United States v. Contorinis

1
11-3-cr
United States v. Contorinis
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2011 3
(Argued: January 5, 2012 Decided: August 17, 2012) 4
Docket No. 11-3-cr 5
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UNITED STATES OF AMERICA, 7
Appellee, 8
v. 9
JOSEPH CONTORINIS, 10
Defendant-Appellant. 11
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B e f o r e: WINTER, HALL, and CHIN, Circuit Judges. 13
Appeal from a conviction by a jury in the United States 14
District Court for the Southern District of New York (Richard 15
J. Sullivan, Judge), for conspiracy to commit securities fraud 16
and insider trading. Appellant challenges the jury 17
instructions, admission of evidence concerning the trading 18
activity of other alleged tippees, and the amount of the 19
forfeiture order. We affirm the conviction, vacate the 20
forfeiture order, and remand. 21
22

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2
ROBERTO FINZI (Theodore V. Wells, 1 Jr., Mark F. Pomerantz, & Farrah 2 R. Berse, on the brief), Paul, 3 Weiss, Rifkind, Wharton & 4 Garrison LLP, New York, New York, 5 for Defendant-Appellant. 6
7 ANDREW L. FISH, Assistant United 8 States Attorney (Reed M. Brodsky, 9 Assistant United States Attorney 10 on the brief), for Preet Bharara, 11 United States Attorney for the 12 Southern District of New York, 13 New York, New York, for Appellee. 14
15 WINTER, Circuit Judge: 16
Joseph Contorinis appeals from his conviction by a jury 17
before Judge Sullivan for conspiracy to commit securities fraud 18
and insider trading and from the district court’s forfeiture 19
order in the amount of $12.65 million. Appellant claims error 20
in: (i) a jury instruction that allegedly did not adequately 21
convey the definition of material, nonpublic information; (ii) 22
the admission of evidence of contemporaneous trades by 23
individuals who received inside information from the same 24
source as appellant; and (iii) the amount of the forfeiture 25
order entered by the district court. We hold that the district 26
court properly instructed the jury on the definition of 27
material, nonpublic information and acted within its discretion 28
in admitting evidence concerning the trades by other 29
individuals. However, we conclude that the court erred in 30
ordering appellant to forfeit gains acquired by his employer 31
but not by him. We therefore affirm appellant’s conviction but 32
vacate the forfeiture order and remand for further proceedings. 33

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3
BACKGROUND 1
Given the jury’s verdict, we view the evidence and 2
inferences drawn therefrom in the light most favorable to the 3
government. United States v. Chavez, 549 F.3d 119, 124 (2d 4
Cir. 2008). 5
During the relevant time period, appellant was employed, 6
with Michael Handler, as a co-portfolio manager of the Jeffries 7
Paragon Fund (“Fund”). The Fund invested in companies in the 8
retail and personal products sectors. As portfolio managers, 9
Handler and appellant made investment decisions but did not 10
control disbursements of profits. 11
Sometime in 2000, appellant met and befriended Nicos 12
Stephanou, who became an investment banker in the Mergers and 13
Acquisitions group at UBS in 2002. Thereafter, appellant and 14
Stephanou spoke on the telephone often, sometimes as much as 75 15
times a month. Stephanou regularly provided confidential 16
information to several friends. These “tippees” included a 17
California employee of a semiconductor company, an individual 18
working in an import/export business in New York, and two 19
individuals living in Cyprus. 20
On September 2, 2005, Albertsons grocery store chain 21
(“ABS”) announced that it was exploring options to increase 22
shareholder value, including a possible sale of the company. 23
Appellant then purchased a large amount of ABS stock on behalf 24
of the Fund. On the same day, Stephanou was assigned to a team 25

