No. 16-066

IN THE

Supreme Court of the United States _________

MARVIN SKRELLY,

Petitioner, v.

UNITED STATES OF AMERICA Respondent.

_________

On Writ of Certiorari to the United States Court of Appeals

for the Thirteenth Circuit _________

BRIEF FOR THE RESPONDENT

_________

TEAM 4

2016 Julius H. Miner Moot Court Competition

ii

QUESTIONS PRESENTED 1. Whether the private search doctrine, a warrantless search exception to the Fourth

Amendment, allows the government to search e-mail folders without a warrant when

some, but not all, e-mails in those folders have already been examined by a private

individual and found to contain evidence of a financial crime.

2. Whether a tippee can be held derivatively liable for a tipper’s violation of fiduciary duty

when the tipper gifted the tippee with insider information, for which he did not receive

any immediate tangible compensation, and whether the creation of a mutually beneficial

relationship between the two individuals is sufficient to show that the tipper received a

personal benefit.

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED ........................................................................................................ ii TABLE OF CONTENTS ............................................................................................................ iii

TABLE OF AUTHORITIES ........................................................................................................v OPINIONS BELOW .................................................................................................................. viii

STATEMENT OF THE CASE .....................................................................................................1 SUMMARY OF THE ARGUMENT ...........................................................................................4

ARGUMENT ..................................................................................................................................6 I. THE PRIVATE SEARCH DOCTRINE ALLOWS THE POLICE TO EXAMINE MATERIALS, INCLUDING DIGITAL DATA, ALREADY SEARCHED BY PRIVATE INDIVIDUALS, AND THEREFORE, THE GOVERNMENT’S SEARCH WAS NOT PROTECTED BY THE FOURTH AMENDMENT. .......................................6

A. There was no reasonable expectation of privacy with respect to the e-mails stored in the General Inbox and Stock Tips folders because a private individual had examined the folders prior to the government and therefore, the e-mails in the folders were not protected by the Fourth Amendment. ...........................................7

1. The folders in an e-mail account, but not the individual e-mails themselves, are “containers” for purposes of the Fourth Amendment and the private search doctrine. ..........................................................................7

2. Even if the government search is more exhaustive, it can still be within the scope of the initial private search, and therefore, the government can examine e-mails not viewed by the private individual. ...............................9 3. The Supreme Court’s decision in Riley concerned an invasion of the privacy interest of an arrestee, while a police search of an e-mail following a private search concerns a privacy interest that was already compromised. .............................................................................................10

B. Based on the private search, the government knew with substantial certainty the contents of the e-mails in the Stock Tips folder, and therefore, even if the individual e-mails are considered separate containers, the government’s examination of those e-mails does not violate the Fourth Amendment. ................11

II. A TIPPEE MAY BE HELD DERIVATIVELY LIABLE FOR THE TIPPER’S BREACH OF FIDUCIARY DUTY WHERE THE TIPPER OBTAINS PERSONAL BENEFIT THROUGH GIFTING INSIDER INFORMATION TO A TIPPEE, AND THE NATURE OF THEIR RELATIONSHIP IS SUCH THAT THE TIPPER EXPECTS A FUTURE RETURN ON HIS GIFT. ..................................................................................14

A. The personal benefit obtained by a tipper through gifting insider information to a tippee is sufficient to establish that the tipper breached his fiduciary duty, and the tippee may be held derivatively liable. ............................................................15

iv

1. The gift and exchange theories are distinct theories of liability because they focus on two discrete types of compensation for insider tips. ...........15

2. A tipper who gifts insider information to a tippee breaches his fiduciary duty because the act of giving creates personal benefit to the tipper. ........16

B. The nature of Skrelly and Stump’s mutually beneficial relationship and Skrelly’s implicit duty to reciprocate Stump’s gift create a personal benefit to Stump, and therefore, Skrelly should be held derivatively liable. .........................17

1. Although Skrelly did not convey an immediate material benefit in exchange for Stump’s gift, the mutually beneficial nature of their relationship gives rise to liability. ..............................................................18

2. When Stump disclosed insider information to Skrelly, he immediately received an implicit “I owe you,” a personal benefit. ................................19

Conclusion ....................................................................................................................................21

v

TABLE OF AUTHORITIES

CASES

Cady, Roberts & Co., 40 S.E.C. 907 (1961) ..................................................................................14

California v. Acevedo, 500 U.S. 565 (1991) ..................................................................................11

Chiarella v. United States, 445 U.S. 222 (1980) ...........................................................................14

Chimel v. California, 395 U.S. 752 (1969) ....................................................................................10

Davis v. United States, 131 S. Ct. 2419 (2011) ...............................................................................8

Dirks v. S.E.C., 463 U.S. 64 (1983) ...................................................................................14, 16, 18

Katz v. United States, 389 U.S. 347 (1967) .....................................................................................7

New York v. Belton, 453 U.S. 454 (1981) ........................................................................................8

Rann v. Atchison, 689 F.3d 832 (7th Cir. 2012) ....................................................................8, 9, 12

Riley v. California, 134 S. Ct. 2473 (2014) .........................................................................6, 10, 11

Robbins v. California, 453 U.S. 420 (1981) ..................................................................................11

S.E.C. v. Rocklage, 470 F.3d 1 (1st Cir. 2006) ..............................................................................15

S.E.C. v. Sargent, 229 F.3d 68 (1st Cir. 2000) .........................................................................18, 19

