in yesterday's Money Stuff newsletter, Matt Levine relates an interesting insider trading case:
A former Barclays Plc trader said he got an insider tip from an ex-Goldman Sachs Group Inc. vice president at a squash court after having too many drinks.
Apparently the trader had been drinking at the time he received the tip, but was sober at the time he executed the trade.
But suppose somebody with material nonpublic information traded on the basis of that information while he was intoxicated. What result?
Scienter is an element of the Rule 10b-5 insider trading violation, as Donald Langevoort explains:
"... liability for insider trading under Rule 10b-5 requires a showing that the insider or tippee acted with scienter. Once fiduciary status giving rise to a duty to disclose is determined as a matter of law, scienter is established if the defendant knew that the information was material and nonpublic, or recklessly disregarded facts that would indicate that the information in his possession was material and nonpublic." Donald Langevoort, 18 Insider Trading Regulation, Enforcement and Prevention § 5:5 (2023).
I've been unable to find any cases on whether being intoxicated at the time one commits the alleged violation negates scienter either for purposes of Rule 10b-5, the federal securities fraud laws generally, os common law fraud.
Turning to the general criminal law, a number of federal courts of appeal have held that voluntary intoxication is not a defense to a to a general intent crime. See, e.g., United States v. Gracidas-Ulibarry, 231 F.3d 1188, 1196 (9th Cir.2000) (en banc); United States v. Oakie, 12 F.3d 1436, 1442 (8th Cir.1993); United States v. Fazzini, 871 F.2d 635, 641 (7th Cir.1989); United States v. Lewis, 780 F.2d 1140, 1143 (4th Cir.1986). On the other hand, some courts have held that "voluntary intoxication is a defense to ... specific intent crimes." U.S. v. Sewell, 252 F.3d 647, 650 (2d Cir. 2001).
The Sewell court drew the following distinction between general and specific intent crimes:
"With the exception of strict liability crimes, crimes require general intent, which ordinarily is “at least an intention to make the bodily movement which constitutes the act which the crime requires,” in order for criminal liability to attach. 1 W. LaFave & A. Scott, Substantive Criminal Law, § 3.5, p. 315 (1986). In addition to general intent, some crimes require specific intent, which is “a special mental element” particular to the crime with which defendant is charged. Id. For example, common law larceny requires not only the general mental state for the act of “taking and carrying away the property of another” but also the specific mental state that defendant possessed an “intent to steal the property.” Id. (quotation marks omitted)." Id.
So, is insider trading a general or specific intent crime? The answer is that "violation of Rule 10b–5 requires 'specific intent,'” which requires the Government "to prove, inter alia, that the defendant 'acted knowingly, willfully, and with an intent to defraud,' and that 'an intent to defraud' [in the context of a tipping case] meant 'an intent to deprive the company in question of the confidentiality of its information.'” U.S. v. Whitman, 904 F. Supp. 2d 363, 372 (S.D.N.Y. 2012), aff'd, 555 Fed. Appx. 98 (2d Cir. 2014)(unpublished).
In sum, it looks like voluntary intoxication might well be a viable defense to an insider trading charge.
