United States v. Smith

Richard Smith (defendant) was a vice president at PDA Engineering (PDA), a public company. Through his job, Smith learned that PDA's internal projections showed the company underperforming. He sold his PDA shares and shorted more; his parents did the same. The SEC investigated, and Smith was charged with 11 counts of insider trading. The trial judge instructed the jury that the government had to prove a causal link between Smith's inside knowledge and his trades, though the information only needed to be a significant factor, not the sole reason. The jury convicted Smith on all counts, and he appealed to the Ninth Circuit.