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United States v. McPhail

United States District Court, District of Massachusetts

May 12, 2015



Denise J. Casper, U.S. District Judge.

I. Introduction

Defendants Eric McPhail (“McPhail”) and Douglas Parigian (“Parigian”) have moved to dismiss the First Superseding Indictment (“indictment”), D. 38, against them. D. 40, 50, 52, 55. Having considered the motions, the supporting memoranda, the government’s opposition and having heard oral argument, D. 56, the Court DENIES the motions.

II. Factual Background

The Court draws this summary from the factual allegations in the indictment.

McPhail had a close relationship with Person A, an executive at American Superconductor Corporation (“AMSC”), a publicly traded corporation, between 2004 and 2011. D. 38 at 1-2. By in or about 2009, McPhail and Person A had a history, pattern and practice of sharing professional and personal confidences. Id. at 3. The indictment alleges that McPhail owed Person A a duty of trust and confidence and that McPhail reasonably should have known that Person A’s communications were meant to be kept in confidence. Id. at 2-3. The indictment alleges that despite this knowledge, and in violation of his duty to Person A, beginning in or about July 2009, McPhail used email and other means to communicate material, nonpublic information about AMSC’s quarterly earnings, among other business activities (“inside information”) to his friends, including Parigian. Id. at 2-4. The indictment alleges McPhail did so with the intent that his friends profit from buying and selling AMSC shares or options on such shares on the basis of the inside information. Id. at 3.

Parigian was aware of McPhail’s relationship with Person A and that he was an executive at AMSC. Id. at 4. The indictment alleges that Parigian conspired to profit by buying and selling AMSC shares and options on the basis of material, nonpublic information received from McPhail, who had obtained the information from Person A. Id. at 2. Parigian knew or should have known he received the inside information in violation of a fiduciary or similar duty and that it was material and nonpublic information. Id. at 3. The indictment also alleges that Parigian knew that McPhail expected to receive and received a benefit from disclosing the inside information to Parigian. Id. Based upon the inside information, Parigian traded AMSC shares and options and profited as a result. Id. at 3.

As to Count III against Parigian, the indictment further alleges that on or about May 10, 2012, Parigian knowingly and willfully made materially false, fictitious and fraudulent statements and representations to FBI agents investigating the insider trading matter. Id. at 15. Specifically, Parigian told agents he did not receive stock tips or other inside information about AMSC, that he did not know other individuals who invested in AMSC stock and that he did not know anyone who worked for AMSC, when, as alleged, he knew these statements to be false. Id.

III. Procedural History

The government has charged McPhail and Parigian with one count of conspiracy to commit an offense against the United States in violation of 18 U.S.C. § 371, D. 1 at 12 (Count 1) and securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff(a), D. 1 at 13 (Count 2). Additionally, Parigian is charged with making false statements to a federal agent in violation of 18 U.S.C. § 1001(a)(2), D. 1 at 15 (Count 3). Parigian and McPhail have moved to dismiss on the basis that the insider trading allegations in the indictment do not constitute a crime. D. 40, 50. Parigian also contends that dismissal of the indictment is warranted because Counts I and II amount to selective prosecution of him. D. 41. McPhail also separately moves for dismissal alleging misuse of the grand jury process. D. 52. On January 26, 2015, Parigian moved to dismiss the indictment on the same grounds. D. 55. The Court has now heard oral argument on the pending motions. D. 56.

IV. Discussion

“When grading an indictment’s sufficiency, [the court] look[s] to see whether the document sketches out the elements of the crime and the nature of the charge so that the defendant can prepare a defense and plead double jeopardy in any future prosecution of the same offense.” United States v. Guerrier, 669 F.3d 1, 4 (1st Cir. 2011) (noting that “in the ordinary course of events, a technically sufficient indictment handed down by a duly empaneled grand jury ‘is enough to call for trial of the charge on the merits’”) (quoting Costello v. United States, 350 U.S. 359, 363 (1956)). The defendants carry a heavy burden in moving to dismiss the indictment, as “[a] court should exercise its authority to dismiss cautiously, since to dismiss an indictment ‘directly encroaches upon the fundamental role of the grand jury.’” United States v. Thomas, 519 F.Supp.2d 141, 143-44 (D. Me. 2007) (quoting Whitehouse v. U.S. Dist. Court, 53 F.3d 1349, 1360 (1st Cir. 1995)). “[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defendant and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense.” United States v. Cianci, 378 F.3d 71, 81 (1st Cir. 2004) (quoting Hamling v. United States, 418 U.S. 87, 117 (1974)); see Fed. R. Crim. P. 7(c)(1).

A. The Indictment Properly Alleges Criminal Acts as to Both Defendants

The indictment here alleges all of the essential elements of the conspiracy and insider trading charges alleged in Counts I and II, respectively, against both McPhail and Parigian, and the Defendants’ arguments to the contrary are not persuasive. Here, the allegations in the indictment rest upon a misappropriation theory of insider trading. These allegations state a crime, even in light of the persuasive ...

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