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No. 16-066

IN THE

Supreme Court of the United States _________

MARVIN SKRELLY,

Petitioner, v.

UNITED STATES OF AMERICA Respondent.

_________

On Writ of Certiorari to

the United States Court of Appeals for the Thirteenth Circuit

_________

RECORD

_________

2016 Julius H. Miner Moot Court Competition

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(ORDER LIST: 577 U.S.)

Friday, January 15, 2016 16–066 United States v. Skrelly, Marvin The petition for a writ of certiorari is granted and the Thirteenth Circuit’s mandate is stayed pending further proceedings in this Court.

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QUESTIONS PRESENTED

1. Whether police, without obtaining a search warrant, may read e-mails that are stored in folders already examined by a private searcher and surrounded by other e-mails related to criminal activity. 2. Whether evidence of a close personal relationship between a tipper and a tippee permits an inference of the personal benefit required to convict a tippee for insider trading under the gift theory of liability in Dirks v. SEC, 463 U.S. 646 (1983).

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IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRTEENTH CIRCUIT

________________________

No. 15-3902

United States of America, Plaintiff-Appellee,

v. Marvin Skrelly,

Defendant-Appellant.

________________________

Appeal from the United States District Court for the District of Wigmore

No. 2015-CM-0713 — Angel I. Feldschon, Judge.

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Argued Nov. 13, 2015 — Decided Dec. 18, 2015

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Cite as: United States v. Skrelly, No. 15-3902 (13th Cir. 2015).

Before: CHARIZARDO, POLIWRATH, and KILMISTER, Circuit Judges.

Judge CHARIZARDO delivered the opinion of the court, in which Judge KILMISTER joined. Judge POLIWRATH delivered a dissenting opinion.

OPINION OF THE COURT

CHARIZARDO, Circuit Judge.

The government accused defendant-appellant Marvin Skrelly of trading on inside knowledge of the imminent fall of the once-mighty Sodreckso Corporation. A jury sitting in the U.S. District Court for the District of Wigmore convicted him on two counts of criminal securities fraud. Skrelly appeals his conviction, and we AFFIRM.

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I. Facts

For decades, Sodreckso—a publicly traded Delaware corporation headquartered in the state of Rodriguez—was a titan of the American food industry. The company began in 1965 as a provider of cut-rate food services to universities and prisons in the Midwest, and grew to distribute its prepackaged meals in retailers and grocers nationwide. Sodreckso meals were a fixture of American life—albeit known more for their ubiquity than their quality.

Skrelly is a professional investor who, prior to his conviction, had been considered a rising star in his field. His firm, WUTANG Financial, focused primarily on the pharmaceutical and entertainment industries, but also had an extremely diverse bond portfolio and—most important here—a sizable position in Sodreckso stock. Skrelly was a provisional member at Silver Spoon Country Club, by far the most opulent of its kind in Skrelly’s home state of Wigmore. Many of Wigmore’s business and financial elites are members of Silver Spoon, and Skrelly valued the opportunity to rub elbows and make connections there.

Indeed, this case emerges from a connection that Skrelly made at Silver Spoon on the afternoon of March 12, 2013. While waiting to be assigned a tee time, Skrelly struck up a conversation with a man he knew was a prominent member of Silver Spoon: Michael Meneghini. Meneghini headed Wigmore’s most dominant commercial real estate and CrossFit conglomerate, and was a board member at Silver Spoon.1 That day, Barrington Weatherbee Stump III—the founder, CEO, and chairman of Sodreckso—accompanied Meneghini to Silver Spoon. Stump and Meneghini were friends, but neither man had ever met Skrelly before.

Skrelly, of course, knew exactly who Stump was. Stump was a notorious public figure. In his youth, he inherited a fortune from his father’s real estate ventures. Stump used that money to make brilliant investments in Sodreckso, and the company ascended to the heights of American business. Some scholars dissent from this account—arguing that anyone can turn a large fortune into a larger one. Stump has spent decades dismissing these critics as “loser morons” who could not possibly understand Sodreckso, the “absolute classiest, most outstanding foodservice company in the recorded history of human civilization.” Stump, The Art of the Meal 154 (1990).

But whatever his savvy, nobody disputes that Stump kept tight control over his company’s operations. Stump was well-known for keeping close watch over Sodreckso’s competitors, and in particular its age-old rival, CPP Inc.2 Stump was fixated on the threat he believed CPP—a publically traded company—presented to Sodreckso’s dominance, and his thirst for intelligence on CPP apparently knew no ethical boundaries. For years, Stump had been paying CPP insiders for nonpublic information about CPP’s business.

Meneghini and Stump were evidently charmed by their conversation with Skrelly because they invited him to join their golfing party. Skrelly accepted. And after 18 holes, they asked him to join them in Silver Spoon’s sauna as well. Skrelly immediately agreed.

As the three men were about to enter the sauna, however, Meneghini excused himself to handle an important phone call. Stump and Skrelly entered the empty sauna. Because each man 1 Meneghini generally appears to be a civic-minded man. He is also a noted booster of The Wigmore State University, home to his beloved WSU Buckeyes. 2 CPP changed its name as part of a 2010 rebranding effort. It was formerly known as Connie’s Prison Pizza.

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invoked his Fifth Amendment right against self-incrimination, Skrelly’s trial proceeded without any direct testimony as to what transpired within. Meneghini testified at trial that his phone call lasted about thirty minutes, after which he immediately joined Stump and Skrelly in the sauna. As he entered, Meneghini heard Skrelly say “Thanks,” to which Stump responded, “No problem, I’m always happy to do a favor for a friend.” Meneghini testified that after he rejoined the two others, the conversation focused solely on their upcoming vacation plans, and all three men left Silver Spoon in separate cars shortly thereafter.

Jimmy Strepa—the government’s computer expert—testified at trial that Stump sent two separate messages to Skrelly’s WUTANG Financial e-mail address later in the evening of March 12. One e-mail contained nonpublic information indicating that Sodreckso did not have enough cash to service its short-term debt and was on the verge of total collapse. It also indicated that Skrelly and Stump had discussed that information in the Silver Spoon sauna. We’ll call this the “Sodreckso e-mail.” The other e-mail contained nonpublic information showing that CPP was about to announce a new line of prepackaged pizzas under the brand name “Atrium.” We’ll call this the “CPP e-mail,” and we’ll refer to it collectively with the Sodreckso e-mail as the “challenged e-mails.” Atrium Pizza was projected to be a revolutionary development in the field. The CPP e-mail also informed Skrelly that Stump had procured this information by paying off a top CPP executive. At trial, the government introduced system logs showing that Skrelly read both of the e-mails that night. The next day, Skrelly sold all of his Sodreckso stock and bought a large position in CPP.

Two weeks later, Sodreckso shocked the public by filing for Chapter 11 bankruptcy. In response to the bankruptcy filing, the price of Sodreckso stock dropped precipitously. Since then, Sodreckso’s investors have filed a number of lawsuits in various state and federal courts. There is no evidence at this point—from any of these suits—that any Sodreckso executives or directors acted disloyally to the company, or traded their own shares in anticipation of its bankruptcy. The company’s collapse appears to have arisen simply from poor business judgment. With the successful launch of Atrium Pizza and the collapse of CPP’s major competitor, the value of Skrelly’s recently purchased CPP stock soared.

Skrelly’s receipt of inside information, however, did not attract the attention of law enforcement until several months later. To help with the business of WUTANG Financial, Skrelly employed Deborah Rainden, an assistant and WUTANG’s only other employee. Rainden was a Northwestern graduate who hoped to work in finance for a few years before attending business school. Skrelly had hired her knowing this was her goal, and had even offered to write her a letter of recommendation if she did good work for WUTANG. By all accounts, Rainden’s work was stellar, but Skrelly’s letter of recommendation was not. Rainden was rejected by every program she applied to, save her absolute safety school—the Southeastern University Kellogg’s Frosted Flakes School of Business. Furious that her hard work had been for naught, Rainden was determined to get back at Skrelly. She hoped she could find some embarrassing information on his computer, and leave him as humiliated as she felt holding only an acceptance letter from Kellogg.