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4
at UBS that was to represent a potential purchaser of ABS. 1
Stephanou testified that he informed appellant of his role, and 2
that appellant asked Stephanou to keep him informed about the 3
deal. 4
Subsequently, on November 22, Stephanou received 5
information suggesting that it was then more likely than not 6
that an acquisition of ABS would occur. Stephanou conveyed 7
that information to appellant and his other friends. On the 8
same day, appellant purchased 250,000 shares of ABS on behalf 9
of the Fund. He testified that this purchase was motivated by 10
a worse than expected earnings report by ABS. Stephanou’s 11
other tippees also purchased shares around this time. 12
On December 6, Stephanou learned that the likelihood of 13
the deal had been drastically reduced. Nevertheless, appellant 14
purchased 126,000 shares of ABS the following morning. He 15
testified that he believed that offers at the end of the 16
bidding period, December 7, the next day, would increase the 17
stock price. Appellant became unavailable for a few hours, and 18
Handler began to sell ABS stock. Handler testified that he 19
sold the stock because he mistakenly believed the bidding 20
period was over. When appellant became available, appellant 21
continued to sell. The Fund sold the vast majority of its 22
position in ABS on December 7, closed out its long position on 23
December 8, and then briefly went short. Appellant made the 24
lion’s share of these trades. The other tippees also closed 25
out their positions in ABS during the same time frame. 26

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5
On December 9, Stephanou was told that the deal was back 1
on and could be announced on the 19th. That day Stephanou 2
purchased shares of ABS, and several of his tippees did as 3
well. Two days later, Stephanou was involved in a conference 4
call discussing the details of the proposed transaction. 5
Immediately following that call, Stephanou spoke with 6
appellant, and the Fund purchased over $38 million of ABS the 7
next day. 8
Stephanou testified that he learned on December 17 that 9
the deal was going to happen and would be announced later in 10
the week. Phone records showed that Stephanou spoke with 11
appellant several times over the next two days. The Fund 12
purchased over 300,000 shares of ABS between December 19 and 13
20. On December 21, several media outlets reported that talks 14
had broken down and that the deal was unlikely to occur. 15
Stephanou testified that he repeatedly relayed information 16
about the deal to appellant. Phone records showed several 17
calls between the two during this time. Until the media 18
reports, the details looked positive, but ultimately it was 19
determined that antitrust concerns in the Chicago market would 20
hold the deal up. Stephanou then advised appellant that the 21
transaction was not going forward. The next day, December 22, 22
Stephanou sold his position in ABS, shorted the stock, and 23
advised appellant and the other tippees of the moribund status 24
of the deal. The Fund also sold all of its stock in ABS, and 25

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6
the other tippees did the same. However, media reports in the 1
morning of December 22 stated only that the deal was uncertain, 2
but not necessarily dead. Only after the markets closed on 3
December 22, and Stephanou, his other tippees, and the Fund had 4
sold all their ABS shares, did ABS announce that talks about 5
the sale had been terminated. ABS stock dropped in price 6
significantly the next morning. 7
In late December and into early January 2006, Stephanou 8
received reports that the acquisition of ABS was back on track. 9
In response, he purchased ABS stock on January 11. He also 10
informed appellant that the deal was gaining traction and that 11
a transaction would likely be announced in the coming weeks. 12
On that day, appellant purchased approximately 1.1 million 13
shares of ABS stock for the Fund. Stephanou’s other tippees 14
also bought ABS stock at this time. In his testimony, 15
appellant attributed the purchase to a belief that comments by 16
the CEO of one of the would-be purchasers implied that ABS 17
would be acquired. On January 12, appellant purchased 900,000 18
additional shares of ABS. Then, on January 13, the New York 19
Post announced that negotiations had reopened and the Fund 20
purchased another 200,000 shares, bringing its holdings to over 21
2.3 million shares. The Fund sold 500,000 shares two days 22
later but then repurchased them the following day. Finally, 23
the sale of ABS was announced on January 23 and the Fund sold 24
its entire ABS holdings that day, reaping a net profit of 25

