United States v. Mahaffy, No. 09-5349 (2d Cir. 2012)Annotate this Case
Traders employed by brokerage firms were indicted for conspiring with employees of Watley, a day trading firm, to commit securities fraud by providing their employers’ confidential information to Watley. After a mistrial on conspiracy to commit securities fraud, 18 U.S.C. 1348, 1349, the government retried the conspiracy count with honest services fraud and property fraud as the charged objects of conspiracy. The jury convicted under each theory. The Supreme Court subsequently decided Skilling, limiting honest services fraud to schemes effectuated through bribes or kickbacks. After sentencing, the SEC initiated administrative proceedings and disclosed transcripts of investigative depositions taken as early as 2004. With access to those transcripts, defendants moved for a new trial, contending that the transcripts included material required to be disclosed under Brady because it contradicted or undermined testimony of key government witnesses on a central question: whether allegedly misappropriated information was confidential under Carpenter v. U. S. The district court concluded that the jury would not have reached a different result had the transcripts been disclosed. The Second Circuit vacated. Failure to disclose portions of the transcripts violated Brady and undermined confidence in the verdict. The court also did not adequately instruct the jury on the scope of honest services fraud.