On September 15, 2013, Rainden put her plan into action. She arrived at the WUTANG offices on a Sunday, so she could be sure that Skrelly would not be there. She walked from the reception area—where her desk was located—into Skrelly’s office. His office door had a bolt, but Skrelly rarely used it and the door could not be locked from the outside. Once inside

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Skrelly’s office, she opened his work laptop and logged in using a company password. She then opened his business e-mail client. Skrelly had taken a number of steps to secure his e-mail. For a client, he used a customized version of Microsoft Outlook, specially configured to only sync to his e-mail account when the device accessed the internet using an IP address associated with the WUTANG office’s DSL line. Access to locally stored e-mails required a password. The system required this password to be entered anew each time Outlook was opened, or after 15 minutes of inactivity. Finally, all of WUTANG’s business e-mail accounts were operated on a server in DocDurr, an obscure island nation whose government is mindful to never cooperate with U.S. criminal investigations.

Rainden, however, guessed the password. Upon opening Outlook, Rainden saw that Skrelly’s e-mails were organized into several different folders. The two folders that are relevant here were titled “General Inbox” and “Stock Tips,” although there were others. Police subsequently determined that the General Inbox folder contained all e-mails that were not in any other folder, and that each e-mail on the computer was stored in only one folder.

According to Rainden’s sworn statement to the police, she opened and read approximately fifty out of the five hundred e-mails contained in the General Inbox folder. Most of these e-mails were business related. Rainden specifically recalled finding routine correspondence with clients and news updates about the stock market. But some of the e-mails that Rainden read were personal. She read several messages from Skrelly’s friends about upcoming golf outings, and one e-mail receipt for a purchase from Victoria’s Secret, to be delivered to a bed and breakfast in a neighboring town by next-day mail. She also read an exchange between Skrelly and a female consultant from whom Skrelly occasionally commissioned reports on international currency fluctuations. In the e-mail, the consultant reminded Skrelly of a Saturday night dinner reservation at a local restaurant with a reputation for an exceptionally romantic ambiance. Finally, Rainden opened one e-mail whose contents were encrypted, but she made no attempt to decrypt them.

After her foray through the General Inbox folder, Rainden opened the Stock Tips folder. The Stock Tips folder contained only ten e-mails, of which Rainden opened and read the most recent five. All five e-mails were from individuals she recognized as insiders at various public companies who had had prior contact with Skrelly. Each e-mail provided information about each insider’s employer that did not appear curated for public release, and that appeared to be material to an investor’s evaluation of each company’s value.3

Rainden, suspecting that she had found evidence of a financial crime, unplugged the computer, brought it to the nearest police station, and asked to speak to a detective. She was directed to Detective Whitney Woodward of the Wigmore State Police. Detective Woodward had previously served on the WSP’s financial crimes and contract enforcement task force. As part of that service, she attended a training given by the office of the United States Attorney for the District of Wigmore, focused on teaching state law enforcement officers to recognize evidence of federal financial crimes. This seminar included information on evidence of insider trading.

3 No charges were ever filed based on the contents of these e-mails.

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Detective Woodward asked Rainden to write a sworn statement describing each e-mail she recalled opening, reading, and seeing during her search. After reviewing that statement, Detective Woodward opened Skrelly’s computer, entered the password to open Microsoft Outlook, and read every e-mail in both the General Inbox and Stock Tips folders. Detective Woodward discovered the Sodreckso e-mail in the General Inbox folder. The remainder of that folder’s contents consisted mostly of innocuous business e-mails, but it also contained several messages of a more personal nature. Detective Woodward discovered the CPP e-mail in the Stock Tips folder. That folder also contained three e-mails that fit the same pattern observed by Rainden, and one e-mail between Skrelly and an unknown woman with whom he seemed to be having an affair. This final e-mail had an innocuous subject line and appeared to have been written so as to appear—until actually opened—to contain only business intelligence.

Detective Woodward concluded that she was looking at evidence of a major federal securities fraud. She referred the matter to the U.S. Attorney for the District of Wigmore, and the instant prosecution in federal court followed. Two counts of insider trading went to a jury: Count One alleged that he traded on nonpublic information material to the price of Sodreckso stock, and Count Two alleged that he traded on nonpublic information material to the price of CPP stock. Before trial, Skrelly moved in limine to suppress the challenged e-mails as obtained in violation of the Fourth Amendment. See Fed. R. Crim. P. 12(b)(3). The district court denied his motion in an oral ruling. When the government offered the e-mails at trial, Skrelly made a renewed objection, which the district court overruled. At the close of the government’s evidence, Skrelly moved for a judgment of acquittal on Count One, Fed. R. Crim. P. 29(a), on the grounds that there was insufficient evidence that Stump received a personal benefit in exchange for the Sodreckso tip. Ruling from the bench, the district court denied the motion. On May 15, 2015, the jury returned guilty verdicts as to both Counts. Skrelly immediately renewed his motion for a judgment of acquittal on Count One. The district court once more denied that motion in an oral ruling. This timely appeal followed.

Skrelly appeals from the district court’s denial of his motions to suppress and for a judgment of acquittal. He asks this court to order a judgment of acquittal (or in the alternative vacate his conviction) on Count One, and to vacate his conviction on Count Two.

II. Fourth Amendment

We first direct our attention to Detective Woodward’s warrantless examination of Skrelly’s laptop computer. That search produced the two e-mails introduced at trial, each of which corresponds to a separate conviction for insider trading in violation of § 10(b) of the Exchange Act. 15 U.S.C. § 78j(b). Both e-mails are essential to the insider trading convictions that they support.4 So there can be no doubt that wrongfully admitting either e-mail would be prejudicial—and thus reversible—error as to the conviction that it supports. Fahy v. State of Conn., 375 U.S. 85, 86 (1963).

Reviewing the denial of a motion to suppress, we scrutinize the district court’s factual findings for clear error and its legal conclusions de novo. See, e.g., United States v. Nieman, 520 F.3d 834, 838 (8th Cir. 2008). The first—and in this case, the only—step in deciding whether the

4 The government conceded this point in oral argument.

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e-mails were wrongfully admitted is determining whether Detective Woodward’s search violated the Fourth Amendment.

If the Fourth Amendment protects a container, the government generally cannot search it without a warrant. The Fourth Amendment prohibits “unreasonable” searches, U.S. Const. amend. IV, and under decades of Supreme Court precedent, warrantless searches are presumptively unreasonable, Vermonia School Dist. 47J v. Acton, 515 U.S. 646, 653 (1995). But a container only enjoys Fourth Amendment protection to the extent that its contents can support a reasonable expectation of privacy. Katz v. United States, 389 U.S. 347, 361 (1967) (Harlan, J. concurring). If there is no reasonable expectation of privacy for the government to infringe, there can be no “search” within the meaning of the Fourth Amendment, and its protections simply do not apply.