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7
approximately $3 million through its December and January 1
trades. Stephanou testified that, beginning in September, 2
2005, and ending in January, 2006, he had kept appellant 3
informed of the status of the deal and expected date of the 4
announcement. 5
Prior to trial, appellant objected to evidence about the 6
trades of Stephanou’s other tippees. In denying appellant’s 7
motion to exclude that evidence, the court stated that it had 8
considered the parties’ arguments concerning district court 9
opinions in United States v. Marcus Schloss & Co., Inc., 710 F. 10
Supp. 944 (S.D.N.Y. 1989) (excluding evidence of trades by 11
others), and United States v. Ballesteros Gutierrez, 181 F. 12
Supp. 2d 350 (S.D.N.Y. 2002) (admitting such evidence), and 13
concluded that the reasoning in Ballesteros was more fitting in 14
this case. The court found that the trading patterns of the 15
other tippees were probative because they tended to show that 16
the trades of the tippees were more consistent with the sharing 17
of inside information than with independent investment 18
decisions. Based on the balancing done in Ballesteros, the 19
court saw no reason to exclude the evidence under Rule 403 but 20
stated that it was open to a limiting instruction. No such 21
instruction was requested. 22
Appellant also objected to the jury charge on the basis 23
that the court’s definition of “material, nonpublic 24
information” did not adequately explain when confirmation of 25

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8
publicly known or rumored information can be considered 1
material and nonpublic. 2
The jury found appellant guilty of conspiracy and insider 3
trading on the counts relating to the trades made on December 4
22 and January 11. Appellant was sentenced to 72 months’ 5
imprisonment and was ordered to forfeit approximately $12.65 6
million -- the profits made by the Fund on appellant’s trades 7
in his capacity as agent of the Fund. 8
This appeal followed. 9
DISCUSSION 10
a) Jury Instructions 11
We review jury instructions de novo to determine whether 12
the jury was misled or inadequately informed about the 13
applicable law. Henry v. Wyeth Pharm., Inc., 616 F.3d 134, 146 14
(2d Cir. 2010). 15
As pertinent here, the crime of insider trading required 16
the government to prove beyond a reasonable doubt that 17
Stephanou had a duty to UBS not to convey material, nonpublic 18
information about deals in progress to outsiders, See Dirks v. 19
SEC, 463 U.S. 646, 662 (1983), and that appellant received such 20
material, nonpublic information in breach of that duty and used 21
the information to trade relevant securities, see id. That 22
Stephanou had the requisite duty is not contested. However, 23
appellant testified that he never received any information from 24
Stephanou about deals Stephanou was working on and that 25

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9
appellant’s trades in ABS were based solely on information 1
available to the public or professional investors like himself. 2
Although appellant’s denial of receiving any information 3
from Stephanou no doubt reduced the importance of the 4
definition of material, nonpublic information in the jury’s 5
deliberations -– if it found appellant to be lying, the chances 6
of an acquittal would be low –- the government still had to 7
prove that the information Stephanou claimed to have given 8
appellant was material and nonpublic. Appellant claims that 9
the definition of material, nonpublic information given in the 10
district court’s instructions was erroneous. 11
The pertinent instruction read: 12
Information is nonpublic if it was not 13 available to the public through such sources 14 as press releases, Securities and Exchange 15 Commission filings, trade publications, 16 analysts' reports, newspapers, magazines, 17 rumors, word of mouth or other sources. In 18 assessing whether information is nonpublic, 19 the keyword is "available." If information 20 is available in the public media or in SEC 21 filings, it is public. However, the fact 22 that information has not appeared in a 23 newspaper or other widely available public 24 medium does not alone determine whether the 25 information is nonpublic. Sometimes a 26 corporation is willing to make information 27 available to securities analysts, prospective 28 investors, or members of the press who ask 29 for it even though it may never have appeared 30 in any newspaper publication or other 31 publication. Such information would be 32 public. Accordingly, information is not 33 necessarily nonpublic simply because there 34 has been no formal announcement or because 35 only a few people have been made aware of it. 36 For example, if UBS policy was to give out 37 certain information to people who ask for it, 38

