Shearman And Sterling

News January 04, 2023

Victory in major political intelligence insider trading case

Shearman & Sterling secured a litigation victory on behalf of its client, Christopher Worrall, in a significant criminal insider trading case. On December 27, in a 2-1 decision, the Second Circuit Court of Appeals dismissed fraud and theft charges against Mr. Worrall. The Second Circuit ruled, among other things, that the evidence was insufficient on the two counts on which Mr. Worrall was convicted.

Mr. Worrall was an employee of CMS, a federal agency responsible for overseeing aspects of the Medicare and Medicaid programs. Mr. Worrall was accused of leaking information about reimbursement policies that was then used by a hedge fund for securities trading. Worrall was charged with three other defendants and went to trial in the spring of 2018 where he was acquitted of 14 out of the 16 counts against him, including all of the conspiracy and securities fraud counts. He was convicted of one count of conversion of government property and one count of wire fraud, both involving a single alleged disclosure in 2012. With respect to the two counts that Mr. Worrall was convicted of, all the defendants challenged whether the alleged government property at issue—sensitive rulemaking information—could be properly considered “property” for purposes of anti-fraud statutes.

At the same time the appeal was pending, the U.S. Supreme Court considered a similar question in Kelly v. United States, which is better known as the “Bridgegate” case. The Supreme Court ultimately clarified that “property” means property that has intrinsic economic value in the hands of the government, and that in a federal fraud case, the government must be deprived of economic value as a result of the specific conduct. In the wake of this holding, the Supreme Court vacated and remanded the Second Circuit’s decision that had initially affirmed Mr. Worrall’s conviction and sentence.

On remand, the government confessed error in light of the Supreme Court’s ruling in Kelly and urged the Second Circuit to reverse his convictions. The Second Circuit, however, appointed an amicus to defend the convictions in the face of arguments for reversal made by both the government and the defendants. After full briefing and oral argument in June 2021, the Second Circuit held in December 2022 that the evidence of fraud and conversion was insufficient in light of Kelly, and that it was appropriate to defer to the judgment of the government and honor their decision in choosing how to prosecute cases, and remanded the case so that the sole counts as to which Mr. Worrall had been convicted could be dismissed.

The Team