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In order to reverse a conviction because of the existence of a variance, the variance must have caused the defendant substantial prejudice at trial. In evaluating whether a defendant has been prejudiced by a variance, a court considers several factors, including: (1) whether the court gave a Pinkerton charge; (2) whether statements of persons not in the conspiracy were used against the defendant; (3) whether there was prejudicial spillover due to a large number of joined defendants; and (4) whether any inflammatory or shocking evidence came in against the defendant.
Defendant James McDermott, president, CEO and chairman of Keefe Bruyette & Woods, began having an extramarital affair with Kathryn Gannon. During the course of their affair, McDermott made numerous stock recommendations to Gannon. Unbeknownst to McDermott, Gannon was simultaneously having an affair with Anthony Pomponio and passing these recommendations to him. Although neither Gannon nor Pomponio had extensive training or expertise in securities trading, together they earned around $170,000 in profits during the period relevant to the case. Defendant was convicted of conspiracy to commit insider trading and of insider trading. On appeal, defendant contended principally that the evidence was insufficient as a matter of law to support his convictions; he was unfairly prejudiced as a result of variance between the indictment and the proof at trial; and the district court abused its discretion under Fed. R. Evid. 403.
Under the circumstances, could the defendant be held liable for conspiracy to commit insider trading?
The court found that there was insufficient evidence to support the conspiracy count, although sufficient evidence existed to support defendant's conviction on the substantive offenses. The government failed to show an agreement to pass insider information to another person. Nevertheless, because of the variance between the single conspiracy charged in the indictment and the proof adduced at trial, the court found that defendant was prejudiced to the point of being denied a fair trial. Accordingly, the court reversed the conspiracy count and remanded for a new trial on the substantive counts.