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1 Appellant submitted two variations as proposed instructions:
Although information in a newspaper or an analyst report is public, an
insider’s confirmation of published information may itself constitute
material nonpublic information if it discloses significant details that are
not apparent from what is public, such as the certainty that a rumored event
in fact will occur. However, if an insider simply repeats what has appeared
in the public press, the repetition of that information is not material
nonpublic information. A generalized confirmation of an event that is obvious
to every market participant who is knowledgeable about a company is not
material information. Speculative information also may not rise to the level
of materiality. It is a fact issue for you to decide whether Mr. Stephanou
was sufficiently different from the information that was available in the
marketplace to be material.
and
A generalized confirmation of an event that is obvious to every market
participant who is knowledgeable about a company is not material information.
Speculative information also may not rise to the level of materiality. It is
a fact issue for you to decide whether Mr. Stephanou provided Mr. Contorinis
10
that information is public information. 1 Whether information is nonpublic is an issue 2 of fact for you to decide. 3
4 On the other hand, the confirmation by 5 an insider of unconfirmed facts or rumors -- 6 even if reported in a newspaper -- may itself 7 be inside information. A tip from a 8 corporate insider that is more reliable or 9 specific than public rumors is nonpublic 10 information despite the existence of such 11 rumors in the media or investment community. 12 Whether or not the confirmation of a rumor by 13 an insider qualifies as material nonpublic 14 information is an issue of fact for you to 15 decide. 16
17 . . . 18
19 Within the particular context of the 20 purchase and sale of securities, "material" 21 information is information which a reasonable 22 investor would have considered significant in 23 deciding whether to buy, sell, or hold 24 securities, and at what price to buy or sell. 25
26 Appellant argues that this jury instruction did not 27
properly inform the jury because it failed to include the 28
following language, or variations thereon: 1
29

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with any nonpublic information, and whether any such information was
sufficiently different from the information that was available in the
marketplace to be material.
11
A generalized confirmation of an event that 1 is fairly obvious to investors knowledgeable 2 about the company or the particular security 3 at issue –- here Albertsons or Albertsons 4 stock -- is not material information. In 5 order to be nonpublic and material, 6 information must be different from general 7 discussions in the marketplace at the time. 8 Even if an event, like a corporate merger, 9 may be important, information about that 10 event is not material unless it contains 11 something beyond what already was known to 12 the public from news articles, analyst 13 reports, or otherwise, and the additional 14 information likely would have been 15 significant to a reasonable investor. A 16 generalized confirmation of an event that is 17 fairly obvious to market participants who are 18 knowledgeable about a company is not material 19 information. Likewise, speculative 20 information is not material. The mere fact 21 that some discussion has taken place on 22 matters that may or may not occur is not 23 material unless it goes beyond speculation 24 and relates to existing facts. 25
26
In appellant’s view, the critical omission in the 27
instructions given by the court was the lack of language 28
indicating that general confirmation of an event that is 29
“fairly obvious” to knowledgeable investors is not material, 30
nonpublic information. Conversely, he objects to the court’s 31
instruction that stated, “[t]he confirmation by an insider of 32
unconfirmed facts or rumors -- even if reported in a newspaper 33
-- may itself be inside information. We disagree. 34
35

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12
We first discuss materiality and nonpublic status as 1
separate concepts. Information is material when there is a 2
substantial likelihood that a reasonable investor would find it 3
important in making an investment decision. See United States 4
v. Cusimano, 123 F.3d 83, 88 (2d Cir. 1997) (citing Basic Inc. 5
v. Levinson, 485 U.S. 224, 231-32 (1988)). To be material, 6
information must “alter[] the ‘total mix’ of information 7
available.” Id. Of course, information is public if it is 8
available to the public through SEC filings, the media, or 9
other sources. See SEC v. Mayhew, 121 F.3d 44, 50-51 (2d Cir. 10
1997). As the district court instructed the jury, information 11
is also deemed public if it is known only by a few securities 12
analysts or professional investors. This is so because their 13
trading will set a share price incorporating such information. 14
While the concepts of materiality and nonpublic status 15
refer to different things, there is considerable overlap for 16
purposes of insider trading analysis. The content of a piece 17
of information may be of importance in affecting the share 18
price but so well-known that it does not alter the mix of 19
available information and is therefore not deemed to be 20
material. Conversely, the same information, if previously 21
unknown to the public, may alter substantially the mix of 22
information and thus be deemed very material. Information also 23
comes in varying degrees of specificity and reliability, and 24
the extent to which a newly reported item of information alters 25