In this case, the government argues that under the private search doctrine5 of United States v. Jacobsen, 466 U.S. 109 (1984), Skrelly’s expectation of privacy in the challenged e-mails did not survive Rainden’s snooping. This doctrine provides that no “search” occurs within the meaning of the Fourth Amendment when the government examines materials that have already been searched by private persons. The underlying logic behind the private search doctrine is simple: the Fourth Amendment only protects objects in which the owner has a reasonable expectation of privacy which the owner has maintained, and private snooping vitiates such expectations. Jacobsen, 466 U.S. at 117–18. We find that the private search doctrine applies here, and therefore the Fourth Amendment does not require suppression of the challenged e-mails.6

A. Private Search Framework

Jacobsen is not a blank check—the government may not exceed the scope of a private search unless it has some legitimate basis for doing so. After a private search, the Fourth Amendment continues to protect any “information with respect to which the expectation of privacy has not already been frustrated.” Id. at 117 (emphasis added). So even when the doctrine applies we must consider whether there was a new invasion of privacy by the government—and therefore a “search” subject to the requirements of the Fourth Amendment. This is “tested by the degree to which [a subsequent government intrusion] exceeded the scope of the private search.” Id. at 115 (citing Walter v. United States, 447 U.S. 649 (1980)). This concept of “scope,” as used in Jacobsen, is flexible. Jacobsen’s underlying concern was not limiting the government to a jot-for-jot duplication of a prior private search. Rather, that case sought to facilitate law enforcement use of non-private information, while ensuring that the police do not violate any “legitimate expectations of privacy” that a private search had not already frustrated. See Jacobsen, 466 U.S. at 120.

5 Which some courts refer to as the private search exception. See, e.g., United States v. Goodale, 738 F.3d 917, 921 (8th Cir. 2013). 6 We need only consider whether Detective Woodward’s search was justified by the private search doctrine. The government does not dispute that a personal computer is an “effect” within the meaning of the Fourth Amendment. Nor does it dispute that Detective Woodward discovered both e-mails while examining Skrelly’s computer without a warrant. It does not invoke any exception to the general requirement that searches be authorized in advance by judicial warrants in order to be considered reasonable. It conceded that none of them applied at the suppression hearing before the district court. It also concedes that Skrelly manifested a reasonable expectation that his e-mails would remain private. In short, the government has placed all its eggs in the private search basket.

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This court has not had previously had occasion to apply the private search doctrine. We think the Fifth Circuit’s decision in United States v. Runyan, 275 F.3d 449 (5th Cir. 2001), provides a useful framework for applying the principles of Jacobsen to this case. Runyan considered a warrantless police examination, subsequent to a private search, of digital data stored locally on a physical device—forty-three compact discs, ZIP disks, and floppy disks. 275 F.3d at 453. Judge King’s characteristically thoughtful opinion laid out a two-part roadmap for applying Jacobsen to “containers” of digital information. We adopt this framework, which holds that the government stays within the scope of an antecedent private search as long as it searches only: 1) containers that the private searcher actually opened; or 2) containers that cannot support a reasonable expectation of privacy because—in light of the information provided by the private searcher—the government is already substantially certain of what they contain.

The first step in this analysis is to consider the container(s) that the private searcher opened. Was the item in a container that the private searcher opened and exposed? Once a private searcher opens a container, its owner loses his expectation of privacy even with respect to the portion of the container’s contents that the searcher did not actually view. We agree with the Runyan court that “the police do not exceed the scope of a prior private search when they examine . . . more items within a closed container than did the private searchers.” Id. at 464 (citing United States v. Simpson, 904 F.2d 607, 610 (11th Cir. 1990)). To hold otherwise would “over-deter the police” from engaging in lawful investigation. Id. A contrary rule, see U.S. v. Rouse, 148 F.3d 1040, 1041 (8th Cir. 1998), would discourage police from examining the fruit of private searches because they would risk committing a Fourth Amendment violation by mere happenstance every time they found “an item within a container that the private searcher did not happen to find.” Runyan, 275 F.3d at 465.

The second step is to consider whether the private search vitiated expectations of privacy in any unopened containers. Certain containers may be unable to support an expectation of privacy even though they were not actually opened during the private search. Because Jacobsen turns on the frustration of privacy expectations, rather than on the exact intrusion perpetrated by a private searcher, “opening a container that was not opened by private searchers would not necessarily be problematic.” Id at 463. If the government can show that, after a private search, there is no privacy interest remaining in an unexamined container, there is no reason to treat that container any differently from one that was actually opened. Id. For reasons explained more fully below, post at 12, we hold that no privacy interest remains in an unopened container when the government establishes that it is already substantially certain of the container’s contents.

So, guided by Runyan, we are left with two potentially dispositive questions. The first question is, were the challenged e-mails found within a “container” that had already been privately searched? Or, put differently, what are the boundaries of a “container” of digital information? Our one discussion on this point applies to both messages,7 because the relevant facts are identical as to this issue: Rainden did not open either challenged e-mail, but did open other e-mails stored in the same folders. Depending on our analysis, either both e-mails were in a container that was already searched or neither one was. The second question is, if Rainden had not opened the “container” where the police found the CPP e-mail—in other words, if the answer

7 In some places our analysis emphasizes the General Inbox because if a folder with more varied information is a container then the smaller Stock Tips folder necessarily must be as well.

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to the first question is “no”—had her private search left the government substantially certain of what opening that message would reveal?8

If the answer to the first question is “yes,” then there was no search and no Fourth Amendment violation, and the district court correctly denied Skrelly’s motion to suppress as to both of the challenged e-mails. If the answer to the first question is “no,” but the answer to the second question is “yes,” then the district court correctly denied the suppression motion as to the CPP e-mail, but should have granted it as to the Sodreckso e-mail. We hold that the answer to both questions is “yes,” and that the district court properly denied Skrelly’s motion to suppress.

B. Container Analysis

The first question is if the information introduced against Skrelly was stored in a container which was already searched by Rainden. If so, any expectation of privacy in it would be extinguished. This case presents an interesting question because the containers are not physical. To determine what container-like protective measures Rainden bypassed in this new technological context we must first understand what qualifies a container for Fourth Amendment protections.

A container is traditionally defined, for Fourth Amendment purposes, as anything that encloses an object and conceals it from public view. United States v. Ross, 456 U.S. 798, 822–23 (1982). Courts derive the requirement of concealment from fundamental Fourth Amendment principles. The Fourth Amendment’s protection only extends so far as “a person ha[s] exhibited an actual (subjective) expectation of privacy . . . [which] society is prepared to recognize as reasonable.” Katz, 389 U.S. at 361 (Harlan, J., concurring) (internal quotations omitted). Possessions are only protected against warrantless search when their owner actually manifests that expectation, generally by concealing it from the public. Id. at 351; Illinois v. Caballes, 543 U.S. 405, 416 n.6 (2005) (Souter, J., dissenting). So the Fourth Amendment protects “every container [which] conceals its contents from plain view,” and a container that conceals nothing gets no protection. Ross, 456 U.S. at 822–23.

The scope of the private search doctrine flows from this analysis. A private search frustrates any expectation of privacy that would have prevented law enforcement from conducting the same examination without a warrant. In Jacobsen, Federal Express employees opened a package to find a tube, which they then opened to find a “suspicious looking plastic bag of white powder.” 466 U.S. at 115. The Supreme Court held that the DEA could examine that powder without a warrant because any privacy interest in it was extinguished when the FedEx employee opened the packages, exposing their contents the light of day. Id. at 117. An instructive contrast can be found in United States v. Donnes, 947 F.2d 1430 (10th Cir. 1991). In Donnes, the private searcher found a glove containing a syringe and a black leather camera lens case. Id. at 1435–37. But because he did not open the camera lens case, which was closed and opaque, the police were not permitted to do so without a warrant. Id. (suppressing drugs found inside the camera case).

8 We consider this second question only with respect to the CPP e-mail. We do not consider this question for the Sodreckso e-mail because the government conceded below that the e-mails uncovered in the “General Inbox” were too varied to support a finding of substantial certainty as to what further examination would reveal.

