## Facts

- Philip Peltz, an attorney, obtained confidential, nonpublic information from an SEC employee about an impending SEC enforcement action against Georgia Pacific Corporation, including timing for filing.
- The contemplated SEC action concerned Georgia Pacific’s alleged market-influencing purchases of its own securities through a controlled pension fund.
- Using the nonpublic information, Peltz placed orders to sell Georgia Pacific stock through brokerage firms before the enforcement action became public.
- Many of Peltz’s transactions were short sales; he told at least two brokerage houses that the sales were “long” when they were actually short, and he provided inconsistent explanations about ownership to a broker.
- After the SEC action was filed and announced, Georgia Pacific’s stock price fell, and Peltz covered his short positions at lower prices, realizing profit.
- A federal jury in the Southern District of New York convicted Peltz of conspiracy and securities-law offenses; the court imposed concurrent one-year sentences, partially suspended.

## Issues

1. Whether a non-broker customer can be criminally liable for willfully violating Exchange Act § 10(a) and Rule 10a-1(a) (short-sale restrictions) when the provisions are framed in terms of broker-dealer conduct.
2. Whether the evidence was sufficient to show “willful” violations of § 10(a)/Rule 10a-1 and § 10(b)/Rule 10b-5 where Peltz claimed he did not knowingly direct short-sale execution.
3. Whether the evidence supported a conviction under 18 U.S.C. § 371 for conspiracy to defraud the United States and the SEC of impartial administration of the securities laws through misuse of confidential SEC information.

## Decision

- The Second Circuit affirmed the convictions on all counts.
- The court held that a customer may be criminally liable for willfully violating § 10(a) and Rule 10a-1 by knowingly using brokers to carry out unlawful short sales.
- The court found sufficient evidence of willfulness and fraudulent conduct where Peltz misrepresented short sales as long sales to brokers to facilitate prohibited trading and to profit from nonpublic information.
- The court upheld the § 371 conspiracy conviction because the scheme interfered with lawful SEC functions through deceit by corrupting the confidentiality and impartiality of the SEC’s enforcement process.

## Legal Principles

- Criminal liability for securities-rule violations may extend to a customer who willfully causes or procures a regulated intermediary’s unlawful acts, even if the rule’s text primarily addresses the intermediary’s conduct.
- “Willfulness” may be shown by intentional misstatements and concealment used to effect prohibited short-sale activity and to avoid regulatory constraints.
- Misrepresenting the nature of a securities transaction to brokers in connection with sales can constitute fraud under § 10(b) and Rule 10b-5 when done knowingly and for profit.
- Under 18 U.S.C. § 371, a conspiracy “to defraud the United States” includes schemes that obstruct or impair lawful governmental functions by deceit, including corrupting the impartial administration of federal regulatory enforcement, without requiring proof of direct monetary loss to the government.

## Conclusion

The Second Circuit held that Peltz’s misuse of confidential SEC enforcement information, coupled with deliberate misrepresentations that enabled unlawful short sales, supported convictions for securities fraud and short-sale violations, and also constituted a § 371 conspiracy to defraud the United States by impairing the SEC’s impartial performance of its duties.


United States v. Peltz, 433 F.2d 48 (2d Cir. 1970)