     11-3-cr
     United States v. Contorinis


 1                      UNITED STATES COURT OF APPEALS

 2                           FOR THE SECOND CIRCUIT

 3                                 August Term, 2011

 4   (Argued:    January 5, 2012                   Decided: August 17, 2012)

 5                            Docket No.       11-3-cr

 6   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

 7   UNITED STATES OF AMERICA,
 8               Appellee,
 9                v.

10   JOSEPH CONTORINIS,

11               Defendant-Appellant.

12   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

13   B e f o r e:      WINTER, HALL, and CHIN, Circuit Judges.

14         Appeal from a conviction by a jury in the United States

15   District Court for the Southern District of New York (Richard

16   J. Sullivan, Judge), for conspiracy to commit securities fraud
17   and insider trading.      Appellant challenges the jury

18   instructions, admission of evidence concerning the trading

19   activity of other alleged tippees, and the amount of the

20   forfeiture order.     We affirm the conviction, vacate the

21   forfeiture order, and remand.

22



                                           1
 1                                  ROBERTO FINZI (Theodore V. Wells,
 2                                  Jr., Mark F. Pomerantz, & Farrah
 3                                  R. Berse, on the brief), Paul,
 4                                  Weiss, Rifkind, Wharton &
 5                                  Garrison LLP, New York, New York,
 6                                  for Defendant-Appellant.
 7
 8                                  ANDREW L. FISH, Assistant United
 9                                  States Attorney (Reed M. Brodsky,
10                                  Assistant United States Attorney
11                                  on the brief), for Preet Bharara,
12                                  United States Attorney for the
13                                  Southern District of New York,
14                                  New York, New York, for Appellee.
15
16   WINTER, Circuit Judge:

17         Joseph Contorinis appeals from his conviction by a jury

18   before Judge Sullivan for conspiracy to commit securities fraud

19   and insider trading and from the district court’s forfeiture

20   order in the amount of $12.65 million.   Appellant claims error

21   in:   (i) a jury instruction that allegedly did not adequately

22   convey the definition of material, nonpublic information; (ii)

23   the admission of evidence of contemporaneous trades by

24   individuals who received inside information from the same

25   source as appellant; and (iii) the amount of the forfeiture

26   order entered by the district court.   We hold that the district

27   court properly instructed the jury on the definition of

28   material, nonpublic information and acted within its discretion

29   in admitting evidence concerning the trades by other

30   individuals.   However, we conclude that the court erred in

31   ordering appellant to forfeit gains acquired by his employer

32   but not by him.   We therefore affirm appellant’s conviction but

33   vacate the forfeiture order and remand for further proceedings.

                                     2
 1                               BACKGROUND

 2        Given the jury’s verdict, we view the evidence and

 3   inferences drawn therefrom in the light most favorable to the

 4   government.    United States v. Chavez, 549 F.3d 119, 124 (2d

 5   Cir. 2008).

 6        During the relevant time period, appellant was employed,

 7   with Michael Handler, as a co-portfolio manager of the Jeffries

 8   Paragon Fund (“Fund”).   The Fund invested in companies in the

 9   retail and personal products sectors.      As portfolio managers,

10   Handler and appellant made investment decisions but did not

11   control disbursements of profits.

12        Sometime in 2000, appellant met and befriended Nicos

13   Stephanou, who became an investment banker in the Mergers and

14   Acquisitions group at UBS in 2002.      Thereafter, appellant and

15   Stephanou spoke on the telephone often, sometimes as much as 75

16   times a month.   Stephanou regularly provided confidential

17   information to several friends.       These “tippees” included a

18   California employee of a semiconductor company, an individual

19   working in an import/export business in New York, and two

20   individuals living in Cyprus.

21        On September 2, 2005, Albertsons grocery store chain

22   (“ABS”) announced that it was exploring options to increase

23   shareholder value, including a possible sale of the company.

24   Appellant then purchased a large amount of ABS stock on behalf

25   of the Fund.   On the same day, Stephanou was assigned to a team


                                       3
 1   at UBS that was to represent a potential purchaser of ABS.

 2   Stephanou testified that he informed appellant of his role, and

 3   that appellant asked Stephanou to keep him informed about the

 4   deal.