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13
the total mix may depend on the specificity or reliability of 1
that information. See id. at 52. 2
In Elkind v. Liggett & Myers, Inc., 635 F.2d 156 (2d Cir. 3
1980), we held that a tip stating that an upcoming earnings 4
report would reflect lower sales was not material where that 5
fact was already common knowledge among analysts and the 6
company had previously stated that a decline in sales was 7
expected. Id. at 166. However, we indicated that if the tip 8
had included additional details, such as the expected amount of 9
the decrease, it would have been material. Id. 10
Similarly, a tip that provides additional reliability to 11
existing information about the status of a transaction based on 12
the source’s access to inside information may be material 13
because it lessens the risk from uncertainty. See Mayhew, 121 14
F.3d at 52. 15
Insiders often have special access to information about a 16
transaction. Rumors or press reports about the transaction may 17
be circulating but are difficult to evaluate because their 18
source may be unknown. A trier of fact may find that 19
information obtained from a particular insider, even if it 20
mirrors rumors or press reports, is sufficiently more reliable, 21
and, therefore, is material and nonpublic, because the insider 22
tip alters the mix by confirming the rumor or reports. Id. 23
We conclude that the district court’s instructions 24
adequately conveyed the applicable standards. The charge 25

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14
informed the jury that for information to be material it must 1
be considered significant by reasonable investors. It conveyed 2
to the jury that material, nonpublic information is information 3
that either is not publicly available or is sufficiently more 4
detailed and/or reliable than publicly available information to 5
be deemed significant, in and of itself, by reasonable 6
investors. 7
To the extent that appellant’s suggested charges focused 8
entirely on the content of reports or tips, excluding from 9
consideration the reliability of the source, they misstated the 10
law. See United States v. Abelis, 146 F.3d 73, 82 (2d Cir. 11
1998) (holding that defendant “bears the burden of showing that 12
the requested instruction ‘accurately represented the law in 13
every respect and that, viewing as a whole the charge actually 14
given, he was prejudiced.’” (quoting United States v. Dove, 916 15
F.2d 41, 45 (2d Cir. 1990))) In other respects, the court’s 16
instructions conveyed the substance of those requested by 17
appellant. 18
b) Evidence of Other Trades 19
Appellant also argues that the district court should have 20
excluded the evidence concerning trades of other individuals 21
under Fed. R. Evid. 403, which states that evidence may be 22
excluded if its probative value is “substantially outweighed by 23
a danger of . . . unfair prejudice, confusing the issues, [or] 24
misleading the jury.” 25

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15
Given the district courts’ “broad discretion over the 1
admission of evidence,” United States v. McDermott, 245 F.3d 2
133, 140 (2d Cir. 2001), we review evidentiary rulings only for 3
abuse of discretion. SR Int'l Bus. Ins. Co. v. World Trade 4
Ctr. Props., LLC, 467 F.3d 107, 119 (2d Cir. 2006). This 5
deferential standard is of particular importance with regard to 6
evidentiary rulings under Rule 403 because “[a] district court 7
is obviously in the best position to do the balancing mandated 8
by Rule 403.” United States v. Salameh, 152 F.3d 88, 110 (2d 9
Cir. 1988). 10
On appeal, as in the district court, the parties’ 11
arguments focus on which of the differing district court 12
opinions in Marcus Schloss and Ballesteros we should adopt. 13
However, we are skeptical as to whether a general rule, rather 14
than a case by case analysis, regarding admission or exclusion 15
of evidence of trades by other alleged tippees in insider 16
trading cases is appropriate. In Marcus Schloss and 17
Ballesteros, the evidence of other trades was relevant to the 18
extent of a particular conspiracy. See Marcus Schloss, 710 F. 19
Supp. at 951; Ballesteros, 181 F. Supp. 2d at 356. 20
Here, however, there is no allegation that appellant and 21
the other tippees were co-conspirators. Rather, the other 22
tippees were strangers to appellant. In that light, the 23
government’s argument that the evidence of the other trades 24
tends to show that appellant traded on inside information 25

