## Facts

- Timothy McGee, a financial advisor, developed a long-term relationship with Christopher Maguire through Alcoholics Anonymous (AA), where McGee informally mentored Maguire for about a decade.
- The relationship centered on sobriety support and involved sharing sensitive personal information; McGee assured Maguire their conversations would remain private, and Maguire reciprocated by keeping McGee’s information confidential.
- In June–July 2008, Maguire, an insider of Philadelphia Consolidated Holding Corporation (PHLY), shared material nonpublic information with McGee about PHLY’s impending sale while discussing stress related to the transaction.
- Before the information became public, McGee borrowed about $226,000 (at 6.875% interest) and bought 10,750 shares of PHLY.
- After the sale was publicly announced, McGee sold his PHLY shares for a profit of $292,128.
- An SEC investigation followed, leading to McGee’s indictment and subsequent convictions for securities fraud under the misappropriation theory and for perjury based on false statements under oath.

## Issues

1. Whether SEC Rule 10b5-2(b)(2) is invalid because it recognizes a duty of trust or confidence based on a history of sharing confidences without requiring a traditional fiduciary relationship.
2. Whether the evidence was sufficient to support convictions for (a) securities fraud under the misappropriation theory and (b) perjury.
3. Whether the district court abused its discretion in denying a motion for a new trial based on newly discovered evidence.

## Decision

- The Third Circuit affirmed McGee’s convictions and the denial of post-trial motions.
- The court held Rule 10b5-2(b)(2) was a valid exercise of the SEC’s authority under Exchange Act § 10(b).
- The court held a rational jury could find a “duty of trust or confidence” based on the parties’ history, pattern, or practice of sharing confidences and McGee’s assurances of privacy.
- The court held the evidence was sufficient to support insider-trading misappropriation liability, including the timing, size, and financing of McGee’s purchases, and the profits realized after the public announcement.
- The court held the evidence was sufficient to support the perjury conviction based on false statements under oath.
- The court held the district court did not abuse its discretion in denying a new trial because the newly discovered evidence was immaterial and unlikely to produce an acquittal.

## Legal Principles

- Under the misappropriation theory, § 10(b) and Rule 10b-5 reach undisclosed trading on confidential information in breach of a duty owed to the information’s source.
- SEC Rule 10b5-2(b)(2) validly defines circumstances that create a “duty of trust or confidence,” including when the parties have a history, pattern, or practice of sharing confidences.
- Misappropriation liability under § 10(b) does not require proof of a traditional fiduciary relationship if the evidence supports a duty of trust or confidence as defined by a valid SEC rule.
- Sufficiency review asks whether, viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could find the offense elements beyond a reasonable doubt.
- A new trial based on newly discovered evidence requires, among other things, materiality and a likelihood of producing an acquittal; denial is reviewed for abuse of discretion.

## Conclusion

The Third Circuit upheld the SEC’s authority to recognize a duty of trust or confidence based on a sustained practice of sharing confidences, and it affirmed McGee’s insider-trading misappropriation and perjury convictions as supported by the evidence, as well as the denial of a new-trial motion where the proffered new evidence was not material and would not likely change the outcome.


United States v. McGee, 763 F.3d 304 (3d Cir. 2014)