 5           Subsequently, on November 22, Stephanou received

 6   information suggesting that it was then more likely than not

 7   that an acquisition of ABS would occur.     Stephanou conveyed

 8   that information to appellant and his other friends.       On the

 9   same day, appellant purchased 250,000 shares of ABS on behalf

10   of the Fund.    He testified that this purchase was motivated by

11   a worse than expected earnings report by ABS.     Stephanou’s

12   other tippees also purchased shares around this time.

13           On December 6, Stephanou learned that the likelihood of

14   the deal had been drastically reduced.     Nevertheless, appellant

15   purchased 126,000 shares of ABS the following morning.       He

16   testified that he believed that offers at the end of the

17   bidding period, December 7, the next day, would increase the

18   stock price.    Appellant became unavailable for a few hours, and

19   Handler began to sell ABS stock.      Handler testified that he

20   sold the stock because he mistakenly believed the bidding

21   period was over.    When appellant became available, appellant

22   continued to sell.    The Fund sold the vast majority of its

23   position in ABS on December 7, closed out its long position on

24   December 8, and then briefly went short.      Appellant made the

25   lion’s share of these trades.    The other tippees also closed

26   out their positions in ABS during the same time frame.

                                       4
 1           On December 9, Stephanou was told that the deal was back

 2   on and could be announced on the 19th.    That day Stephanou

 3   purchased shares of ABS, and several of his tippees did as

 4   well.    Two days later, Stephanou was involved in a conference

 5   call discussing the details of the proposed transaction.

 6   Immediately following that call, Stephanou spoke with

 7   appellant, and the Fund purchased over $38 million of ABS the

 8   next day.

 9           Stephanou testified that he learned on December 17 that

10   the deal was going to happen and would be announced later in

11   the week.    Phone records showed that Stephanou spoke with

12   appellant several times over the next two days.     The Fund

13   purchased over 300,000 shares of ABS between December 19 and

14   20.   On December 21, several media outlets reported that talks

15   had broken down and that the deal was unlikely to occur.

16   Stephanou testified that he repeatedly relayed information

17   about the deal to appellant.    Phone records showed several

18   calls between the two during this time.    Until the media

19   reports, the details looked positive, but ultimately it was

20   determined that antitrust concerns in the Chicago market would

21   hold the deal up.     Stephanou then advised appellant that the

22   transaction was not going forward.    The next day, December 22,

23   Stephanou sold his position in ABS, shorted the stock, and

24   advised appellant and the other tippees of the moribund status

25   of the deal.    The Fund also sold all of its stock in ABS, and


                                       5
 1   the other tippees did the same.       However, media reports in the

 2   morning of December 22 stated only that the deal was uncertain,

 3   but not necessarily dead.   Only after the markets closed on

 4   December 22, and Stephanou, his other tippees, and the Fund had

 5   sold all their ABS shares, did ABS announce that talks about

 6   the sale had been terminated.   ABS stock dropped in price

 7   significantly the next morning.

 8        In late December and into early January 2006, Stephanou

 9   received reports that the acquisition of ABS was back on track.

10   In response, he purchased ABS stock on January 11.       He also

11   informed appellant that the deal was gaining traction and that

12   a transaction would likely be announced in the coming weeks.

13   On that day, appellant purchased approximately 1.1 million

14   shares of ABS stock for the Fund.      Stephanou’s other tippees

15   also bought ABS stock at this time.      In his testimony,

16   appellant attributed the purchase to a belief that comments by

17   the CEO of one of the would-be purchasers implied that ABS

18   would be acquired.    On January 12, appellant purchased 900,000

19   additional shares of ABS.   Then, on January 13, the New York

20   Post announced that negotiations had reopened and the Fund

21   purchased another 200,000 shares, bringing its holdings to over

22   2.3 million shares.   The Fund sold 500,000 shares two days

23   later but then repurchased them the following day.      Finally,

24   the sale of ABS was announced on January 23 and the Fund sold

25   its entire ABS holdings that day, reaping a net profit of


                                       6
 1   approximately $3 million through its December and January

 2   trades.   Stephanou testified that, beginning in September,

 3   2005, and ending in January, 2006, he had kept appellant

 4   informed of the status of the deal and expected date of the

 5   announcement.

