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An accountant who tipped a Morgan Stanley executive and others about a client’s impending merger deal was properly convicted of securities fraud, a federal appeals court said ( United States v. Melvin , 11th Cir., No. 16-12061, 2/3/17 ).
The civil sanctions imposed against Thomas D. Melvin by the Securities and Exchange Commission weren’t severe enough to render them criminal and invoke the Fifth Amendment Double Jeopardy Clause, the U.S. Court of Appeals for the Eleventh Circuit said Feb. 3 in a per curiam opinion affirming the conviction.
In 2012, Melvin learned about a possible business combination between French pharmaceutical company Sanofi-Aventis and another drug company from a client who wanted related financial advice. Melvin, in turn, allegedly tipped four friends about the possible acquisition, including a former senior vice president at Morgan Stanley Smith Barney. Melvin’s tippees then traded on the information and tipped others to do so. Altogether, the insider ring earned more than $500,000.
Melvin ultimately settled SEC civil insider trading allegation, agreeing to pay almost $178,000 in disgorgement and civil penalties. He also was barred from practicing accounting before the SEC.
Subsequently, the government filed criminal charges against Melvin based on the same alleged misconduct. He moved to dismiss the indictment on Double Jeopardy grounds, arguing that his settlement with the SEC and professional disqualification barred the criminal prosecution. The district court denied Melvin’s motion and he appealed to the Eleventh Circuit.
Affirming, the appeals court said the civil penalties imposed by the SEC weren’t severe enough to be deemed criminal in nature. The fact that the sanctions may have a deterrent effect isn’t enough to render them criminal because deterrence may serve both civil and criminal goals, the court said.
Additionally, neither money penalties nor debarment have historically been viewed as punishment, the court said.
To contact the reporter on this story: Antoinette Gartrell in Washington at firstname.lastname@example.org
To view the opinion, visit: http://www.bloomberglaw.com/public/document/USA_v_Thomas_Melvin_Docket_No_1612061_11th_Cir_Apr_29_2016_Court_/2
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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