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We conclude that this case is more like Jacobsen than Donnes. Once Rainden read the first e-mail in each folder, she removed any Fourth Amendment protections over each folder’s entire contents. Runyan, 275 F.3d at 464 (viewing files on a disk allows the police to search the whole disk); Rann v. Atchison, 689 F.3d 832, 838 (7th Cir. 2012) (same for a zip drive and camera memory card). Skrelly’s e-mail account itself, and the folders within it, have all of the necessary characteristics of a container to provide Fourth Amendment protections. The e-mails themselves do not. So we hold that once the folder containing them was opened the e-mails, like the bags of cocaine in Jacobsen, lost any expectation of privacy.

In reaching this conclusion we reject the government’s suggestion that Skrelly’s privacy interest in the e-mails was extinguished as soon as Rainden accessed his computer. But see United States v. Slanina, 283 F.3d 670, 680 (5th Cir. 2002), vacated on other grounds, 537 U.S. 802; United States v. Odoni, 782 F.3d 1226, 1240 (11th Cir. 2015), cert. denied, 135 S. Ct. 2339 (2015); United States v. Simpson, 904 F.2d 607, 610 (11th Cir. 1990). The government’s analysis glosses over the many different protectable privacy interests that a person could have over any number of items that may be stored on a computer. See Riley v. California, 134 S. Ct. 2473, 2489–90 (2014) (discussing this concern in the context of cell phones). The existence of such distinct interests is evidenced in this case by Skrelly’s use of a second password to protect his e-mail account. In other words, even if a computer is a container, it holds other receptacles entitled to separate protection against warrantless searches such as e-mail, photo albums, and cloud-based programs.

In that regard we have some common ground with the dissent. However, its suggestion that each locally stored e-mail is itself a container is misguided. Even the broadest conception of a container cannot encompass objects that do not enclose and obscure their contents. See New York v. Belton, 453 U.S. 454, 461 (1981) (that “any object capable of holding another object” can be a container), abrogated on other grounds, Davis v. United States, 131 S. Ct. 2419, 2426 (2011). While e-mails can have files attached to them, the e-mails themselves cannot enclose information. The information being transmitted lies in an e-mail’s text, not some part of the e-mail in which another object can be inserted. Therefore, e-mails cannot be containers.

Moreover, even if e-mails were containers, they would not be protectable ones. E-mails arranged in a folder or e-mail program do not conceal their contents. Unlike the shipping boxes in Jacobsen, which a person can lay eyes on while remaining ignorant of its contents, anyone reading an e-mail has access to any information that it is transmitting. Even in the most extreme cases, protectable containers must be opaque. See Ross, 456 U.S. at 822 (that the amendment would protect “a toothbrush and a few articles of clothing in a paper bag or knotted scarf”). So even if an e-mail can package and transmit information it only rises to the level of the plastic bag in Jacobsen, which failed to conceal its contents enough to merit Fourth Amendment protection. See United States v. Tosti, 733 F.3d 816, 822 (9th Cir. 2013) (holding that where a private searcher viewed thumbnails of images, which the police could tell displayed child pornography, the police could open the full images without a warrant); United States v. Johnson, 806 F.3d 1323, 1335–36 (11th Cir. 2015) (same). Nor were these e-mails, as arranged in the folders, concealed. Anyone opening the inbox folder here would see the list of e-mails, their subject lines, the sender’s name and address, and a sixty-character excerpt from the body. See App. 2.

Notwithstanding these basic logical problems, the dissent insists that our holding conflicts with the Supreme Court’s decision in Riley v. California, 134 S. Ct. 2473 (2014). Riley

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rejected routine examinations of the entire contents of cell phones during searches incident to arrest. Id. The Riley Court recognized that, in light of new technologies that allow a life’s worth of information to fit in a person’s hip pocket, authorizing indiscriminate searches incident to routine arrests was no longer consistent with the Fourth Amendment. Id. at 2485. Technological advancement had altered the “appropriate balance” between state interests and individual privacy in arrest situations, particularly given the minimal danger to law enforcement posed by cell phones. Id. at 2484–85. And the sheer scale of the problem made the privacy interests at stake in Riley especially salient; law enforcement conducts innumerable arrests, and the reality of modern life means that most arrestees will possess a cell phone. To allow cell phone searches incident to arrest would have been to authorize ubiquitous, suspicionless invasions of intimate information. Our decision today, by contrast, only addresses how law enforcement should respond in those comparatively rare situations where individual privacy has already been compromised by a private searcher. If anything, Riley’s recognition that private information stored on technological devices is so vulnerable underscores the extent to which a person’s privacy is compromised once someone else has opened and begun reading that person’s e-mail.

Further, Riley’s treatment of cell phones is distinguishable from our container analysis here. The Supreme Court’s concerns about cell phones were animated by how interconnected a person’s device is with their address book, calendar, photographs, travel plans, bookshelves, and—of course—e-mails. Id. at 2489–90. Our decision follows Riley by severing that connection for purposes of what law enforcement can search. Treating a computer or cell phone as set of distinct containers recognizes the distinct privacy interests at stake and creates an appropriate middle ground. So we think that the Eleventh Circuit misapplied Riley when it rejected the government’s examination of a (previously unviewed) video contained in a digital “album” in which thousands of images had already been viewed by a private searcher. Johnson 806 F.3d at 1336. It got Riley wrong by only considering a false choice between permitting a search of the entire phone and considering each file individually. Id. Riley certainly counsels against searching an entire device. But it does so because authorizing such searches would amount to “general warrants.” Riley, 134 S. Ct. at 2494–95. This concern is consistent with our application of the private search doctrine to electronic containers which, unlike general warrants, only authorizes searches on a narrow and specific basis. See also Berger v. New York, 388 U.S. 41, 55–58 (1967) (rejecting broad electronic searches as resembling general warrants which fail to properly describe the particular places and objects to be searched).

Realizing this, the dissent falls back on the concern that a person’s e-mail is often very private. We do not disagree. But the question in this case is not what ought to be private, but what was actually kept private. The risk that private e-mails may be exposed stems from the operation of the private search doctrine itself, not our application of it to new technology. “Every federal court of appeals that has considered the question of cell phone privacy has held there is nothing intrinsic about cell phones that place them outside the scope of ordinary Fourth Amendment analysis.” United States v. Wicks, 73 M.J. 93, 99 (C.A.A.F. 2014) (applying the private search doctrine to a cell phone); see also Robbins v. California, 453 U.S. 420, 426 (1981) (noting that “once placed” in “a closed, opaque container” which is kept private “a diary and a dishpan are equally protected by the Fourth Amendment”), abrogated on other grounds, Ross, 456 U.S. 798. Even under the narrowest reading of the doctrine, a private searcher reading half a page of a person’s diary would extinguish any privacy interest in anything else the owner had written in the book. See United States v. Frankenberry, 387 F.2d 337, 339 (2d Cir. 1967)

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(finding that the entire contents of a man’s diary became searchable because he happened to be carrying it when he was arrested). Nor did the possibility of a private search exposing many private elements of a person’s life—all at once—to law enforcement arise with the electronic age. A person’s e-mail may contain a great deal of information about their private life. But centuries ago, pioneers, pilgrims, and other travels would—quite literally—carry their entire lives in suitcases. See United States v. Chadwick, 433 U.S. 1, 4–13 (giving a more modern example involving a 200-pound footlocker), abrogated by California v. Acevedo, 500 U.S. 565 (1991). Even were we so inclined, this court cannot fashion a way to address the dissent’s privacy concerns without ignoring explicit and longstanding Supreme Court precedent.