 6        Prior to trial, appellant objected to evidence about the

 7   trades of Stephanou’s other tippees.   In denying appellant’s

 8   motion to exclude that evidence, the court stated that it had

 9   considered the parties’ arguments concerning district court

10   opinions in United States v. Marcus Schloss & Co., Inc., 710 F.

11   Supp. 944 (S.D.N.Y. 1989) (excluding evidence of trades by

12   others), and United States v. Ballesteros Gutierrez, 181 F.

13   Supp. 2d 350 (S.D.N.Y. 2002) (admitting such evidence), and

14   concluded that the reasoning in Ballesteros was more fitting in

15   this case.   The court found that the trading patterns of the

16   other tippees were probative because they tended to show that

17   the trades of the tippees were more consistent with the sharing

18   of inside information than with independent investment
19   decisions.   Based on the balancing done in Ballesteros, the
20   court saw no reason to exclude the evidence under Rule 403 but

21   stated that it was open to a limiting instruction.    No such

22   instruction was requested.

23        Appellant also objected to the jury charge on the basis

24   that the court’s definition of “material, nonpublic

25   information” did not adequately explain when confirmation of


                                     7
 1   publicly known or rumored information can be considered

 2   material and nonpublic.

 3        The jury found appellant guilty of conspiracy and insider

 4   trading on the counts relating to the trades made on December

 5   22 and January 11.   Appellant was sentenced to 72 months’

 6   imprisonment and was ordered to forfeit approximately $12.65

 7   million -- the profits made by the Fund on appellant’s trades

 8   in his capacity as agent of the Fund.

 9        This appeal followed.

10                                DISCUSSION

11   a) Jury Instructions

12        We review jury instructions de novo to determine whether

13   the jury was misled or inadequately informed about the

14   applicable law.   Henry v. Wyeth Pharm., Inc., 616 F.3d 134, 146

15   (2d Cir. 2010).

16        As pertinent here, the crime of insider trading required

17   the government to prove beyond a reasonable doubt that

18   Stephanou had a duty to UBS not to convey material, nonpublic
19   information about deals in progress to outsiders, See Dirks v.
20   SEC, 463 U.S. 646, 662 (1983), and that appellant received such

21   material, nonpublic information in breach of that duty and used

22   the information to trade relevant securities, see id.     That

23   Stephanou had the requisite duty is not contested.   However,

24   appellant testified that he never received any information from

25   Stephanou about deals Stephanou was working on and that


                                      8
 1   appellant’s trades in ABS were based solely on information

 2   available to the public or professional investors like himself.

 3        Although appellant’s denial of receiving any information

 4   from Stephanou no doubt reduced the importance of the

 5   definition of material, nonpublic information in the jury’s

 6   deliberations -– if it found appellant to be lying, the chances

 7   of an acquittal would be low –- the government still had to

 8   prove that the information Stephanou claimed to have given

 9   appellant was material and nonpublic.   Appellant claims that

10   the definition of material, nonpublic information given in the

11   district court’s instructions was erroneous.

12        The pertinent instruction read:

13                  Information is nonpublic if it was not
14             available to the public through such sources
15             as press releases, Securities and Exchange
16             Commission filings, trade publications,
17             analysts' reports, newspapers, magazines,
18             rumors, word of mouth or other sources. In
19             assessing whether information is nonpublic,
20             the keyword is "available." If information
21             is available in the public media or in SEC
22             filings, it is public. However, the fact
23             that information has not appeared in a
24             newspaper or other widely available public
25             medium does not alone determine whether the
26             information is nonpublic. Sometimes a
27             corporation is willing to make information
28             available to securities analysts, prospective
29             investors, or members of the press who ask
30             for it even though it may never have appeared
31             in any newspaper publication or other
32             publication. Such information would be
33             public. Accordingly, information is not
34             necessarily nonpublic simply because there
35             has been no formal announcement or because
36             only a few people have been made aware of it.
37             For example, if UBS policy was to give out
38             certain information to people who ask for it,