S.E.C. v. Yun, 327 F.3d 1263, 1275 (11th Cir. 2003) ..............................................................16, 19

United States v. Arnold, 533 F.3d 1003 (9th Cir. 2008) ................................................................11

United States v. Bomengo, 580 F.2d 173 (5th Cir. 1978) ................................................................9

United States v. Bowman, 907 F.2d 63 (8th Cir. 1990) .................................................................12

United States v. Durdley, No. 1:09-cr-00031-MP-AK, 2010 WL 916107 (N.D. Fla. Mar. 11,

2010) aff’d, 436 F. App’x 966 (11th Cir. 2011) .................................................................9

United States v. Evans, 486 F.3d 315 (7th Cir. 2007) ...................................................................18

United States v. Jacobsen, 466 U.S. 109 (1984) ....................................................................6, 7, 13

vi

United States v. Jiau, 734 F.3d 147 (2d Cir. 2013) .......................................................................16

United States v. Newman, 773 F.3d 434 (2d Cir. 2014) ....................................................16, 17, 19

United States v. Oliver, 630 F.3d 397 (5th Cir. 2011) ...................................................................12

United States v. Ross, 456 U.S. 798 (1982) ...............................................................................8, 11

United States v. Runyan, 275 F.3d 449 (5th Cir. 2001) ......................................................... passim

United States v. Salman, 792 F.3d 1087 (9th Cir. 2015) ...................................................15, 16, 18

United States v. Simpson, 904 F.2d 607 (11th Cir. 1990) ................................................................9

United States v. Skrelly, No. 15-3902 (13th Cir. 2015) ......................................................... passim

United States v. Slanina, 283 F.3d 670 (5th Cir. 2002), vacated on other grounds,

537 U.S. 802 ........................................................................................................................9

United States v. Wicks, 73 M.J. 93 (C.A.A.F. 2014) .....................................................................11

Vernoica School Dist. 47J v. Acton, 515 U.S. 646 (1995) ...............................................................6

Walter v. United States, 447 U.S. 649 (1980) ..................................................................................6

CONSTITUTIONAL PROVISIONS U.S. Const. amnd. IV .......................................................................................................................6 STATUTES

15 U.S.C. § 78j(b) ..........................................................................................................................14

OTHER AUTHORITIES

Black’s Law Dictionary (10th ed. 2004) ........................................................................................15

Colin Camerer, Gifts as Economic Signals and Social Symbols, 94 Am. J. of Sociology, S180

(1988) ...............................................................................................................................16

vii

Eric. A. Posner, Altruism, Status, and Trust in the Laws of Gifts and Gratuitous Promises, 1997

Wis. L. Rev. 567 (1997) ...................................................................................................17

Richard A. Posner, A Theory of Primitive Society, with Special Reference to Law, 23 J. of L. &

Econ. 1 (1980) ..................................................................................................................17

Tara Parker-Pope, A Gift that Gives Right Back? The Giving Itself, New York Times (Dec. 11,

2007), http://www.nytimes.com/2007/12/11/health/11well.html?_r=0 ...........................17

viii

OPINIONS BELOW

The court order of the United States District Court for the District of Wigmore is reported

as United States v. Skrelly, No. 2015-CM-0713 (D. Wig. May 15, 2015).

The opinion of the United States Court of Appeals for the Thirteenth Circuit is reported

as United States v. Skrelly, No. 15-3902 (13th Cir. 2015).

1

STATEMENT OF THE CASE

Petitioner Marvin Skrelly, a professional investor, “was considered a rising star in the

field.” United States v. Skrelly, No. 15-3902 at *2 (13th Cir. 2015). Skrelly’s firm, WUTANG

Financial, owned a sizeable portion of Sodreckso stock. Id. Sodreckso, “a titan of the American

food industry,” produced and distributed prepackaged meals. Id. Barrington Weatherbee Stump

III was the founder, CEO, and chairman of Sodreckso. Id. Even before meeting Stump, Skrelly

was aware of Stump’s reputation as a “notorious public figure” who “kept tight control” not only

over Sodreckso’s operation, but also the operations of its competitor, CPP Inc., by paying CPP

insiders for nonpublic information. Id.

On March 12, 2015, at the Silver Spoons Country Club, Skrelly initiated a conversation

with Michael Meneghini, a prominent member of the club, and Stump. Id. Meneghini and Stump

invited Skrelly to play golf and join them in the sauna. Id. Before entering the sauna, Meneghini

excused himself to take a phone call, leaving Skrelly and Stump alone. Id. Skrelly and Stump did

not testify at trial, but a search of Skrelly’s emails revealed that Stump disclosed nonpublic

information about Sodreckso at that time. Id. at *3. When Meneghini entered the sauna, he heard

Skrelly thank Stump, and Stump responded: “No problem, I’m always happy to do a favor for a

friend.” Id.

On March 12, Stump sent two e-mails to Skrelly’s WUTANG e-mail. Id. The “Sodreckso

e-mail,” informed Skrelly that Sodreckso was on the verge of financial collapse, and that Stump

disclosed this information in the sauna. Id. The “CPP e-mail,” disclosed that CPP was planning

to release new prepackaged pizzas, “a revolutionary development in the field.” The next day,

Skrelly sold his Sodreckso stock and bought a significant amount of CPP stock. Id. Two weeks

2

later, Sodreckso filed for bankruptcy and its stock price plummeted. Id. Consequently, the price

of its CPP soared. Id.