In fact, the binary nature of the private search doctrine is one of its virtues. Viewing objects as either enclosed or not, and those enclosures as either opened or not, creates a simple and straightforward rule for law enforcement to follow (and for courts to apply). See Belton, 453 U.S. at 459–60 (“When a person cannot know how a court will apply a settled principle to a recurring factual situation, that person cannot know the scope of his constitutional protection, nor can a policeman know the scope of his authority.”). Absent a clear bright-line rule, law enforcement may decline to follow up on leads provided by private citizens for fear that they will mistakenly render evidence inadmissible before even beginning their investigations. Runyan, 275 F.3d at 465. This risk is particularly pronounced when the private searcher cannot recall exactly which e-mails, images, or files she viewed—a recurring problem in these cases. See, e.g., Johnson, 806 F.3d at 1335; United States v. Lichtenberger, 786 F.3d 478, 488 (6th Cir. 2015); Slanina, 283 F.3d at 673 n.4.

Providing law enforcement with the confidence to follow up on evidence provided by private citizens, and verify its accuracy, helps ensure that these tips will be investigated when they are promising. Otherwise law enforcement may simply ignore tips until they have the resources to open a new investigation. This also addresses the dissent’s suggestion that the police could simply take the information gathered by the private search and use it to get a warrant. Before applying for a warrant, investigators must invest limited resources in determining if the alleged activity could be criminal, constitutes probable cause and justifies opening a new investigation given the unit’s other priorities. Accordingly, they will be less likely to pursue those leads when they cannot quickly and easily at least verify the accuracy of the information up-front.

Nor would requiring that officers obtain a warrant before following up on information from a private searcher necessarily reduce the scope of searches and their impact on individual privacy, as the dissent contends. Suppose an officer applies for a warrant instead of trying to replicate the private search. Not having examined the device themselves, and relying on the searcher’s fallible memory, they will often be forced to seek relatively broad warrants in order to ensure they can find the right documents. If a warrant had been sought in this case it might have spanned the entire e-mail account or even Skrelly’s whole computer.

In this way, narrowing the private search doctrine would magnify the potential for excessive infringements of privacy. It is only under the private search doctrine that law enforcement is encouraged to keep the examination as narrow as possible, circumscribed to information that is no longer wholly private, until the evidence is confirmed and probable cause is obtained. Proceeding directly to a warranted search, where an officer has more authority, risks needlessly exposing additional private information. Moreover, officers would be more likely to

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seek these warrants as the first step in their investigations so as to confirm the accuracy of tips before investing resources in independently investigating their assertions. In that context, these searches would be more likely to harm innocents against whom deliberately false or misleading tips were made which officers have not yet sought to confirm. Runyan, 275 F.3d at 465. Accordingly, it is in the interest of these parties, as well as law enforcement, that the investigations begin with a confirmatory examination justified by the private search doctrine.

C. Substantial Certainty

Our determination that each folder constituted a single “container” for Fourth Amendment purposes is enough to decide the Fourth Amendment question. Rainden’s private search extinguished Skrelly’s expectation of privacy in the contents of each folder, and Detective Woodward did not violate the Fourth Amendment when she merely examined them more thoroughly. But even if that were not the case, Detective Woodward’s decision to open the CPP e-mail would still not have violated the Fourth Amendment. Because Rainden’s private search had “rendered obvious” the contents of the Stock Tips folder, Skrelly lacked any expectation of privacy in the CPP e-mail. 9 See Runyan, 275 F.3d at 464.

As discussed above, Jacobsen does not require that a private searcher actually open a container in order to extinguish an individual’s expectation of privacy in its contents. See ante at 7. There can clearly be no reasonable expectation of privacy in a container when law enforcement already knows what it contains. And we do not think that what law enforcement “knows” for constitutional purposes is limited to what the private searcher directly observed. After all, “much knowledge is inferential,” United States ex rel. Lusby v. Rolls-Royce Corp, 570 F.3d 849 (7th Cir. 2009), and law enforcement is likely to possess greater background knowledge and deductive insight than private searchers. Neither do we think that officers must be absolutely certain of what they will find in an unopened container. Even when a container has been opened, our analysis in the preceding section would allow officers to search for, and make use of, material in the same container that the private searcher failed to discover—material that the police could not possibly have been absolutely certain of finding. Since the relationship of the private searcher to the undiscovered materials—complete ignorance—is the same whether or not the container has been opened along the way, it would be peculiar to hold the police to a higher standard in one case than in the other. The private searcher does not know any more—and cannot tell the police any more—about an item she did not find in a container she searched, than about an item that she did not find because she did not search that container.

Rather, we think that the Fifth Circuit articulated essentially the correct standard in Runyan: when law enforcement officers “examine a closed container that was not opened by the private searchers,” they exceed the scope of the private search unless they are already “substantially certain of what is inside that container based on the statements of the private searchers, their replication of the private search, and their expertise.” Id. at 463 (emphasis added); see also Jacobsen, 466 U.S. at 119 (noting that “there was a virtual certainty” that a package contained nothing more than what a private search had already uncovered);

9 The government conceded below that this argument cannot save Detective Woodward’s discovery of the Sodreckso e-mail in the General Inbox folder. Because the General Inbox folder contained such a vast and varied collection of messages, there is no reasonable argument that its contents were obvious to Detective Woodward prior to her examination.

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Rann, 689 F.3d at 836–37 (adopting the Runyan standard for government examinations of unopened containers).

We add only one consideration to Judge King’s cogent analysis: what constitutes “substantial” certainty will vary with the importance of the potential privacy instincts at stake. It is axiomatic that the Fourth Amendment’s protections apply differently depending on the importance of the privacy interest implicated in different contexts. Compare Kyllo v. United States, 533 U.S. 27, 37 (2001) (“In the home . . . all details are intimate details . . . .”), with South Dakota v. Opperman, 428 U.S. 364, 367 (1976) (“[L]ess rigorous . . . requirements govern [searches of automobiles] because the expectation of privacy is . . . significantly less than that relating to one’s home or office.”). The Supreme Court has applied the same rationale to searches of containers. Ross, 456 U.S. at 822–23 (“[T]he Fourth Amendment provides protection to . . . container[s] . . . . But the protection . . . varies in different settings.”). And although we do not necessarily endorse the conclusion, we note that at least one of our sister circuits has considered the same variations when applying the private search doctrine. See, e.g., Lichtenberger, 786 F.3d at 484 (“We decline to extend the protection [from private searches] afforded to homes to a laptop computer.”); United States v. Allen, 106 F.3d 695, 699 (6th Cir. 1997) (“[T]his Court is unwilling to extend the holding in Jacobsen to cases involving private searches of residences.”). Balancing the privacy interests at stake against the scope of a government intrusion is a standard feature of Fourth Amendment analysis, and depending on context “the balance between governmental and privacy interests [may] shift[] enormously.” See Lichtenberger, 786 F.3d at 487.

Two examples will help illustrate the thrust of the substantial certainty inquiry. United States v. Bowman, 907 F.2d 63 (8th Cir. 1990), is a paradigmatic example of facts under which a reasonable officer would be substantially certain of what he will find in an unopened container. In Bowman, employees of a private airline opened a suitcase and found five identical bundles. Id. at 64. They opened one bundle and found a kilo of cocaine. Id. And they contacted a federal agent, who opened the remaining bundles and found cocaine in each one. Id. Citing Jacobsen, the Eighth Circuit held that the private search doctrine applied. The court found that “[t]he presence of the cocaine in the exposed bundle spoke volumes as to the contents of the remaining bundles—particularly to the trained eye of the officer.” Id. at 65 (internal quotation marks omitted). Contrast Bowman with the facts of Runyan: in that case, more than forty computer disks were found surrounding one computer. Runyan, 275 F.3d at 453. Nothing on the outside of any disk indicated its contents. Id. at 464. The private searchers examined some of the disks, and found child pornography. Id. at 453. The court held that the government violated the Fourth Amendment by examining every disk, since “the mere fact that the disks . . . were found in the same location” as disks containing child pornography was “insufficient to establish with substantial certainty that all of the [disks] contained child pornography.” Id. at 464.