                                     9
 1               that information is public information.
 2               Whether information is nonpublic is an issue
 3               of fact for you to decide.
 4
 5                    On the other hand, the confirmation by
 6               an insider of unconfirmed facts or rumors --
 7               even if reported in a newspaper -- may itself
 8               be inside information. A tip from a
 9               corporate insider that is more reliable or
10               specific than public rumors is nonpublic
11               information despite the existence of such
12               rumors in the media or investment community.
13               Whether or not the confirmation of a rumor by
14               an insider qualifies as material nonpublic
15               information is an issue of fact for you to
16               decide.
17
18               . . .
19
20                    Within the particular context of the
21               purchase and sale of securities, "material"
22               information is information which a reasonable
23               investor would have considered significant in
24               deciding whether to buy, sell, or hold
25               securities, and at what price to buy or sell.
26
27         Appellant argues that this jury instruction did not

28   properly inform the jury because it failed to include the

29   following language, or variations thereon:1


           1
             Appellant submitted two variations as proposed instructions:
     Although information in a newspaper or an analyst report is public, an
     insider’s confirmation of published information may itself constitute
     material nonpublic information if it discloses significant details that are
     not apparent from what is public, such as the certainty that a rumored event
     in fact will occur. However, if an insider simply repeats what has appeared
     in the public press, the repetition of that information is not material
     nonpublic information. A generalized confirmation of an event that is obvious
     to every market participant who is knowledgeable about a company is not
     material information. Speculative information also may not rise to the level
     of materiality. It is a fact issue for you to decide whether Mr. Stephanou
     was sufficiently different from the information that was available in the
     marketplace to be material.
     and
     A generalized confirmation of an event that is obvious to every market
     participant who is knowledgeable about a company is not material information.
     Speculative information also may not rise to the level of materiality. It is
     a fact issue for you to decide whether Mr. Stephanou provided Mr. Contorinis

                                         10
 1               A generalized confirmation of an event that
 2               is fairly obvious to investors knowledgeable
 3               about the company or the particular security
 4               at issue –- here Albertsons or Albertsons
 5               stock -- is not material information. In
 6               order to be nonpublic and material,
 7               information must be different from general
 8               discussions in the marketplace at the time.
 9               Even if an event, like a corporate merger,
10               may be important, information about that
11               event is not material unless it contains
12               something beyond what already was known to
13               the public from news articles, analyst
14               reports, or otherwise, and the additional
15               information likely would have been
16               significant to a reasonable investor. A
17               generalized confirmation of an event that is
18               fairly obvious to market participants who are
19               knowledgeable about a company is not material
20               information. Likewise, speculative
21               information is not material. The mere fact
22               that some discussion has taken place on
23               matters that may or may not occur is not
24               material unless it goes beyond speculation
25               and relates to existing facts.
26
27         In appellant’s view, the critical omission in the

28   instructions given by the court was the lack of language

29   indicating that general confirmation of an event that is

30   “fairly obvious” to knowledgeable investors is not material,

31   nonpublic information.      Conversely, he objects to the court’s

32   instruction that stated, “[t]he confirmation by an insider of

33   unconfirmed facts or rumors -- even if reported in a newspaper

34   -- may itself be inside information.         We disagree.

35


     with any nonpublic information, and whether any such information was
     sufficiently different from the information that was available in the
     marketplace to be material.




                                         11
 1        We first discuss materiality and nonpublic status as

 2   separate concepts.    Information is material when there is a

 3   substantial likelihood that a reasonable investor would find it

 4   important in making an investment decision.    See United States

 5   v. Cusimano, 123 F.3d 83, 88 (2d Cir. 1997) (citing Basic Inc.

 6   v. Levinson, 485 U.S. 224, 231-32 (1988)).    To be material,

 7   information must “alter[] the ‘total mix’ of information

 8   available.”   Id.    Of course, information is public if it is

 9   available to the public through SEC filings, the media, or
10   other sources.   See SEC v. Mayhew, 121 F.3d 44, 50-51 (2d Cir.
11   1997).   As the district court instructed the jury, information

12   is also deemed public if it is known only by a few securities

13   analysts or professional investors.    This is so because their

14   trading will set a share price incorporating such information.

15        While the concepts of materiality and nonpublic status

16   refer to different things, there is considerable overlap for

17   purposes of insider trading analysis.    The content of a piece

18   of information may be of importance in affecting the share
19   price but so well-known that it does not alter the mix of

20   available information and is therefore not deemed to be

21   material.   Conversely, the same information, if previously

22   unknown to the public, may alter substantially the mix of

23   information and thus be deemed very material.    Information also

24   comes in varying degrees of specificity and reliability, and

25   the extent to which a newly reported item of information alters


                                      12
 1   the total mix may depend on the specificity or reliability of

 2   that information.   See id. at 52.