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16
arguably contains a danger of substantial prejudice. Appellant 1
was a professional in the securities industry while the others 2
were not. Appellant’s defense was that his trades were based 3
on information available to such a professional. The other 4
tippees’ information may well have been entirely limited to 5
Stephanou’s tips, a fact not easily litigated. 6
However, the relevance of the other trades is not limited 7
to showing the motive for appellant’s trades. Appellant 8
challenged Stephanou’s testimony as to his conversations with 9
appellant, labeling him a “career criminal” and “a master liar” 10
who concocted a tale involving appellant to obtain a lighter 11
sentence. 12
Appellant’s defense was not that he received information 13
from Stephanou about the ABS negotiations and that it was both 14
insignificant and a fraction of the information available to 15
him. Rather, appellant denied ever receiving any information 16
from Stephanou regarding any transaction on which Stephanou was 17
working. Given that testimony and litigating position, the 18
evidence of common trades had arguable probative value in 19
support of the credibility of Stephanou’s testimony that he 20
shared common information with appellant and the others. 21
Admission of the evidence of other trades was thus a 22
paradigmatic case of weighing probative value and danger of 23
unfair prejudice that was within the considerable discretion of 24
the district court. It may well be that appellant was entitled 25

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2 18 U.S.C. § 981(a)(1)(C). Section 981(a)(1)(C) allows a court to
order forfeiture for “any offense constituting ‘specified unlawful activity’
[]as defined in [18 U.S.C. §] 1956(c)(7).” Section 1956(c)(7)(A) incorporates
“any act or activity constituting an offense listed in [18 U.S.C. §] 1961(1).”
And § 1961(1)(D) lists “any offense involving . . . fraud in the sale of
securities.” While § 981(a)(1)(C) is a civil forfeiture provision, it has
been integrated into criminal proceedings via 28 U.S.C. § 2461(c). This
roundabout statutory mechanism allows a court to order forfeiture in criminal
securities fraud proceedings.
17
to a limiting instruction, but such an instruction was never 1
requested. 2
c) Order of Forfeiture 3
The final issue is whether the district court erred in 4
ordering appellant to forfeit $12.65 million, the total amount 5
of profits made, and losses avoided, by the Fund in ABS trades. 6
Appellant, who was an employee and small equity owner of the 7
Fund, argues that he cannot be ordered to forfeit profits that 8
he never received or possessed. We agree. 9
In reviewing an order of forfeiture, we review the 10
district court’s legal conclusions de novo and the factual 11
findings for clear error. United States v. Sabhnani, 599 F.3d 12
215, 261 (2d Cir. 2010). In the course of successful criminal 13
securities fraud prosecutions, a district court can order the 14
forfeiture of "[a]ny property, real or personal, which 15
constitutes or is derived from proceeds traceable to [the] 16
violation." 2 The definition of proceeds for insider trading 17
violations is “the amount of money acquired through the illegal 18
transactions resulting in the forfeiture, less the direct costs 19