We think that only with respect to the Stock Tips folder, this case is much closer to Bowman than it is to Runyan. The CPP e-mail was located in the Stock Tips folder. We hold that at the time she opened the CPP e-mail, a reasonable officer in Detective Woodward’s position would have been “substantially certain” that each of the as yet unopened e-mails in that folder would contain illicitly obtained inside information relating to publicly traded companies. See Runyan, 275 F.3d at 463.

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As an initial matter, the Stock Tips folder was clearly meant to segregate out a particular type of information. The label—denoting the sort of information stored there—was visible to Detective Woodward through the e-mail client’s interface before she ever viewed the folder’s contents. Detective Woodward also could tell upon opening the folder, as Rainden had, that it only contained a small number of e-mails. Rainden also informed Detective Woodward prior to Woodward’s examination that the Stock Tips folder held only about ten e-mails. This would have suggested to a reasonable officer in Detective Woodward’s position that the folder was used narrowly for collecting a certain type of illicit information. Unlike the General Inbox folder, which plainly served as a catchall repository for hundreds of e-mails, Detective Woodward had every reason to believe that the Stock Tips folder was used to store a narrow, homogenous group of messages.

Moreover, Detective Woodward knew the contents of the five e-mails in the Stock Tips folder that Rainden had opened. That information gave her significant additional reason to believe that the tips contained therein were in fact illegally obtained as part of an ongoing scheme to commit insider trading. Detective Woodward could recognize—particularly given her training in investigating securities crimes—that each e-mail followed a consistent pattern. Each one was sent from a corporate e-mail address, from a corporate insider, and contained information about that insider’s corporation that would be material to its stock price. A reasonable officer would have had to conclude—as Detective Woodward did—that Skrelly retained each of these e-mails in furtherance of insider trading.

Of course it is true, as the dissent points out, that none of the e-mails read by Rainden were—like the cocaine in Jacobsen and Bowman—contraband on their face. The relevant folder was not labeled something along the lines of “Hot Insider Trading Details.” And the portions of the e-mails visible before they were opened gave no indication that they were sent in exchange for anything, or that they were non-public, or that they were ever traded on. And of course, without those conditions being met, there is no crime and therefore no contraband—mere possession of nonpublic information is not a federal crime. Therefore, the dissent argues, Detective Woodward could not have concluded with any certainty that the remaining five e-mails would contain nothing but contraband.

The dissent reads Jacobsen and Bowman too narrowly. It is true that objects that are contraband on their face traditionally receive no Fourth Amendment protection from seizures, see, e.g., Texas v. Brown, 460 U.S. 730, 737 (1983) (holding that materials may be seized without a warrant when it is “immediately apparent” that it they are contraband), but even assuming that the same rule applies for searches, there is no indication in the case law that it is the exclusive rule. And nothing in Jacobsen’s reasoning confines it only to situations in which the police are certain that contraband is inside a container. Jacobsen’s reasoning sweeps broadly to circumstances in which the police are substantially certain of what they will find, whatever it may be. And while we could envision this broad sweep troubling us in a different case, it does not here, where Detective Woodward’s search was so clearly directed towards legitimate criminal investigation.

We think that Detective Woodward was in a position to be quite certain of what she would find in the Stock Tips folder. And in light of the diminished privacy interests at stake, we think that she was substantially certain. Ex ante, the likelihood that Detective Woodward would find information of an especially intimate nature in the folder was small. The computer was

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Skrelly’s work computer—unlike the cell phone in Riley, there was no reason to expect that it would contain information on the entire sweep of Skrelly’s personal life. And the e-mail account receiving and holding the challenged e-mails was a professional e-mail account. Moreover, although Detective Woodward knew from Rainden’s search of the General Inbox folder that Skrelly did in fact receive some personal e-mails on that account, a reasonable officer would not have expected personal e-mails to be placed into a folder named “Stock Tips.” We think all of this also differentiates the Stock Tips folder from the unopened disks in Runyan, which gave no exterior indication of their contents. Of course, it is true that Detective Woodward did find an intimate e-mail—discussing an affair—in the Stock Tips folder. But we don’t think this has any bearing on her knowledge at the time of the search—when her certainty is tested. Jacobsen, 466 U.S. at 115. No reasonable officer could or should have expected that e-mail to be present, in light of all the other known facts.

In light of the non-intimate nature of the information she had every reason to expect to find, we hold that Detective Woodward was “substantially certain” that further examination of the Stock Tips folder would only uncover more evidence of insider trading. Her examination was therefore within the scope of Rainden’s private search. So even if our container analysis above did not hold, we would nevertheless affirm the district court’s decision to admit the CPP e-mail.

III. Insider Trading Liability

Skrelly has also asked us to reconsider this circuit’s law of tippee liability in light of the Second Circuit’s recent decision in United States v. Newman, 773 F.3d 438, 445 (2d Cir. 2014), cert. denied, 136 S. Ct. 242 (2015), and order a judgment of acquittal as to Count One. Skrelly argues that, as a matter of law, the government’s evidence of a personal benefit accruing to Stump was insufficient to support that conviction. We review a district court’s decision on a Rule 29 motion de novo. United States v. Reyes, 302 F.3d 48, 52–53 (2d Cir. 2002). “[A] judgment of acquittal on the grounds of insufficient evidence [is proper] only if, after viewing the evidence in the light most favorable to the prosecution and drawing all reasonable inferences in the government’s favor [the district court] concludes that no rational trier of fact could have found the defendant guilty beyond a reasonable doubt.” Id. at 52 (citing Jackson v. Virginia, 443 U.S. 307, 318–19 (1979)).

This case thus presents two issues of first impression in the Thirteenth Circuit. First, we consider whether holding a tippee liable for insider trading requires the tipper receive something of value in exchange. We hold that it does not under the gift theory. Next, we consider whether the relationship at issue here supports a conviction here under the gift theory. We hold that it does.

A. Section 10(b) and Deceptive Devices

Section 10(b) of the Securities and Exchange Act of 1934 authorizes the Securities and Exchange Commission (SEC) to adopt rules that prohibit deceptive conduct. 15 U.S.C. § 78j(b) (2012); United States v. O’Hagan, 521 U.S. 642, 651–52 (1997); Newman, 773 F.3d at 445. Although the text does not specify what constitutes deceptive conduct, trading on such inside

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information constitutes utilizing a prohibited “deceptive device.” See Chiarella v. United States, 445 U.S. 222, 226–30 (1980); O’Hagan, 521 U.S. at 651–52.10

B. Understanding the Exchange and Gift Theories

Not all disclosures by those with inside information result in liability. The law does not “require equal information among all traders.” Id. at 657. By the same token, not every trade by a tippee with nonpublic information is unlawful, as the Dirks opinion distinguishes among lawful trades on either mistakenly disclosed information or information not disclosed for an improper purpose, and unlawful trades on information disclosed for personal benefit. Id. at 658–59. Thus, the operative question is “whether the insider personally will benefit, directly or indirectly, from his disclosure.” Id. at 662. Without a personal benefit, there “has been no breach of duty,” id., and thus, there can be no derivative liability to the tippee. Courts have identified what constitutes a personal benefit by separating two distinct categories.

The first category we will call the “exchange theory.” Under the exchange theory, a personal benefit is defined as “a pecuniary gain or a reputational benefit that will translate into future earnings.” Id. at 663. It operates as a simple quid pro quo where one party gives a tip in exchange for some identified benefit. That this qualifies as a personal benefit is relatively straightforward and uncontroversial. As the dissent notes, the paradigmatic example would be exchanging the tip for money, or another tip. See United States v. Jiau, 734 F.3d 147, 150 (2d Cir. 2013).