 3        In Elkind v. Liggett & Myers, Inc., 635 F.2d 156 (2d Cir.

 4   1980), we held that a tip stating that an upcoming earnings

 5   report would reflect lower sales was not material where that

 6   fact was already common knowledge among analysts and the

 7   company had previously stated that a decline in sales was

 8   expected.   Id. at 166.   However, we indicated that if the tip

 9   had included additional details, such as the expected amount of
10   the decrease, it would have been material.   Id.
11        Similarly, a tip that provides additional reliability to

12   existing information about the status of a transaction based on

13   the source’s access to inside information may be material

14   because it lessens the risk from uncertainty.   See Mayhew, 121

15   F.3d at 52.

16        Insiders often have special access to information about a

17   transaction.   Rumors or press reports about the transaction may

18   be circulating but are difficult to evaluate because their
19   source may be unknown.    A trier of fact may find that

20   information obtained from a particular insider, even if it

21   mirrors rumors or press reports, is sufficiently more reliable,

22   and, therefore, is material and nonpublic, because the insider
23   tip alters the mix by confirming the rumor or reports.    Id.
24        We conclude that the district court’s instructions

25   adequately conveyed the applicable standards.   The charge


                                     13
 1   informed the jury that for information to be material it must

 2   be considered significant by reasonable investors.   It conveyed

 3   to the jury that material, nonpublic information is information

 4   that either is not publicly available or is sufficiently more

 5   detailed and/or reliable than publicly available information to

 6   be deemed significant, in and of itself, by reasonable

 7   investors.

 8         To the extent that appellant’s suggested charges focused

 9   entirely on the content of reports or tips, excluding from

10   consideration the reliability of the source, they misstated the

11   law. See United States v. Abelis, 146 F.3d 73, 82 (2d Cir.

12   1998) (holding that defendant “bears the burden of showing that

13   the requested instruction ‘accurately represented the law in

14   every respect and that, viewing as a whole the charge actually

15   given, he was prejudiced.’” (quoting United States v. Dove, 916

16   F.2d 41, 45 (2d Cir. 1990)))    In other respects, the court’s

17   instructions conveyed the substance of those requested by

18   appellant.
19   b)   Evidence of Other Trades
20         Appellant also argues that the district court should have

21   excluded the evidence concerning trades of other individuals

22   under Fed. R. Evid. 403, which states that evidence may be

23   excluded if its probative value is “substantially outweighed by

24   a danger of . . . unfair prejudice, confusing the issues, [or]

25   misleading the jury.”


                                     14
 1        Given the district courts’ “broad discretion over the

 2   admission of evidence,” United States v. McDermott, 245 F.3d

 3   133, 140 (2d Cir. 2001), we review evidentiary rulings only for

 4   abuse of discretion.   SR Int'l Bus. Ins. Co. v. World Trade

 5   Ctr. Props., LLC, 467 F.3d 107, 119 (2d Cir. 2006).     This

 6   deferential standard is of particular importance with regard to

 7   evidentiary rulings under Rule 403 because “[a] district court

 8   is obviously in the best position to do the balancing mandated
 9   by Rule 403.”   United States v. Salameh, 152 F.3d 88, 110 (2d
10   Cir. 1988).

11        On appeal, as in the district court, the parties’

12   arguments focus on which of the differing district court

13   opinions in Marcus Schloss and Ballesteros we should adopt.

14   However, we are skeptical as to whether a general rule, rather

15   than a case by case analysis, regarding admission or exclusion

16   of evidence of trades by other alleged tippees in insider

17   trading cases is appropriate.   In Marcus Schloss and
18   Ballesteros, the evidence of other trades was relevant to the
19   extent of a particular conspiracy.   See Marcus Schloss, 710 F.

