McDermott Secures Client’s Acquittal on all 34 Charges in Insider Trading Case
NEW YORK (August 21, 2015) – After a two week trial a jury in U.S. District Court for the Northern District of Georgia acquitted McDermott Will & Emery client Steven Slawson on all 34 counts of a federal criminal indictment charging conspiracy, wire fraud and securities fraud related to allegations of insider trading. The federal jury deliberated for only three hours before finding McDermott’s client not guilty on all charges.
The charges against McDermott’s client were part of a larger insider trading and accounting fraud investigation that had already resulted in the conviction of two defendants. This investigation was described by the government as « the largest criminal accounting fraud case in the history of the Southeastern United States. »
Mr. Slawson, the retired founder of New Jersey hedge fund Titan Capital Management LLC, and client of McDermott Corporate Tax partner John Lutz, had been charged in May 2014 with trading on inside information about the quarterly and annual financial results of children’s clothing company Carter’s, Inc. The government alleged that McDermott’s client had earned $1.7 million from insider trading activity.
In recognition of this outstanding achievement on behalf of the client in a highly charged and notable federal case, American Lawyer named McDermott partner Todd Harrison as “Litigator the Week.” American Lawyer is one of the nation’s leading legal industry publications and recognition as “Litigator of the Week” is an honor that only premiere trial attorneys receive for exceptional advocacy in the most significant of cases.
Mr. Harrison, a member of the White Collar & Securities Defense practice group in the Firm’s New York office, led the McDermott team that also included McDermott partner Andy Tomback.
“We are enormously proud of Todd, Andy and the rest of the McDermott team that put on such a convincing defense,” said Michael Kendall, partner and head of McDermott’s White-Collar & Securities Defense Practice Group. “It took a federal jury only three hours to announce our client was innocent of all 34 charges Moreover, our team was able to defeat federal prosecutors in a case that tested a novel theory on which to charge an innocent person with insider trading.”
The insider trading case against Mr. Slawson was highly unusual. Given that Mr. Slawson was described by the government as a down-stream tippee, the prosecutors in this case were looking to circumvent last year’s high profile Second Circuit ruling in the insider trading case U.S. v. Newman. In Newman the Court held that a remote tippee could not be held liable for insider trading if they had no knowledge the tipper was improperly leaking confidential information in exchange for a personal benefit.
Instead of charging McDermott’s client with insider trading under Rule 10b-5 as usual, the government for the first time brought an insider trading case under the securities fraud statute promulgated under Sarbanes-Oxley, as well as wire fraud. The government believed that it had fewer elements to prove than under a traditional 10b-5 indictment.
Had the government been successful in this case, it likely would have opened the floodgates to charging remote tippees in insider trading cases with securities fraud rather than insider trading under Rule 10b-5. McDermott’s success in the Slawson case may have put an immediate end to the government relying on charging securities fraud under Title 18 to end run the requirements of Title 15 insider trading law in the case of remote tippees.
Other members of the McDermott trial team included associates Allison E. Fleischer, David Chen and Karen Eisenstadt and Ted Laurenson. Stephen Councill of Atlanta firm Rogers & Hardin served as local co-counsel on the case.
McDermott Will & Emery is a premier international law firm with a diversified business practice. Numbering more than 1,000 lawyers, we have offices in Boston, Brussels, Chicago, Dallas, Düsseldorf, Frankfurt, Houston, London, Los Angeles, Miami, Milan, Munich, New York, Orange County, Paris, Rome, Seoul, Silicon Valley and Washington, D.C. Further extending our reach into Asia, we have a strategic alliance with MWE China Law Offices in Shanghai.