories, the jury is free to decide for itself whether the facts demonstrate that
the defendant acted with scienter in light of the advice he received from his
attorneys or accountants. The defendant does not have the burden of proving
any “elements” of the defense before the jury can weigh the defendant’s theory
of reliance. However, a district court may suggest relevant factors that the jury
may consider in its deliberations, such as the instruction approved in Peterson.
      The cases cited by the SEC do not support placing the burden on Snyder
before the jury may consider his reliance on outside accountants. In United
States v. Duncan, 850 F.2d 1104 (6th Cir. 1988), overruled on other grounds by
Schad v. Arizona, 501 U.S. 624 (1991), the court recognized two elements that
a defendant must show before he is entitled to a jury instruction concerning
reliance on accountants, but the court did not shift the burden of proof to the
defendant in the jury instruction itself. Id. at 1116. The issue was whether the
district court erred in providing no instruction to the jury concerning advice of
counsel. Id. The Sixth Circuit held that the district court did err in failing to
provide an instruction. Id. at 1118-19.




                                       23
                                     No. 07-20455

      The other case cited by the SEC, SEC v. Savoy Industries, Inc., 665 F.2d
1310 (D.C. Cir. 1981), did suggest in a footnote that the defendant bears the
burden of proof and did list elements similar to the ones proposed by the SEC
and adopted by the district court. 665 F.2d at 1315 n.28. But that case has since
been repudiated by the same court that authored it. See Howard v. SEC, 376
F.3d 1136, 1147 (D.C. Cir. 2004) (“Despite dicta in [Savoy], reliance on the advice
of counsel need not be a formal defense; it is simply evidence of good faith, a
relevant consideration in evaluating a defendant’s scienter.”).
      The SEC also suggests that Snyder cannot complain of the reliance on
accountant instruction given to the jury because he requested a reliance on
accountant instruction.      The fact that Snyder asked for some instruction
concerning reliance on accountants does not mean that the district court was
free to shift the burden of proof to him.4
      The erroneous instruction could have affected the outcome of this case.
Snyder sought to rebut Hoffman’s testimony that the need to disclose the first
quarter adjustments was obvious and to support his defense that other
reasonable accountants agreed with WMI’s treatment of the first quarter
adjustments. The court’s instruction may have misled the jury by suggesting
that the conclusions of the AA accountants were not relevant to scienter unless
Snyder proved by a preponderance of the evidence that he specifically sought
and received an express opinion from AA concerning the adjustments at issue.
Thus, the jury may have rejected Snyder’s theory of defense based on his failure
to meet a burden of proof that was not his.
      Although we reverse and remand for a new trial, we also address the
remaining jury instruction issues raised by Snyder for reasons of economy. See
United States v. Wright, 496 F.3d 371, 375 (5th Cir. 2007).

      4
        The parties do not raise, and we do not reach, the issue of whether a reliance on
accountant instruction was required in the present case.

                                           24
                                       No. 07-20455

      Snyder argues that the district court improperly instructed the jury that
the first quarter Form 10-Q was incorrect when it instructed the jury that it
could not consider the second quarter Form 10-Q for purposes of Snyder’s
scienter. Snyder relied on the second quarter Form 10-Q as part of his defense,
but he requested that the district court instruct the jury that it could not
consider the second quarter revisions as evidence that (1) Snyder acted with
scienter in the first quarter, or (2) WMI’s first quarter Form 10-Q was materially
misleading. The district court instructed the jury as follows:
      The parties agree that in August of 1999, WMI made certain
      revisions to its first quarter 1999 financial statements, including
      some additional disclosures regarding its first quarter results. You
      may not consider these disclosures as evidence that Mr. Snyder
      knew or recklessly disregarded that the original Form 10-Q was
      incorrect at the time that it was filed with the SEC.
      The instruction given by the district court was not a clear abuse of
discretion. The instruction informs the jury that it could not consider the second
quarter Form 10-Q as evidence of scienter, as requested by Snyder.5 Snyder
argues that the instruction erroneously instructed the jury that the first quarter
Form 10-Q was incorrect, but this does not create any doubt that the jury was
properly guided in its deliberations. All the parties agreed that the first quarter
Form 10-Q contained inaccuracies; this fact was never in dispute. The only
issues were of Snyder’s scienter and the need to disclose the alleged
nonrecurring adjustments. In addition, the instruction does not state that the
first quarter Form 10-Q was incorrect but only states “[y]ou may not consider
these disclosures as evidence that Mr. Snyder knew or recklessly disregarded
that the original Form 10-Q was incorrect.” The question of whether the Form
10-Q was incorrect was left for the jury to decide.




      5
          We do not reach the issue of whether such an instruction was necessary.

                                             25
                                   No. 07-20455

         Snyder also argues that the district court erred by failing to charge the
jury on the “no reasonable accountant” standard. Although Snyder asserts in his
brief that the district court “declined, over Snyder’s objections to instruct the
jury on the ‘no reasonable accountant’ standard,” Snyder’s draft proposed jury
instructions and objections to the district court’s instructions contain no such
objection. Snyder waived this claim by failing to object to the jury instruction
as required by FED. R. CIV. P. 51(c). Even if Snyder had not waived his objection,
the district court did not clearly abuse its discretion by instructing the jury on
this circuit’s well established “severe recklessness” standard.
         Because we reverse the district court’s judgment on the basis of an
improper jury instruction, we do not reach Snyder’s argument that the district
court abused its discretion in ordering disgorgement.
                               III. CONCLUSION
         For the reasons discussed above, we REVERSE and REMAND for a new
trial.




                                         26
