King for a Day was No Joke

Dallas, Texas © Peter Smythe 2019

Dallas, Texas © Peter Smythe 2019

The Second Circuit recently upheld the insider-trading conviction of Robert Schulman, a foamier Hunton & Williams, LLP patent attorney. The court rejected his argument that a quip at dinner about Pfizer’s planned acquisition of King Pharmaceuticals was nothing but a joke.

Robert Schulman was representing King Pharmaceuticals in a patent dispute and was busy preparing for a summary-judgment hearing and trial. King was looking to settle the case because it was in merger discussions with Pfizer. King reached out to another Hunton & Williams partner and discussed its reasons to want to settle. Schulman learned of the possible merger, but said that he’d keep the information confidential.

It wasn’t long after this that Tibor Klein, Schulman’s personal financial advisor, came over for dinner to discuss Schulman’s financial accounts. Sometime over dinner Schulman made the remark, “Boy, it would be nice to be king for a day.” Evidence produced at trial showed that Klein took this to be a material, non-public disclosure and he acted on it. He bought tens of thousands of dollars of King stock and also told another financial-advisor friend about the merger. That friend, Michael Schechtman, also traded on the information and profited more than $110,000 from it.

Schulman was later indicted and convicted of insider trading. On appeal, he argued that there was insufficient evidence that his king-for-a-day quip was nothing more than a joke or a poor brag. The Second Circuit disagreed. It pointed to Klein’s and Schechtman’s actions on the “quip,” reasoning that the jury was entitled to believe that the circumstances and context demonstrated that Schulman’s line was more than a brag. The court said that it was reasonable to believe Schulman intended more than a joke because both Klein and Schechtman had invested large sums in the information.

A copy of the opinion is here.