Deborah Rainden, Skrelly’s assistant at WUTANG was frustrated by Skrelly’s poor letter

of recommendation for business school. Id. In an attempt to get back at Skrelly, she searched his

computer, hoping to find compromising information. Id. Rainden went to Skrelly’s office, logged

on to his laptop with the company password, and successfully guessed his e-mail password. Id. at

*3–4. Skrelly’s emails were organized into folders, two of which were “General Inbox” and

“Stock Tips.” Id. at *4. Rainden read approximately fifty emails in the General Inbox, most of

which were business-related, but some of which were personal in nature. Id. She read the five

most recent e-mails out of the ten total in the Stock Tips folder; the e-mails were all from

insiders at public companies and contained nonpublic information that “appeared to be material

to an investor’s evaluation of each company’s value.” Id. “Suspecting that she had found

evidence of a financial crime,” Rainden turned Skrelly’s computer over to the police. Id.

The computer was investigated by Detective Whitney Woodward of the Wigmore State

Police, who had training and experience in recognizing financial crimes. Id. Rainden provided

Woodward with a sworn statement describing the contents of each e-mail she saw, opened, and

read during her search. Id. at *5. Woodward then read every email in the General Inbox and

Stock Tips folders, and she discovered the Sodreckso e-mail in the General Inbox folder and the

CPP e-mail in the Stock Tips folder. Id. Nine of the ten e-mails in the Stock Tips folder fit the

pattern of the other e-mails; one, however, was an exchange between Skrelly and a woman with

whom he was having an affair. Id. That email, however, “appeared to have been written as to

appear—until actually opened—to contain only business intelligence.” Id.

3

Based on the contents of the e-mails, Skrelly was prosecuted for two counts of insider

trading; the first alleged trading on insider information material to the value of Sodreckso stock,

while the second alleged trading on insider information material to the value of CPP stock. Id.

Skrelly filed a motion in limine to suppress the e-mails as obtained in violation of the Fourth

Amendment, and the district court denied the motion by oral decree. The court overruled his

objection to the introduction of the e-mails at trial. Id. At the end of the government’s case,

Skrelly moved for a judgment of acquittal, arguing “there was insufficient evidence that Stump

received a personal benefit in exchange for the Sodreckso tip.” Id. The district court denied this

motion, and Skrelly was convicted on both counts. Id. Skrelly then renewed his motion for

acquittal on the first count, and the district court denied the motion. Id. He appealed the court’s

denial of his motion to suppress the e-mails, and requested the Thirteenth Circuit issue a

judgment of acquittal on Count One and vacate his conviction on Count Two. Id. The Thirteenth

Circuit, however, affirmed his conviction. Id. at *1. The court held that the government’s search

of the email was valid under the Fourth Amendment because the private search doctrine applied.

Id. at *6. Moreover, the court held that under the gift theory, a tippee can be held liable for

insider trading even when the tipper does not receive tangible compensation. Id. at *15. It

determined that the nature of Skrelly and Stump’s relationship was sufficient to support a

conviction. Id.

On January 15, 2015, this Court granted a writ of certiorari and stayed the Thirteen

Circuit’s mandate, pending the appeal.

4

SUMMARY OF THE ARGUMENT

The Thirteenth Circuit properly affirmed petitioner’s conviction for insider trading in

violation of § 10(b) of the Securities Exchange Act of 1934. The Thirteenth Circuit correctly

affirmed the denial of petitioner’s motion to suppress the Sodreckso and CPP e-mails because the

private search doctrine permitted a warrantless search. Moreover, the Thirteenth Circuit correctly

held that the government’s evidence of the tipper’s personal benefit was sufficient to hold

petitioner derivatively liable for the tipper’s breach of fiduciary duty.

The government’s search of the Sodreckso e-mail, stored in the General Inbox folder, and

the CPP e-mail, stored in the Stock Tips folder, was permissible under the Fourth Amendment

because a private individual had previously examined the folders. The private search doctrine, a

warrantless search exception, exempts items from Fourth Amendment protection when the

government’s search is within the scope of the prior search. The Thirteenth Circuit was correct in

determining that e-mail folders, not individual e-mails, are akin to “containers” for purposes of

this analysis. E-mail folders have characteristics of a container: they hold and conceal

information. Moreover, the government can be more thorough in its search, and can examine

more e-mails within the folder than did the private searcher.

Even if this Court were to consider individual e-mails as containers, the government’s

examination of the CPP e-mail was still permissible. The private search revealed that five of the

ten e-mails in the Stock Tips folder contained trading tips, and the detective who examined the

CPP e-mail was trained in investigating financial crimes. Based on her expertise and the results

of the private search, the detective was “substantially certainty” that each e-mail in the folder

contained stock tips at the time of the search.

5

Skrelly, the tippee obtained insider information from the Sodreckso and CPP e-mails.

Stump, the tipper, breached his fiduciary duty by providing those e-mails to Skrelly as a gift, and

Skrelly is derivatively liable for that breach. Insiders are prohibited from using privileged

knowledge for personal benefit. If the benefit is tangible, the insider certainly violated his

fiduciary duty. Alternatively, if the tipper gifts the information, he can still obtain a personal

benefit, even if it is not an immediate pecuniary gain. The very act of giving creates this benefit.