The second category, which we accept as truly separate, we will call the “gift theory.” Under the gift theory, “[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend.” Dirks, 462 U.S. at 664. In invoking the language of gift, this theory is based on the nature of the relationship which inherently gives rise to a personal benefit. See id.; see also United States v. Salman, 792 F.3d 1087, 1092 (9th Cir. 2015) (analyzing the fraternal relationship between brothers and concluding it was sufficient to give rise to liability, even without an exchange). It seems obvious to us that separating the two theories is the correct understanding of the Dirks opinion. Not only is the language in the opinion clear and deliberate, but the need for this as a separate theory is clear as individuals often support families and friends in ways that are tough to define as strictly utilitarian, but should still run afoul of insider trading laws.

Still, in adopting this view, it is notable that the Dirks opinion squarely rejected the SEC’s argument that receiving material, non-public information should create a fiduciary duty on the part of the recipient, the tippee. Id. at 655–56; see also Chiarella, 445 U.S. at 235.11 The

10 Of course, liability for securities fraud also requires proof that the defendant acted with scienter, which is defined as “a mental state embracing intent to deceive, manipulate or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). Further, for a criminal violation of the securities laws, the government must show that the defendant acted “willfully.” 15 U.S.C. § 78ff(a). Skrelly does not raise this issue on appeal. 11 The dissent accuses that today we allow the government “to assume a duty exists for all recipients of gifts of material nonpublic information.” Post at 31 (Poliwrath, J., dissenting). We specifically reject that notion. The government needs to prove a personal benefit under either the exchange theory or the gift theory, which still ultimately requires a showing of some close relationship. Admittedly, there may remain work to identify the contours of what kind of personal relationship matters in demonstrating a personal benefit under the gift theory. But

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Court today is careful to avoid upsetting that rule. Thus, even if there are concerns for prosecutorial overreach that animates the dissent, this is the only way to read the Dirks opinion and effectuate these separate ideas and safeguard the protections provided by the law of insider trading.

C. Newman and the Second Circuit

Today, Skrelly is asking us to say that corporate insiders are free to trade information that they know full well will result in insider trading, as long as they do so with a wink and a nudge but no other immediate, tangible compensation. Skrelly acts as if there were no such things as long-term favors in business dealings. Specifically, Skrelly urges us to adopt our sister-circuit’s holding in Newman that would eliminate liability under the gift theory, arguing in essence that any other outcome provides the prosecution too much discretion. In Newman the Second Circuit recharacterized what constitutes a “personal benefit.” Because the Second Circuit is well versed in securities law issues, we carefully observe developments of the law in that circuit. See Morrison v. National Australia Bank Ltd., 561 U.S. 247, 260 (2010) (noting that court’s “preeminence in the field of securities law”). Newman had two holdings. The first is that the prosecution must prove the tippee had knowledge of the tipper’s personal benefit. Id. at 448. Skrelly does not contest this issue. The second holding is that a personal benefit requires an “exchange that is objective [and] consequential.” Id. at 452.

The court in Newman reversed the conviction of two investment professionals, who were several steps removed from the initial tippers on whose tips they traded. 773 F.3d at 455. Because of the remoteness between the traders and the initial tippers, the government could not prove the trader’s knowledge of the tipper’s personal benefit. This should have been the end of the inquiry. Id. at 447. Instead, the court went further and evaluated the initial tipper’s potential personal liability. The court characterized the tipper’s benefit as simply receiving career advice among old business school classmates. Id. at 451. The court concluded that this was insufficient to constitute a “personal benefit.” Id.

Newman’s second holding collapses the gift theory into the exchange theory. 773 F.3d at 449 (“Dirks clearly defines a breach of fiduciary duty as a breach of the duty of confidentiality in exchange for a personal benefit.”). This collapse of the two would limit the gift theory to a specific type of exchange: the tip for “any reputational benefit that will translate into future earnings and the benefit one would obtain from simply making a gift.” Id. at 452. Thus we decline to follow the Second Circuit, and reject Skrelly’s reasoning on this point.

Notably, the statements are also dicta, because the analysis comes after holding that the government did not prove the traders knew if the tippers received a personal benefit at all—regardless of how it was defined. Thus, it did not need to redefine personal benefit as precisely as it did. See Newman, 773 F.3d at 452. Even if the court had correctly reached the issue, we find the argument unpersuasive as against both the language and import of Dirks.

There are further flaws with Skrelly’s reliance on the Second Circuit’s reasoning. To define a personal benefit as always requiring the exchange of a tangible benefit requires us then

this is nothing new. Indeed, the Dirks Court recognized this difficulty, 463 U.S. at 664 (“Determining whether an insider personally benefits . . . will not always be easy for courts.”), but that is precisely what the common law is for.

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to ask: how much of a benefit or how far into the future do we look? Imagine a network of three individuals who share stock tips: A shares tips with B, and B with C, and C with A. Although this might be an easy case to still find liability, what happens when that network grows, such that the intermediate persons never share information with the initial tipper? The benefits do not lessen if the network is bigger—indeed they might even grow—but a theory requiring a measurable benefit would make it easy to engineer schemes to avoid liability. Equally problematic, following Newman would require us to consider the potential of a relationship for future gain. 773 F.3d at 452. But Newman does not give a timeline on how far into the future we would need to examine.

The gift theory is an important alternative avenue of liability for prosecutors that we cannot easily dismiss. First and most obviously, we are obligated to follow Supreme Court precedent. In Dirks, the Court would not have used gift theory language and contrasted it with the exchange theory if it did not have some independent meaning and policy importance to the Court. A gift could not be more different from a “pecuniary gain.”12 This is why other courts treated them as entirely separate and independently viable theories, illustrated by the use of the conjunction “or.” E.g., Yun, 327 F.3d at 1275 (“A reputational benefit that translates into future earnings, a quid pro quo, or a gift to a trading friend or relative all could suffice to show that the tipper personally benefitted.” (emphasis added)); see also SEC v. Rocklage, 470 F.3d 1, 7 n.4 (1st Cir. 2006) (“[T]he mere giving of a gift to a relative or friend is a sufficient personal benefit.”).13

Second, Newman defines liability for tips in certain relationships where the loopholes are the most obvious: family and friends. The only other circuit to have weighed in directly on the gift theory after Newman rejected the narrow reasoning by the Second Circuit it due to these concerns. The Ninth Circuit considered the Newman decision in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), but concluded that the sibling relationship at issue in that case did not require an identifiable benefit in order for liability to be imposed. Id. at 1093. In so holding, the Ninth Circuit explained “to the extent Newman can be read to go so far, we decline to follow it.” Id.14

Our consideration of these cases leads us to conclude that classifying as a “personal benefit” non-pecuniary or tangible gifts in certain personal relationships is a better understanding of the law. That is, evidence sufficient to show or infer a close relationship between the tipper and tippee is sufficient under the gift theory of liability. Accordingly, we reject Newman and AFFIRM the district court.

12 Compare GIFT, Black’s Law Dictionary (10th ed. 2014) (“1. The voluntary transfer of property to another without compensation. 2. A thing so transferred.”), with QUID PRO QUO, Black’s Law Dictionary (10th ed. 2014) (“An action or thing that is exchanged for another action or thing of more or less equal value.”). 13 Even the Second Circuit itself, in an earlier case addressing a different insider trading issue, specifically separated the two theories. See Obus, 693 F.3d at 285. 14 The dissent claims the majority of other circuits to consider the gift theory follow Newman in limiting it. But Newman was the first to truly address this issue. Excepting Salman, which specifically chose not to read Newman as to require exchanges in every instance, 792 F.3d at 1093, the other cases did not address this point and actually consistently note the liability arising from a gift as a separate theory. See Yun, 327 F.3d at 1277; SEC v. Maio, 51 F.3d 623, 632–33 (7th Cir. 1995).

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D. Is There a Personal Benefit in This Relationship?