20   Supp. at 951; Ballesteros, 181 F. Supp. 2d at 356.

21        Here, however, there is no allegation that appellant and

22   the other tippees were co-conspirators.   Rather, the other

23   tippees were strangers to appellant.   In that light, the

24   government’s argument that the evidence of the other trades

25   tends to show that appellant traded on inside information


                                     15
 1   arguably contains a danger of substantial prejudice.   Appellant

 2   was a professional in the securities industry while the others

 3   were not.   Appellant’s defense was that his trades were based

 4   on information available to such a professional.   The other

 5   tippees’ information may well have been entirely limited to

 6   Stephanou’s tips, a fact not easily litigated.

 7          However, the relevance of the other trades is not limited

 8   to showing the motive for appellant’s trades.    Appellant

 9   challenged Stephanou’s testimony as to his conversations with

10   appellant, labeling him a “career criminal” and “a master liar”

11   who concocted a tale involving appellant to obtain a lighter

12   sentence.

13          Appellant’s defense was not that he received information

14   from Stephanou about the ABS negotiations and that it was both

15   insignificant and a fraction of the information available to

16   him.   Rather, appellant denied ever receiving any information

17   from Stephanou regarding any transaction on which Stephanou was

18   working.    Given that testimony and litigating position, the

19   evidence of common trades had arguable probative value in

20   support of the credibility of Stephanou’s testimony that he

21   shared common information with appellant and the others.

22          Admission of the evidence of other trades was thus a

23   paradigmatic case of weighing probative value and danger of

24   unfair prejudice that was within the considerable discretion of

25   the district court.   It may well be that appellant was entitled


                                     16
 1   to a limiting instruction, but such an instruction was never

 2   requested.

 3   c)   Order of Forfeiture

 4         The final issue is whether the district court erred in

 5   ordering appellant to forfeit $12.65 million, the total amount

 6   of profits made, and losses avoided, by the Fund in ABS trades.

 7   Appellant, who was an employee and small equity owner of the

 8   Fund, argues that he cannot be ordered to forfeit profits that

 9   he never received or possessed.          We agree.

10         In reviewing an order of forfeiture, we review the
11   district court’s legal conclusions de novo and the factual
12   findings for clear error.       United States v. Sabhnani, 599 F.3d

13   215, 261 (2d Cir. 2010). In the course of successful criminal

14   securities fraud prosecutions, a district court can order the

15   forfeiture of "[a]ny property, real or personal, which

16   constitutes or is derived from proceeds traceable to [the]

17   violation."2    The definition of proceeds for insider trading

18   violations is “the amount of money acquired through the illegal
19   transactions resulting in the forfeiture, less the direct costs




           2
             18 U.S.C. § 981(a)(1)(C). Section 981(a)(1)(C) allows a court to
     order forfeiture for “any offense constituting ‘specified unlawful activity’
     []as defined in [18 U.S.C. §] 1956(c)(7).” Section 1956(c)(7)(A) incorporates
     “any act or activity constituting an offense listed in [18 U.S.C. §] 1961(1).”
     And § 1961(1)(D) lists “any offense involving . . . fraud in the sale of
     securities.” While § 981(a)(1)(C) is a civil forfeiture provision, it has
     been integrated into criminal proceedings via 28 U.S.C. § 2461(c). This
     roundabout statutory mechanism allows a court to order forfeiture in criminal
     securities fraud proceedings.


                                         17
 1   incurred in providing the goods or services.”3

 2         While the statute does not expressly identify the “whom”

 3   that must do the acquiring that results in forfeiture,

 4   “forfeiture” is a word generally associated with a person’s

 5   losing an entitlement as a penalty for certain conduct.             See

 6   Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61 (2d Cir. 1999)