Stump gave Skrelly insider tips without receiving tangible compensation, but still

received personal benefit from this exchange due to the nature of their relationship and the

creation of an “I owe you.” By gifting Skrelly insider information that enriched him financially,

Stump created a mutually-beneficial relationship, knowing the favor would be returned in the

future. Thus, since Stump received a personal benefit from his disclosure and violated his

fiduciary duty, Skrelly must be held derivatively liable.

6

ARGUMENT I. THE PRIVATE SEARCH DOCTRINE ALLOWS THE POLICE TO EXAMINE

MATERIALS, INCLUDING DIGITAL DATA, ALREADY SEARCHED BY PRIVATE INDIVIDUALS, AND THEREFORE, THE GOVERNMENT’S SEARCH WAS NOT PROTECTED BY THE FOURTH AMENDMENT.

Detective Woodward’s search of petitioner’s e-mail did not violate the Fourth

Amendment because a private individual had already examined e-mails stored in the same

electronic folders as the disputed emails. The Fourth Amendment protects “against unreasonable

searches and seizures.” U.S. Const. amnd. IV. It applies only to the government, and does not

apply “to a search or seizure, even an unreasonable one, effected by a private individual not

acting as an agent of the Government or with the participation or knowledge of any government

official.” Walter v. United States, 447 U.S. 649, 662 (1980) (Blackmun, J., dissenting)).

Generally, in order for a search to be reasonable, the police must obtain a warrant,

Vernoica School Dist. 47J v. Acton, 515 U.S. 646, 653 (1995). A search conducted without a

warrant “is reasonable only if it falls within a specific exception to the warrant requirement.”

Riley v. California, 134 S. Ct. 2473, 2482 (2014). One such exception is the private search

doctrine: items do not receive Fourth Amendment protection if they were previously searched by

a private party and the government’s subsequent examination does not “exceed[] the scope of the

private search.” United States v. Jacobsen, 466 U.S. 109, 115 (1984).

The government’s examination of petitioner’s e-mails is permissible under the private

search doctrine because a private individual already examined them. Electronic folders

containing e-mails are akin to containers, and a government examination of items inside a

container previously searched by a private party is within the scope of the original search.

Additionally, even if this Court were to determine electronic folders are not containers, Detective

Woodward’s examination of the CPP e-mail was still permissible because she was “substantially

7

certain” of its contents. Therefore, this Court should affirm the Thirteenth Circuit’s decision to

deny the petitioner’s motion to suppress.

A. There was no reasonable expectation of privacy with respect to the e-mails stored in the General Inbox and Stock Tips folders because a private individual had examined the folders prior to the government and therefore, the e-mails in the folders were not protected by the Fourth Amendment.

The government’s warrantless examination of petitioner’s e-mails in the General Inbox

and Stock Tips folders was permissible because a private individual had already inspected e-

mails in both folders, frustrating “the original expectation of privacy.” Jacobsen, 466 U.S. at

117. “[A]n individual’s expectation of privacy in the contents of a container [is] compromised if

the container was opened and examined by private searchers.” United States v. Runyan, 275 F.3d

449, 465 (5th Cir. 2001) (citing Jacobsen, 466 U.S. at 119). E-mail folders, not individual e-

mails, are akin to containers, and after a private individual examines some items in a container,

the government’s inspection of all items in that container falls within the scope of the original

search. Moreover, the Court’s decision in Riley does not impact the analysis because the private

search doctrine’s applicability depends “not [on] what ought to be private, but what was actually

kept private.” Skrelly, No. 15-3902 at *10.

1. The folders in an e-mail account, but not the individual e-mails themselves, are “containers” for purposes of the Fourth Amendment and the private search doctrine.

The Fourth Amendment only applies where “a person [has] exhibited an actual

(subjective) expectation of privacy . . . [which] society is prepared to recognize as ‘reasonable.’”

Katz v. United States, 389 U.S. 347, 516 (1967) (Harlan, J., concurring). An individual can

demonstrate an expectation of privacy by concealing items in a “container.” For Fourth

8

Amendment purposes, a container “denotes any object capable of holding another object.” New

York v. Belton, 453 U.S. 454, 460 n.4 (1981), abrogated on other grounds, Davis v. United

States, 131 S. Ct. 2419, 2426 (2011). “[T]he Fourth Amendment provides protection to the

owner of every container that conceals its contents from plain view.” United States v. Ross, 456

U.S. 798, 822–23 (1982).

E-mail folders, unlike individual e-mails, are containers for purposes of a Fourth

Amendment analysis. The Seventh and Fifth Circuits have identified digital storage devices as

containers. See Rann v. Atchison, 689 F.3d 832, 837 (7th Cir. 2012) (zip drives and photo

memory cards); United States v. Runyan, 275 F.3d 449, 458 (5th Cir. 2001) (floppy disks and

compact discs). E-mail folders have the same characteristics as those digital storage devices: they

can hold and conceal digital information. Individual e-mails, however, cannot. As Judge

Charizardo accurately stated, “[t]he information being transmitted lies in an e-mail’s text, not

some part of the e-mail in which another object can be inserted.” Skrelly, No. 15-3902, at *9. A

comparison between a postcard and an envelope is useful in illustrating this point. Unlike an

envelope, which can conceal an item, a message written on a postcard cannot be concealed; a

mere glimpse of the postcard can reveal the message. Like a postcard, contents of an e-mail are

revealed because the sender, subject line, and first sixty characters are displayed before opening

it.

