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United States v. Blaszczak - 947 F.3d 19 (2d Cir. 2019)


In the context of embezzlement, there is no additional requirement that an insider breach a duty to the owner of the property, since it is impossible for a person to embezzle the money of another without committing a fraud upon him. Because a breach of duty is thus inherent in Carpenter's formulation of embezzlement, there is likewise no additional requirement that the government prove a breach of duty in a specific manner, let alone through evidence that an insider tipped confidential information in exchange for a personal benefit. Of course, the use to which one puts misappropriated property need not be one designed to bring profit to the misappropriator: Any fraudulent appropriation to one's own use constitutes embezzlement, regardless of what the embezzler chooses to do with the money. Those who trade on purloined information but who do not come within the definition of insider set forth in, and Dirks are still almost certain to be subject to criminal liability for federal mail or wire fraud. In short, because the personal-benefit test is not grounded in the embezzlement theory of fraud, but rather depends entirely on the purpose of the Exchange Act, the court decline to extend Dirks beyond the context of that statute.


Defendants David Blaszczak, Theodore Huber, Robert Olan, and Christopher Worrall were charged with federal wire fraud, securities fraud, and conversion, codified at 18 U.S.C.S. §§ 13431348, and 641, respectively, — and with engaging in securities fraud in violation of Section 10(b) of the Securities and Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 (Title 15 securities fraud) — by misappropriating confidential nonpublic information from the Centers for Medicare & Medicaid Services (CMS). The indictment principally alleged that CMS employees, including Worrall, disclosed the agency's confidential information to Blaszczak, a "political intelligence" consultant for hedge funds who, in turn, tipped the information to Huber and Olan, employees of the healthcare-focused hedge fund Deerfield Management Company, L.P. (Deerfield), which traded on it. After a one-month trial, a jury found Defendants guilty of wire fraud, conversion, and, with the exception of Worrall, Title 18 securities fraud and conspiracy. The jury acquitted Defendants on all counts alleging Title 15 securities fraud. Defendants challenged their convictions.


Did the federal wire fraud, securities fraud, and conversion statutes, codified at 18 U.S.C. §§ 13431348, and 641, respectively, reach misappropriation of a government agency's confidential nonpublic information relating to its contemplated rules?




Defendants' convictions were affirmed since there was sufficient evidence as the Centers for Medicare & Medicaid Services' (CMS) confidential information was property in the hands of the CMS, the government's theory of property rights over a regulatory agency's confidential predecisional information did not stray from traditional concepts of property, the term defraud did not have to be construed to have the same meaning across the Title 18 fraud provisions and S.E.C. Rule 10b-5, the personal-benefit test does not apply to the wire fraud and Title 18 securities fraud statutes, there was sufficient evidence to support the jury's finding of serious interference with CMS's ownership of its confidential information, 18 U.S.C.S. § 641 was not unconstitutionally vague as applied, and the district court did not err in giving a conscious avoidance instruction.

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