Friday, November 22, 2013

United States v. Chestman case brief

United States v. Chestman case brief summary
947 F.2d 551 (1991)


CASE SYNOPSIS
Defendant appealed his conviction from the United States District Court for Southern District of New York for 31 counts of insider trading and perjury for violating 18 U.S.C.S. § 2; Rule 14e-3(a), 17 C.F.R. § 14e-3(a); Rule 10b-5, 17 C.F.R. § 240.10b-5 (1988); 18 U.S.C.S. § 1341; and, 18 U.S.C.S. § 1621.

CASE FACTS
Defendant was convicted of insider trading in violation of Rule 14e-3(a), 17 C.F.R. § 240.14e-3(a), Rule 10b-5, 17 C.F.R. § 240.10b-5 (1988), and 18 U.S.C.S. § 1341. Defendant had bought shares of a company after he received information from a client that the company was about to be sold.

DISCUSSION

  • On appeal, the court held that the Securities and Exchange Commission had been given broad authority to promulgate rules that would prohibit tender offer insider trading, and had not exceeded its authority in promulgating Rule 14e-3(a). 
  • Further, Congress was aware of the rule and had not altered it. 
  • Additionally, defendant could not be convicted for Rule 10b-5 or 18 U.S.C.S. § 1341 violations since he owed no fiduciary duty to the company nor did his client. 
  • As a result, the court affirmed defendant's conviction under Rule 14e-3(a), but reversed his convictions for Rule 10b-5 and 18 U.S.C.S. § 1341 violations.
CONCLUSION
The court affirmed defendant's conviction under Rule 14e-3(a) because the Securities and Exchange Commission had not exceeded its authority in promulgating Rule 14e-3(a). The court reversed the remainder of defendant's conviction, finding that defendant owed no fiduciary duty to the company regarding information he obtained and used in purchasing its stock.

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