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3 Id. § 981(a)(2)(B). We agree with our own prior non-precedential
conclusion, consistent with that of the Tenth Circuit, that § 981(a)(2)(B)
supplies the definition of “proceeds” in cases involving fraud in the purchase
or sale of securities, see United States v. Mahaffy, No. 09-5349-cr, 2012 U.S.
App. LEXIS 16072 at *58-59 (2d Cir. August 2, 2012) (“If the district court
addresses the forfeiture issue again, with the same factual and legal bases,
the proper measure of forfeiture . . . is . . . under § 981(a)(2)(B).”);
United States v. Nacchio, 573 F.3d 1062, 1088-90 (10th Cir. 2009), and
incorporate by reference the rationale contained therein. Section
981(a)(2)(B) applies to “cases involving lawful goods or lawful services that
are sold or provided in an illegal manner.” A security is a “lawful good[]”
for the purposes of § 981(a)(2)(B), the purchase or sale of which, if done
based upon improperly obtained material nonpublic inside information, is “sold
. . . in an illegal manner.” Further, the sale of a security is not an
inherently unlawful activity, like say the sale of foodstamps, or a robbery,
and thus insider trading is not “unlawful activity” as that term is used in §
981(a)(2)(A). See 1 David B. Smith, Prosecution and Defense of Forfeiture
Cases, ¶ 5.03[2], at 5–62 (“The term ‘unlawful activities’ in section
981(a)(2)(A) was meant to cover inherently unlawful activities such as robbery
that are not captured by the words ‘illegal goods’ and ‘illegal services.’”).
United States v. Uddin, 551 F.3d 176 (2d Cir. 2009) is not to the contrary.
That case involved the sale of foodstamps, which cannot be done lawfully, and
therefore is properly considered an “unlawful activity” under § 981(a)(2)(A).
Because § 981(a)(2)(B) defines “proceeds” as the “money acquired . . . less
the direct costs incurred” it seems that the only money that should be subject
to forfeiture in an insider trading case is money acquired when shares are
traded based upon inside information at a gain. In cases where the securities
are sold at a loss to avoid further losses, the direct costs associated with
the sale, namely the cost of purchasing the securities sold, would exceed the
“money acquired” in the sale. In this case, because the Fund and not
appellant bore all direct costs, any money that appellant can fairly be
considered as having “acquired” as a result of his insider trading activities
may be subject to forfeiture under §981.
18
incurred in providing the goods or services.” 3
1
While the statute does not expressly identify the “whom” 2
that must do the acquiring that results in forfeiture, 3
“forfeiture” is a word generally associated with a person’s 4
losing an entitlement as a penalty for certain conduct. See 5
Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61 (2d Cir. 1999) 6
(discussing the difference between forfeiture and waiver). The 7
order in the present matter includes funds to which appellant 8
was never entitled. Because the “proceeds” sought by the 9
government here were “acquired” by the Fund over which 10

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19
appellant lacks control, it is difficult to square the statute 1
with the forfeiture order. 2
Forfeiture of funds or property can be either civil or 3
criminal. In civil forfeiture, the United States brings a 4
civil action against the property itself as an in rem 5
proceeding –- “[i]t is the property which is proceeded against, 6
and . . . held guilty and condemned as though it were conscious 7
instead of inanimate and insentient.” Various Items of 8
Personal Property v. United States, 282 U.S. 577, 581 (1931); 9
see also United States v. Davis, 648 F.3d 84, 92 (2d Cir. 2011) 10
(quoting same). In civil forfeiture proceedings, the burden 11
often rests on the claimant, who may be an innocent third 12
party, to prove that the property is not subject to forfeiture. 13
United States v. Parcel of Property, 337 F.3d 225, 229-30 (2d 14
Cir. 2003). The claimant’s culpability is also often 15
irrelevant, Bennis v. Michigan, 516 U.S. 442, 446 (1996). 16
Forfeiture in criminal proceedings under 18 U.S.C. § 981 17
is an in personam proceeding. “The forfeiture serves no 18
remedial purpose, is designed to punish the offender, and 19
cannot be imposed upon innocent owners.” United States v. 20
Bajakajian, 524 U.S. 321, 332 (1998). Criminal forfeiture 21
focuses on the disgorgement by a defendant of his “ill-gotten 22
gains.” United States v. Kalish, 626 F.3d 165, 170 (2d Cir. 23
2010) (citing United States v. Emerson, 128 F.3d 557, 566 (7th 24
Cir. 1997); United States v. Various Computers & Computer 25

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20
Equip., 82 F.3d 582, 588 (3d Cir. 1996)). Thus, the 1
calculation of a forfeiture amount in criminal cases is usually 2
based on the defendant’s actual gain. See United States v. 3
McGinty, 610 F.3d 1242, 1247 (10th Cir. 2010) (“[R]estitution 4
is calculated based on the victim’s loss, while forfeiture is 5
based on the offender’s gain.” (quoting United States v. 6
Webber, 536 F.3d 584, 603 (7th Cir. 2008))). This is 7
consistent with the purpose of criminal forfeiture, as endorsed 8
by the House Judiciary Committee when recommending the Civil 9
Asset Forfeiture Reform Act. H.R. Rep. No. 106-192, at 5 10
(1999) (“With the forfeiture laws, we can separate the criminal 11
from his profits. . . thus removing the incentive others may 12
have to commit similar crimes tomorrow.”) (quoting Stefan 13
Cassella, Assistant Chief, Asset Forfeiture and Money 14
Laundering Section, Criminal Division, U.S. Department of 15
Justice in testimony before the committee); see also H.R. Rep. 16
No. 105-358, at 23 (1997) (same). District courts in our 17
circuit have echoed this view by concluding that “a defendant 18
may be ordered to forfeit all monies received by him as a 19
result of the fraud.” United States v. Nicolo, 597 F. Supp. 2d 20
342, 347 (W.D.N.Y. 2009) (emphasis added) (citing United States 21
v. Uddin, 551 F.3d 176, 181 (2d Cir. 2009)). 22
This general rule is somewhat modified by the principle 23
that a court may order a defendant to forfeit proceeds received 24
by others who participated jointly in the crime, provided the 25