Dissenting, Judge Poliwrath suggests that considering e-mail folders as containers

produces “anomalous results.” Skrelly, No. 15-3902 at *24 (Poliwrath, J., dissenting). While

Judge Poliwrath is correct in concluding that “defendants who happen to organize their

correspondence into folders receive more protection than those who rely on a general inbox,” id.,

9

this result is not anomalous. Individuals do not happen to utilize e-mail folders—it is an active

choice to ensure increased expectation of privacy.

2. Even if the government search is more exhaustive, it can still be within the scope of the initial private search, and therefore, the government can examine e-mails not viewed by the private individual.

Where a government search is “confined to the scope and product of the initial [private]

search,” it “does not constitute a ‘search’ within the meaning of the Fourth Amendment.”

Runyan, 275 F.3d at 458 (quoting United States v. Bomengo, 580 F.2d 173, 175 (5th Cir. 1978)).

“[T]he police do not exceed the scope of a prior search when they examine the same materials

that were examined by the private searchers, but they examine these materials more thoroughly

than did the private parties.” Id. at 464 (citing United States v. Simpson, 904 F.2d 607, 610 (11th

Cir. 1990)). Thus, “the police do not exceed the private search when they examine more items

within a closed container than did the private searchers.” Id. See, e.g., id. at 645 (holding the

government can examine more digital files on disks than the private individual); Rann, 689 F.3d

at 838 (holding police can view more images on a zip drive than the private individual); United

States v. Slanina, 283 F.3d 670, 680 (5th Cir. 2002), vacated on other grounds, 537 U.S. 802

(holding “the FBI’s full search of the computer equipment, which had already been partially

searched by [a private individual], did not run afoul of the Fourth Amendment”); United States v.

Durdley, No. 1:09–cr–00031–MP–AK, 2010 WL 916107, at *2, *6 (N.D. Fla. Mar. 11, 2010)

aff’d, 436 F. App’x 966 (11th Cir. 2011) (holding detectives’ complete search of a thumb drive

was within the scope of a private search of just a subfolder on that thumb drive). Likewise, it is

within the scope of a private search police to read every e-mail in the folder searched, including

those not read by the private party.

10

For policy reasons, this rule makes sense. An alternate rule would over-deter police.

Runyan, 275 F.3d at 465. Instead of conducting a thorough search, the police would waste time

and resources obtaining a warrant out of a “fear of coming across important evidence that the

private searchers did not happen to see and that would then be subject to suppression.” Id. The

Court can avoid this negative result without undermining the purpose of the Fourth Amendment.

3. The Supreme Court’s decision in Riley concerned an invasion of the privacy interest of an arrestee, while a police search of an e-mail following a private search concerns a privacy interest that was already compromised.

Relying on the Court’s decision in Riley, petitioner may argue that warrantless searches

involving electronic communication pose a unique and significant threat to privacy, and “must be

authorized with the utmost care.” See Skrelly, No. 15-3902 at 23 (Poliwarth, J., dissenting)

(citing Riley, 134 S. Ct. at 2488–89). In Riley, the Court recognized the unique nature of a digital

data search and held that “officers must generally secure a warrant before conducing a search” of

smartphone data. 134 S. Ct. at 2485. However, this application of Riley is flawed.

First, the issue in Riley was whether a warrantless search was permissible under the

“search incident to arrest doctrine,” not the private search doctrine. Id. at 2484. The former

allows reasonable warrantless searches after arrest to protect officer safety and prevent

concealment or destruction of evidence. Id. at 2483 (citing Chimel v. California, 395 U.S. 752,

762–63 (1969)). Thus, because smartphone data does not pose a safety threat and because

officers could seize the phone to preserve its contents while waiting for a warrant, the Court held

that allowing the search would violate the already-diminished privacy interests of the arrestee.

Id. at 2485, 2486, 2488. By contrast, the private search doctrine permits warrantless searches

where one’s privacy interest had already been exhausted by a private search. In other words,

11

unlike the still-existing privacy interest of an arrestee, one has no existing privacy interest in an

item already searched.

Second, privacy interests in a smartphone are distinguishable from privacy interests in an

e-mail. Smartphones contain information regarding virtually all aspects of private life: calendars,

bank statements, videos, photographs, internet browsing history, location tracking, and more. Id.

at 2489–90. By contrast, e-mail folders have one specific purpose: to house electronic messages

sent to the user.

Ultimately, “case law does not support finding that a search . . . is ‘particularly offensive’

simply due to the storage capacity of the object being searched.” United States v. Arnold, 533

F.3d 1003, 1010 (9th Cir. 2008) (citing California v. Acevedo, 500 U.S. 565, 576 (1991))

(holding a search of defendant’s laptop did not require special scrutiny). Nor is there a

“constitutional distinction between ‘worthy’ and ‘unworthy’ containers” based on the privacy

interest at stake. Ross, 456 U.S. at 822. See also Robbins v. California, 453 U.S. 420, 426 (1981)

(“[A] diary and a dishpan are equally protected by the Fourth Amendment.”), abrogated on other

grounds, Ross, 456 U.S. 798; United States v. Wicks, 73 M.J. 93, 99 (C.A.A.F. 2014) (“[E]very

federal court of appeals that has considered the question of cell phone privacy has held there is

nothing intrinsic about cell phones that place them outside the scope of ordinary Fourth

Amendment analysis.”). In sum, because the government’s search was limited to e-mail folders

already examined, it did not exceed the scope of the private search. The petitioner’s privacy

interest was exhausted and therefore, the warrantless search was permissible.

