## Facts

- John A. Mulheren, Jr. was the chief trader and a general partner of a registered broker-dealer, Jamie Securities Co.
- A 42-count federal indictment charged Mulheren with, among other offenses, manipulating the price of Gulf & Western (G & W) common stock on the NYSE by purchasing 75,000 shares on October 17, 1985 to raise the price to $45 per share (Counts 1–4).
- The prosecution’s theory linked the alleged manipulation to Ivan Boesky, who held a large position in G & W and later sold after the price reached $45.
- In a telephone call, Mulheren stated it would be “great” if G & W rose to $45 from just above $44; shortly thereafter, he purchased 75,000 shares through Jamie, and the market price reached $45.
- Part of the day’s activity included an agreed short sale of 25,000 shares to another broker despite Mulheren not then owning G & W shares.
- Before verdict, Count 41 was dismissed on the government’s motion, and Counts 29–39 were dismissed under Rule 29 at the close of the government’s case.
- The jury convicted Mulheren on Counts 1–4 (G & W manipulation) and could not reach a verdict on the remaining counts, resulting in a mistrial as to those counts.
- The district court imposed concurrent prison terms of one year and one day, a $1,681,700 fine, and a $200 special assessment on Counts 1–4.
- Mulheren appealed, primarily challenging the sufficiency of the evidence supporting the manipulation convictions.

## Issues

1. Whether open-market purchases, without deceptive trading devices, can support criminal securities manipulation liability when the prosecution’s theory rests on the trader’s intent to affect price rather than investment intent.
2. Whether the evidence was sufficient to prove beyond a reasonable doubt that Mulheren had the subjective intent to manipulate G & W’s price, as opposed to engaging in legitimate trading.

## Decision

- The Second Circuit reversed Mulheren’s convictions on Counts 1–4 and vacated his sentence.
- The court assumed, without definitively deciding, that trading solely to affect price could fall within § 10(b) and Rule 10b-5 in some circumstances.
- Even on that assumption, the government failed to prove beyond a reasonable doubt that Mulheren acted with the required subjective manipulative intent.
- The court held that the government’s proof—centered on the “great” comment and subsequent purchases—did not exclude reasonable alternative explanations consistent with legitimate trading.
- The remaining counts were not addressed on the merits because there were no convictions on those counts (mistrial/dismissals).

## Legal Principles

- A criminal securities-manipulation conviction based on alleged price-impact trading requires proof beyond a reasonable doubt of subjective intent to manipulate, not merely proof that trades moved the market.
- Temporal correlation between a defendant’s trading and another market participant’s profit is insufficient, without stronger evidence, to establish manipulative intent.
- Evidence must support a rational inference that the defendant intended to create an artificial price rather than pursue legitimate trading objectives; ambiguous statements and aggressive trading alone may be inadequate.
- An appellate court may assume arguendo that a legal theory is viable under § 10(b) and Rule 10b-5 yet still reverse for insufficiency of proof on mens rea.

## Conclusion

The Second Circuit set aside the G & W manipulation convictions because the government did not prove beyond a reasonable doubt that Mulheren’s open-market buying was undertaken with a subjective purpose to manipulate price rather than as legitimate trading, and it therefore vacated the sentence imposed on those counts.


United States v. Mulheren, 938 F.2d 364 (2d Cir. 1991)