 7   (discussing the difference between forfeiture and waiver).             The

 8   order in the present matter includes funds to which appellant

 9   was never entitled.      Because the “proceeds” sought by the

10   government here were “acquired” by the Fund over which



           3
             Id. § 981(a)(2)(B). We agree with our own prior non-precedential
     conclusion, consistent with that of the Tenth Circuit, that § 981(a)(2)(B)
     supplies the definition of “proceeds” in cases involving fraud in the purchase
     or sale of securities, see United States v. Mahaffy, No. 09-5349-cr, 2012 U.S.
     App. LEXIS 16072 at *58-59 (2d Cir. August 2, 2012) (“If the district court
     addresses the forfeiture issue again, with the same factual and legal bases,
     the proper measure of forfeiture . . . is . . . under § 981(a)(2)(B).”);
     United States v. Nacchio, 573 F.3d 1062, 1088-90 (10th Cir. 2009), and
     incorporate by reference the rationale contained therein. Section
     981(a)(2)(B) applies to “cases involving lawful goods or lawful services that
     are sold or provided in an illegal manner.” A security is a “lawful good[]”
     for the purposes of § 981(a)(2)(B), the purchase or sale of which, if done
     based upon improperly obtained material nonpublic inside information, is “sold
     . . . in an illegal manner.” Further, the sale of a security is not an
     inherently unlawful activity, like say the sale of foodstamps, or a robbery,
     and thus insider trading is not “unlawful activity” as that term is used in §
     981(a)(2)(A). See 1 David B. Smith, Prosecution and Defense of Forfeiture
     Cases, ¶ 5.03[2], at 5–62 (“The term ‘unlawful activities’ in section
     981(a)(2)(A) was meant to cover inherently unlawful activities such as robbery
     that are not captured by the words ‘illegal goods’ and ‘illegal services.’”).
     United States v. Uddin, 551 F.3d 176 (2d Cir. 2009) is not to the contrary.
     That case involved the sale of foodstamps, which cannot be done lawfully, and
     therefore is properly considered an “unlawful activity” under § 981(a)(2)(A).
     Because § 981(a)(2)(B) defines “proceeds” as the “money acquired . . . less
     the direct costs incurred” it seems that the only money that should be subject
     to forfeiture in an insider trading case is money acquired when shares are
     traded based upon inside information at a gain. In cases where the securities
     are sold at a loss to avoid further losses, the direct costs associated with
     the sale, namely the cost of purchasing the securities sold, would exceed the
     “money acquired” in the sale. In this case, because the Fund and not
     appellant bore all direct costs, any money that appellant can fairly be
     considered as having “acquired” as a result of his insider trading activities
     may be subject to forfeiture under §981.

                                         18
 1   appellant lacks control, it is difficult to square the statute

 2   with the forfeiture order.

 3        Forfeiture of funds or property can be either civil or

 4   criminal.   In civil forfeiture, the United States brings a

 5   civil action against the property itself as an in rem

 6   proceeding –- “[i]t is the property which is proceeded against,

 7   and . . . held guilty and condemned as though it were conscious

 8   instead of inanimate and insentient.”   Various Items of
 9   Personal Property v. United States, 282 U.S. 577, 581 (1931);
10   see also United States v. Davis, 648 F.3d 84, 92 (2d Cir. 2011)

11   (quoting same).   In civil forfeiture proceedings, the burden

12   often rests on the claimant, who may be an innocent third

13   party, to prove that the property is not subject to forfeiture.

14   United States v. Parcel of Property, 337 F.3d 225, 229-30 (2d

15   Cir. 2003).   The claimant’s culpability is also often

16   irrelevant, Bennis v. Michigan, 516 U.S. 442, 446 (1996).

17        Forfeiture in criminal proceedings under 18 U.S.C. § 981
18   is an in personam proceeding.   “The forfeiture serves no
19   remedial purpose, is designed to punish the offender, and

20   cannot be imposed upon innocent owners.”   United States v.

21   Bajakajian, 524 U.S. 321, 332 (1998).   Criminal forfeiture

22   focuses on the disgorgement by a defendant of his “ill-gotten

23   gains.”   United States v. Kalish, 626 F.3d 165, 170 (2d Cir.

24   2010) (citing United States v. Emerson, 128 F.3d 557, 566 (7th

25   Cir. 1997); United States v. Various Computers & Computer


                                     19
 1   Equip., 82 F.3d 582, 588 (3d Cir. 1996)).   Thus, the

 2   calculation of a forfeiture amount in criminal cases is usually

 3   based on the defendant’s actual gain.   See United States v.

 4   McGinty, 610 F.3d 1242, 1247 (10th Cir. 2010) (“[R]estitution

 5   is calculated based on the victim’s loss, while forfeiture is

 6   based on the offender’s gain.” (quoting United States v.