B. Based on the private search, the government knew with substantial certainty the contents of the e-mails in the Stock Tips folder, and therefore, even if the individual emails are considered separate containers, the government’s examination of those e-mails does not violate the Fourth Amendment.

12

The examination of the CPP e-mail in the Stock Tips folder is permissible under the

private search doctrine because the government knew with “substantial certainty” the contents of

the folder. Where “police kn[ow] with substantial certainty, based on the statements of the

private searcher, the replication of the private search, and [the police’s] expertise,” the contents

of an unopened container, a defendant no longer has an expectation of privacy over the “rendered

obvious” contents of that container. Runyan, 275 F.3d at 463–64 (emphasis added). Therefore,

the government’s warrantless search does not exceed the scope of the private search and is

permitted. Id. See also Rann, 689 F.3d at 836–37 (quoting Runyan and adopting the substantial

certainty standard).

For example, in United States v. Oliver, 630 F.3d 397 (5th Cir. 2011), the court held the

government’s search of a notebook was permitted under the private search doctrine because “its

contents were obvious.” Id. at 408. Prior to the government search, a private individual examined

a cardboard box that contained evidence, including the notebook, of an unemployment benefits

scheme, but did not open the notebook. Id. at 403. In allowing the search, the court stressed the

agent’s expertise and that the notebook was labeled “business ideas.” Id. at 408. See also United

States v. Bowman, 907 F.2d 63, 64–65 (8th Cir. 1990) (holding that after a private individual

discovered five identical bundles in an unclaimed suitcase and opened one of the bundles to find

cocaine, an agent could examine the other four because the private search combined with the

“trained eye” of an officer “spoke volumes as to the contents of the remaining bundles”) (internal

citations omitted). Cf. Runyan, 275 F.3d at 453, 464 (holding that after a private individual found

and examined some unlabeled floppy and ZIP disks containing child pornography, the

government “could not have concluded with substantial certainty that all of the disks contained

child pornography”).

13

The private and subsequent government search of the Stock Tips folder is similar to the

searches in Oliver and Bowman. Just as the notebook in Oliver was labeled “business ideas” and

unlike the unlabeled disks in Runyan, the e-mail folder was labeled “Stock Tips,” signaling its

contents. Moreover, Detective Woodward knew there were only ten e-mails in the Stock Tips

folder and that each of the five privately searched e-mails “was sent from a corporate e-mail

address, from a corporate insider, and contained information about that insider’s corporation that

would be material to its stock price.” See Skrelly, No. 15-3092, at *14. Thus, it was clear that the

folder was meant to store a narrow set of messages pertaining to “stock tips,” and that the five

unsearched e-mails in the folder would be consistent with this pattern. Finally, Detective

Woodward has experience handling financial crimes, and was trained to identify signs of insider

training. Thus, based on Detective Woodward’s replication of the private search and her

expertise in financial crimes, the contents of the other five e-mails were “rendered obvious,” and

she was “substantially certain” that the unopened e-mails in the Stock Tip folder contained

illegal trading information.

It is undisputed that one of the e-mails discovered by Detective Woodward in the Stock

Tips folder was related to petitioner’s personal life, regarding an affair. While this is unfortunate,

“[t]he reasonableness of an official invasion of [a] citizen’s privacy must be appraised on the

basis of the facts as they exited at the time the invasion occurred.” Jacobsen, 466 U.S. at 115

(emphasis added). At the time of the search, a reasonable officer could not have expected to find

a personal e-mail the Stocks Tips folder. Thus, the regrettable fact that Detective Woodward

happened to find a private e-mail in the Stock Tips folder is irrelevant; at the time of the search,

she was substantially certain that the Stock Tips folder only contained e-mails about stock tips,

and therefore, a permissible warrantless search.

14

II. A TIPPEE MAY BE HELD DERIVATIVELY LIABLE FOR THE TIPPER’S BREACH OF FIDUCIARY DUTY WHERE THE TIPPER OBTAINS PERSONAL BENEFIT THROUGH GIFTING INSIDER INFORMATION TO A TIPPEE, AND THE NATURE OF THEIR RELATIONSHIP IS SUCH THAT THE TIPPER EXPECTS A FUTURE RETURN ON HIS GIFT.

The receipt of a gift is sufficient to hold a tippee derivatively liable for a tipper’s breach

of fiduciary duty because the tipper personally benefits from giving the gift; therefore, Skrelly’s

conviction for insider trading should be affirmed. Section 10(b) of the the Securities and

Exchange Act of 1934, 15 U.S.C. § 78j(b), permits the SEC to create laws prohibiting deceptive

conduct, such as unauthorized disclosure of inside information. See Skrelly, No. 15-3902 at *15.

A purpose of these laws “[is] to eliminate ‘use of inside information for personal advantage.’”

Dirks v. S.E.C., 463 U.S. 646, 662 (1983) (citing Cady, Roberts & Co., 40 S.E.C. 907, 912 n.15

(1961)). A tippee who knowingly receives such information is liable for insider trading when the

tipper violates his fiduciary duty.1 Dirks, 463 U.S. at 661. A tipper violates his fiduciary duty due

to the “inherent unfairness” of misusing insider information for personal benefit rather than

“corporate purpose.” Chiarella v. United States, 445 U.S. 222, 241 (1980) (citing Cady, Roberts

& Co., 40 S.E.C. at 912). Even when the tipper provides the information as a gift, and does not

immediately receive anything tangible in return, he can still benefit and therefore breach his

fiduciary duty. See Dirks, 463 U.S. at 663. Here, Stump gifted insider information to Skrelly.