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21
actions generating those proceeds were reasonably foreseeable 1
to the defendant. United States v. Fruchter, 411 F.3d 377, 384 2
(2d Cir. 2005) (reviewing order of forfeiture under RICO 3
forfeiture provision); United States v. Warshak, 631 F.3d 266, 4
281-82, 333 (6th Cir. 2010) (affirming joint and several 5
forfeiture orders under 18 U.S.C. § 981). This extends to 6
forfeiture proceedings, where the general principle is that a 7
defendant is liable for the reasonably foreseeable acts of his 8
co-conspirators. See United States v. Jackson, 335 F.3d 170, 9
181 (2d Cir. 2003) (“Under well-established law, Jackson was 10
responsible not only for the cocaine that he himself conspired 11
to import but also for the cocaine his co-conspirators 12
conspired to import, provided he knew of his co-conspirator's 13
illicit activities or the activities were reasonably 14
foreseeable by him.”). The extension of forfeiture to proceeds 15
received by actors in concert with a defendant may be deemed to 16
be based on the view that the proceeds of a crime jointly 17
committed are within the possessory rights of each concerted 18
actor, i.e. are “acquired” jointly by them and distributed 19
according to a joint decision. This view does not support an 20
extension to a situation where the proceeds go directly to an 21
innocent third party and are never possessed by the defendant. 22
Moreover, we are not aware of, and the government has not 23
cited, any decision standing for the proposition that a 24
defendant may be required to forfeit funds never acquired by 25

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4 To what extent appellant’s interest in salaries, bonuses, dividends,
or enhanced value of equity in the Fund can be said to be money “acquired” by
the defendant “through the illegal transactions resulting in the forfeiture,”
18 U.S.C. § 981(a)(2)(B), we leave to the district court to decide on remand
in a manner not inconsistent with this opinion.
22
him or someone working in concert with him. Neither our 1
opinion in United States v. Royer, 549 F.3d 886 (2d Cir. 2008) 2
nor our summary order in United States v. Capoccia, 402 F. 3
App’x 639 (2d Cir. 2010) are to the contrary. In neither case 4
were we presented with a situation where a defendant had been 5
asked to forfeit funds that were never under his or his co- 6
conspirator’s control. While “property need not be personally 7
or directly in the possession of the defendant, his assignees, 8
or his co-conspirators in order to be subject to forfeiture,” 9
Capoccia, 402 F. App’x at 640, the property must have, at some 10
point, been under the defendant’s control or the control of his 11
co-conspirators in order to be considered “acquired” by him. 12
Finally, extending the scope of a forfeiture to include 13
proceeds that have never been acquired either by a defendant or 14
his joint actors would be at odds with the broadly accepted 15
principle that forfeiture is calculated based on a defendant’s 16
gains. See McGinty, 610 F.3d at 1247. Therefore, we hold that 17
the district court erred in ordering appellant to forfeit funds 18
that were never possessed or controlled by himself or others 19
acting in concert with him, and remand to determine the proper 20
forfeiture amount. 4
21
22

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23
CONCLUSION 1
We have reviewed appellant’s other arguments and conclude 2
that they are without merit. For the foregoing reasons, we 3
affirm appellant’s conviction, but vacate the order of 4
forfeiture and remand for further proceedings in accordance 5
with this opinion. 6
7

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