 7   Webber, 536 F.3d 584, 603 (7th Cir. 2008))).   This is

 8   consistent with the purpose of criminal forfeiture, as endorsed

 9   by the House Judiciary Committee when recommending the Civil

10   Asset Forfeiture Reform Act.   H.R. Rep. No. 106-192, at 5

11   (1999) (“With the forfeiture laws, we can separate the criminal

12   from his profits. . . thus removing the incentive others may

13   have to commit similar crimes tomorrow.”) (quoting Stefan

14   Cassella, Assistant Chief, Asset Forfeiture and Money

15   Laundering Section, Criminal Division, U.S. Department of
16   Justice in testimony before the committee); see also H.R. Rep.
17   No. 105-358, at 23 (1997) (same).   District courts in our

18   circuit have echoed this view by concluding that “a defendant
19   may be ordered to forfeit all monies received by him as a
20   result of the fraud.”   United States v. Nicolo, 597 F. Supp. 2d

21   342, 347 (W.D.N.Y. 2009) (emphasis added) (citing United States

22   v. Uddin, 551 F.3d 176, 181 (2d Cir. 2009)).

23        This general rule is somewhat modified by the principle

24   that a court may order a defendant to forfeit proceeds received

25   by others who participated jointly in the crime, provided the


                                    20
 1   actions generating those proceeds were reasonably foreseeable

 2   to the defendant.   United States v. Fruchter, 411 F.3d 377, 384

 3   (2d Cir. 2005) (reviewing order of forfeiture under RICO

 4   forfeiture provision); United States v. Warshak, 631 F.3d 266,

 5   281-82, 333 (6th Cir. 2010) (affirming joint and several

 6   forfeiture orders under 18 U.S.C. § 981).   This extends to

 7   forfeiture proceedings, where the general principle is that a

 8   defendant is liable for the reasonably foreseeable acts of his
 9   co-conspirators.    See United States v. Jackson, 335 F.3d 170,
10   181 (2d Cir. 2003) (“Under well-established law, Jackson was

11   responsible not only for the cocaine that he himself conspired

12   to import but also for the cocaine his co-conspirators

13   conspired to import, provided he knew of his co-conspirator's

14   illicit activities or the activities were reasonably

15   foreseeable by him.”).   The extension of forfeiture to proceeds

16   received by actors in concert with a defendant may be deemed to

17   be based on the view that the proceeds of a crime jointly

18   committed are within the possessory rights of each concerted
19   actor, i.e. are    “acquired” jointly by them and distributed

20   according to a joint decision.    This view does not support an

21   extension to a situation where the proceeds go directly to an

22   innocent third party and are never possessed by the defendant.

23        Moreover, we are not aware of, and the government has not

24   cited, any decision standing for the proposition that a

25   defendant may be required to forfeit funds never acquired by


                                      21
 1   him or someone working in concert with him.           Neither our

 2   opinion in United States v. Royer, 549 F.3d 886 (2d Cir. 2008)

 3   nor our summary order in United States v. Capoccia, 402 F.

 4   App’x 639 (2d Cir. 2010) are to the contrary.           In neither case

 5   were we presented with a situation where a defendant had been

 6   asked to forfeit funds that were never under his or his co-

 7   conspirator’s control.      While “property need not be personally

 8   or directly in the possession of the defendant, his assignees,

 9   or his co-conspirators in order to be subject to forfeiture,”
10   Capoccia, 402 F. App’x at 640, the property must have, at some
11   point, been under the defendant’s control or the control of his

12   co-conspirators in order to be considered “acquired” by him.

13   Finally, extending the scope of a forfeiture to include

14   proceeds that have never been acquired either by a defendant or

15   his joint actors would be at odds with the broadly accepted

16   principle that forfeiture is calculated based on a defendant’s

17   gains.    See McGinty, 610 F.3d at 1247.        Therefore, we hold that

18   the district court erred in ordering appellant to forfeit funds
19   that were never possessed or controlled by himself or others

20   acting in concert with him, and remand to determine the proper
21   forfeiture amount.4
22


           4
             To what extent appellant’s interest in salaries, bonuses, dividends,
     or enhanced value of equity in the Fund can be said to be money “acquired” by
     the defendant “through the illegal transactions resulting in the forfeiture,”
     18 U.S.C. § 981(a)(2)(B), we leave to the district court to decide on remand
     in a manner not inconsistent with this opinion.

                                         22
1                             CONCLUSION

2        We have reviewed appellant’s other arguments and conclude

3   that they are without merit.   For the foregoing reasons, we

4   affirm appellant’s conviction, but vacate the order of

5   forfeiture and remand for further proceedings in accordance

6   with this opinion.

7




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