Although Stump did not receive an immediate, tangible benefit, he received a personal benefit in

the form of an implicit “I owe you” from Skrelly, a successful businessman with whom he

formed a mutually beneficial relationship.

1 Skrelly does not dispute that he acted with scienter. Skrelly, No. 15-3902 at *16 n.10.

15

A. The personal benefit obtained by a tipper through gifting insider information to a tippee is sufficient to establish that the tipper breached his fiduciary duty, and the tippee may be held derivatively liable.

A tippee is derivatively liable where the tipper “benefit[s], directly or indirectly” from

disclosing insider information. Id. at 662. (emphasis added). One way which a court determines

the benefits received by a tipper, “foucs[es] on objective criteria… such as pecuniary gain or a

reputational benefit that will translate into future earnings.” Id. at 663. In these instances, the

reward is obvious. However, there is an alternate way a tipper can benefit from a disclosure. The

Court is clear: “The elements of fiduciary duty and exploitation of nonpublic information also

exist when an insider makes a gift of confidential information to a trading relative or friend.” Id.

(emphasis added).

1. The gift and exchange theories are distinct theories of liability because they focus on two discrete types of compensation for insider tips.

The “gift” theory of liability is necessarily a separate concept from the “exchange” theory

of liability because it addresses instances where, even though he does not receive tangible

benefits for his disclosure, an insider’s actions nonetheless breach his fiduciary duty. An

individual who makes a pecuniary gain receives “money or of something having monetary

value.” Gain, Black’s Law Dictionary (10th ed. 2004). Diametrically opposed is one who gives a

gift, “[t]he voluntary transfer of property to another without compensation.” Gift, Black’s Law

Dictionary (10th ed. 2004) (emphasis added). As stated above, the language in Dirks illustrates

two separate ways in which a tipper can benefit from disclosing insider information to a tippee.

Several Circuits agree with this interpretation. See, e.g., United States v. Salman, 792 F.3d 1087,

1093 (9th Cir. 2015) (recognizing that a tipper could breach his fiduciary duty when gifting

insider information, without tangible compensation); S.E.C. v. Rocklage, 470 F.3d 1, 7 n.4 (1st

16

Cir. 2006) ([“T]he mere giving of a gift to relative or friend [by a tipper] is a sufficient personal

benefit.”); S.E.C. v. Yun, 327 F.3d 1263, 1275 (11th Cir. 2003) (“[T]he gain does not always

need to be pecuniary [and] . . . a gift to a trading partner or relative could suffice to show that the

tipper personally benefited.”).

The petitioner relies on United States v. Newman, 773 F.3d 438 (2d Cir. 2014), a non-

binding case on this Court, to argue that the gift theory is limited in scope. Although Newman

recognized that a personal benefit can include “the benefit one would obtain from simply making

a gift of confidential information to a trading relative or friend,” id. at 452 (quoting United States

v. Jiau, 734 F.3d 147, 153 (2d Cir. 2013)), it narrowed the scope of such personal benefits to

instances where there is “an exchange that is objective, consequential, and represents at least a

potential gain of a pecuniary or similarly valuable nature.” Id. at 452. As the Ninth Circuit held

in Salman, accepting this narrow standard would “require [the court] to depart from the clear

holding of Dirks that the element of breach of fiduciary duty is met where an ‘insider makes a

gift of confidential information to a trading relative or friend,’” the very proposition Newman

acknowledged. Salman, 792 F.3d at 1093 (quoting Dirks, 463 U.S. at 664). In sum, while

Newman is not incorrect in stating that the personal benefit received by a tipper “must be of

some consequence,” Newman, 773 F.3d at 452, it collapses the “gift” and “exchange” theories

and discounts the personal benefits that one can obtain from giving a gift.

2. A tipper who gifts insider information to a tippee breaches his fiduciary duty because the act of giving creates personal benefit to the tipper.

The act of giving creates personal benefit for the insider. According to analyses of gift

giving, in a primitive society, “reciprocity is essential—accepting a gift implies a solemn

obligation of repayment.” Colin Camerer, Gifts as Economic Signals and Social Symbols, 94

17

Am. J. of Sociology, S180, S181 (1988). Thus, “a man is under a strong moral duty to repay a

gift, when he can, with a gift of equivalent value.” Richard A. Posner, A Theory of Primitive

Society, with Special Reference to Law, 23 J. of L. & Econ. 1, 16 (1980). Economists also

recognize the importance of reciprocity in gift giving in modern society. See, e.g., Eric A.

Posner, Altruism, Status, and Trust in the Law of Gifts and Gratuitous Promises, 1997 Wis. L.

Rev. 567, 570–71 (1997). Moreover, psychologists stress that “it is often the giver, rather than

the recipient, who reaps the biggest psychological gains from a gift.” Tara Parker-Pope, A Gift

that Gives Right Back? The Giving Itself, New York Times (Dec. 11, 2007),

http://www.nytimes.com/2007/12/11/health/11well.html?_r=0. Giving gifts, psychologists argue,

“makes [gift givers] feel effective and caring.” Id.

Therefore, an insider who discloses information as a gift personally benefits in the much

of the same way as an insider who gives an illegal tip in exchange for something tangible.

Whether the tipper receives a pecuniary gain in exchange for the tip, a tacit agreement of future

compensation, or just the psychological benefit of giving, the tipper violates his fiduciary due to

the “inherent unfairness” in using secret information for the benefit of himself rather than the

corporation. Thus, a tippee can be derivatively liable when receiving a gift.

B. The nature of Skrelly and Stump’s mutually beneficial relationship and Skrelly’s implicit duty to reciprocate Stump’s gift create a personal benefit to Stump, and therefore, Skrelly should be held derivatively liable.

Stump provided Skrelly with insider information regarding Sodreckso’s financial

problems and CPP’s forthcoming product, but Stump did not receive any immediate tangible

compensation for this information; he gave it as a “gift.” As discussed above, a tipper can

personally benefit, and thus breach his fiduciary duty when providing an insider tip as a gift.

18

“[D]etermining whether an insider personally benefits from a particular disclosure, a question of

fact, will not always be easy for courts.” Dirks, 463 U.S. at 664. Thus, to determine whether an

insider benefitted from giving a gift, courts should examine (1) the nature of the relationship

between the tipper and the tippee and (2) the nature of the benefit to the tipper. Here, the budding

relationship between Skrelly and Stump is mutually beneficial, and the benefit to Stump is in the

form of an “I owe you” to be collected in the future.

1. Although Skrelly did not convey an immediate material benefit in exchange for Stump’s gift, the mutually beneficial nature of their relationship gives rise to liability.

Even though Skrelly and Stump did not know one another prior to the day Stump

disclosed insider tips, the disclosure created a mutually beneficial relationship. As petitioner may

argue, in situations when a tippee has been held liable for receiving a gift of insider information,

the relationship between tipper and tippee was personal in nature. See e.g., United States v.

Evans, 486 F.3d 315, 319 (7th Cir. 2007) (college friends); S.E.C. v. Sargent, 229 F.3d 68, 77

(1st Cir. 2000) (“friendly” acquaintances); Salman, 792 F.3d at 1093 (brother-in-law). However,

in those cases, it is not the type of relationship that gives rise to liability, but rather, the mutually

beneficial aspect of the relationship. See id. at 1089 (emphasizing the tipper and tippee’s

“mutually beneficial relationship”). Likewise, the budding relationship between Skrelly and

Stump was “mutually beneficial” due to their respective positions at the time of the exchange.

Skrelly was as a successful businessman, while Stump’s company was on the verge of financial

collapse. From the tip, Skrelly knew to sell shares in a collapsing company and purchase shares

in an increasing successful company, while Stump obtained the benefit of securing a friend who

was prominent in the business community.

19

The petitioner will point to Newman to argue that Stump did not receive a personal

benefit. Not only, as discussed above, did the Newman court err in collapsing the gift and

exchange theories, but its own hypothetical illustration of what types of relationships do not meet

its standard (two individuals who are members of the same alumni network or attend the same

church), Newman, 773 F.2d at 452, is markedly different from the relationship between Skrelly

and Stump. Id. Unlike two people who happen to belong to the same organization and may never

interact, Stump consciously decided to invite Skrelly to golf and join him in the sauna. Thus, the

stage was set for the creation of a mutually beneficial relationship between “friends”2: Skrelly

benefited from Stump’s insider tip while Stump benefited from the creation of a future

obligation.

2. When Stump disclosed insider information to Skrelly, he immediately received an implicit “I owe you,” a personal benefit.

Although the relationship between Skrelly and Stump at the time of the disclosure was

just beginning, Stump’s gift to Skrelly created an expected future benefit, akin to an “I owe you”

that could be collected at any time. This is analogous to Yun, where the court stressed the future

nature of the benefit and held that a tipper “expected to benefit from her tip . . . by maintaining a

good relationship between a friend and frequent partner in real estate deals”). Id. at 1280. See

also Sargent, 228 F.3d at 77 (holding that a tipper’s disclosure “in an effort to . . . maintain a

useful networking contact” is evidence of personal benefit). Likewise, Stump gave Skrelly a gift

for the sake of future interactions. At a time when Stump was financially vulnerable, his

company on the verge of bankruptcy, having an “I owe you” from a successful businessman was

2 In fact, Meneghini overheard Stump call Skrelly call “a friend” in the sauna. Skrelly, No. 15-3902, at *3.

20

beneficial even if Stump never actually collected on the debt. Because Stump personally

benefited from gifting the tip to Skrelly, he breached his fiduciary duty; therefore, Skrelly is

derivatively liable and Skrelly’s convictions should be affirmed.

Moreover, failing to consider an “I owe you” received by a tipper a personal benefit is

dangerous to the securities industry. If the SEC were required to wait until the “I owe you” was

collected to prosecute a tipper for breach of fiduciary duty and a tippee under a theory of

derivative liability, the purpose of securities regulation would be defeated. By disclosing insider

information, Stump induced Skrelly to sell all of his Sodreckso stock, thus affecting the value of

all other shareholders’ shares, and likely accelerating Sodreckso’s collapse. Whether Stump

collected his “I owe you” does not impact the damage done to the shareholders not privy to

insider information. By the time Stump decides to collect his favor, the damage to the industry

will have already been done.

21

CONCLUSION

For the foregoing reasons, respondent respectfully requests that this Court affirm the Thirteenth

Circuit's decision affirming the Petitioner's conviction on two counts of insider trading, in

violation of § 10(b) of the Securities Exchange Act of 1934.

Respectfully Submitted,

United States of America, Respondent

By: ______Team Four_________

Counsel for the United States of America