In holding that, for tips given to individuals in certain relationships, the gift theory does not need an exchange for a pecuniary or like value, the remaining question is whether the relationship between Skrelly and Stump is sufficient to create a personal benefit to Stump and thus to support liability. The Court notes at the outset that the dissent’s concern for governmental overreach is adequately policed in this inquiry.

The nature of the relationships in previous cases scarcely need exposition to understand how benefits would accrue to the tipper. Salman, 792 F.3d at 1093 (roommates); SEC v. Payton, 97 F. Supp. 3d 558, 564 (S.D.N.Y. 2015) (husband and wife and roommates); SEC v. Sekhri, No. 98 CIV. 2320 (RPP), 2002 WL 31654969, at *2 (S.D.N.Y. Nov. 22, 2002) (father-in-law); SEC v. Maio, 51 F.3d 623, 627 (7th Cir. 1995) (close friends who recommended job, offered loans); SEC v. Sargent, 229 F.3d 68, 77 (1st Cir. 2000) (friends who gave job referrals to one another).

The relationship here superficially seems dissimilar to all of those. Before this round of golf, Stump and Skrelly had never met. They did not work in the same city nor were they even friends of friends. But they were not so obviously unconnected either, such as a relationship between a barber and his client who provides the tip. See SEC v. Maxwell, 341 F. Supp. 2d 941, 948 (S.D. Ohio 2004). Further, there are reasons to think Stump might seek a form of intangible goodwill from Skrelly in the future. After all, Stump was about to become the face of a crashing Fortune 500 company and would sorely need goodwill from others who might one day be called upon, formally or informally, to support his next venture. It would be odd to force the government to wait to prosecute Skrelly until Stump cashed in on this favor, when the harm from the prohibition—the insider trading itself—was long completed.

Even if that is not the case, there is no doubt, especially in light of recent financial history, that there exists a fraternity amongst these “trading friends.” Although Skrelly and Stump might have met at an exclusive golf club, it is their membership in the wider community of traders that gives us pause. We can see clearly that traders like Skrelly and Stump trade in information, and do so with the intent and expectation of continuing this asymmetry of information from the insiders and the general public. They had spent an entire day together, and exchanged e-mails after the fact following up on their outing—this is a sufficient genesis for a close relationship when it comes to tip-sharing. In fact, in many other instances Stump has paid for tips about his competitors. On this point, the dissent agrees and even notes that insiders and analysts build strong relationships of trust and confidence. This only strengthens our argument that it is fair to assume that there is an actionable “gift” here within the meaning of Dirks even without a formal exchange or waiting to see how the contours of the relationship grew. Understandably, there will always be a difference in knowledge between professional traders and the general public, but we should not work to increase those differences.

Granted, some economists are divided on whether the laws regulating insider trading promote efficiency in the market, which Skrelly argues should give us pause when increasing liability at the “margins.” Compare Saul Levmore, In Defense of the Regulation of Insider Trading, 11 Harv. J.L. & Pub. Pol’y 101, 103 (1988) (arguing that without disclosure requirements insiders will preserve their information advantage for as long as possible), with Robert A. Prentice & Dain C. Donelson, Insider Trading as a Signaling Device, 47 Am. Bus.

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L.J. 1, 4 (2010) (arguing that insider trading makes the market more efficient by introducing price information to the market). Similarly, others commonly note the lack of an “obvious victim” in insider trading cases. Peter J. Henning, What’s So Bad About Insider Trading Law?, 70 Bus. Law. 751, 763 (2015). But today’s case represents an easy choice to extend liability on this “margin” case. The alternative rule increases the burden on the government in all cases of insider prosecution. But to suggest, as the dissent does, that this will unnecessarily chill all legitimate trading ignores the realities of the fragile financial market of recent years. The economic vulnerabilities that these networks of traders create with improper conduct harm everyone but them. There are obviously gaps in our insider-trading prosecution regimen, given the movement in securities right before major announcements which might suggest issues like this occur more frequently than at the “margins.” See Patrick Augustin, Menachem Brenner & Marti G. Subrahmanyam, Informed Options Trading Prior to M&A Announcements: Insider Trading? 40 (May 2014) (unpublished manuscript), http:// irrcinstitute.org/pdf/Informed-Options-Trading_June-12-2014.pdf. This kind of movement threatens to de-incentivize the important work done by legitimate analysts when it is more profitable to find a shortcut.

These concerns come to light fully in the numerous e-mail tips that Skrelly trafficked in, showing a pattern of behavior the insider trading prohibition is meant to prevent. This was not a one-off interaction, but part of a larger network, and it indicates the problem that can grow out of such a network. This is fundamentally the type of “trading friend” envisioned in Dirks.

For these reasons, we AFFIRM Skrelly’s conviction.

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POLIWRATH, Circuit Judge, dissenting.

I. Fourth Amendment

Like the majority, I begin with the Fourth Amendment issue. Skrelly appeals from his conviction on two counts of insider trading. He challenges the district court’s decision to admit evidence—two e-mails discovered by Detective Woodward after Rainden’s private search—that is the only basis on which the jury could have found an essential element of each count. If the evidence was improperly admitted, the convictions obviously cannot stand. Unlike the majority, I conclude that the challenged e-mails were discovered in violation of the Fourth Amendment. The district court’s failure to suppress them was reversible error.

I agree with the majority that the controlling question here is whether the private search doctrine applies. And I join the majority—at least at a high level of generality—in adopting the Fifth Circuit’s basic framework for applying United States v. Jacobsen, 466 U.S. 109 (1984), when the police examine a collection of containers. See United States v. Runyan, 275 F.3d 449 (5th Cir. 2001). When police search a series of containers subsequent to a private search, they “exceed [its] scope . . . when they examine a closed container that was not opened by the private searchers unless [they] are already substantially certain of what is inside that container based on the statements of the private searchers, their replication of the private search, and their expertise.” Id. at 463.

I respectfully dissent, however, from the majority’s application of Runyan’s standard to the facts of this case. My colleagues give short shrift to our expectation of privacy in electronic devices, blithely analogizing the ever-expanding digital spaces in which our most private lives are stored to the suitcases and drug bundles of past cases. The majority simply fails to recognize that our world has changed, and that the Fourth Amendment must meet the challenge of the times.

A. E-mails are Containers

I begin my Fourth Amendment analysis with a question similar to the majority’s initial query: Were the challenged e-mails in a container in which Skrelly maintained at least some lingering privacy interest? This dissent is based on a simple premise: that e-mails themselves contain and conceal the information they transmit. This means e-mails should be containers even under the majority’s highly formalistic container analysis. Just as the e-mail folders inside the computer act as containers with a container, the e-mails in those folders also act as separate vessels for the information inside.

As explained by the majority, a container is “any object” “which conceals its contents from public view.” Ante at 8–9. This is a particularly low bar under the private search doctrine, which continues to protect any object until it is fully exposed. See Jacobsen, 466 U.S. at 116. The Jacobsen majority specifically noted that after the Fed-Ex employee opened the container the tube inside, it was “not entirely clear that the powder was visible to him.” Id. at 118. Before he could see it he (and later the DEA agents) may have needed to “brush[] aside a crumpled newspaper and pick[] up the tube” in order to look inside it. Id. at 119. Even such minute concealments forced Court to proceed to the second prong of the analysis, and consider if an

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expansion of the search was permissible because “the white powder was not itself in ‘plain view.’” Id.

The majority’s analysis falls far short of this requirement because e-mails in an inbox folder are not fully visible. The Supreme Court has “long … held that … ‘letters and sealed packages of this kind in the mail are as fully guarded from examination and inspection, except as to their outward form and weight, as if they were retained by the parties forwarding them in their own domiciles.’” United States v. Van Leeuwen, 397 U.S. 249, 251 (1970) (quoting Ex parte Jackson, 96 U.S. 727, 733 (1877)). Accordingly, in the majority’s analytical framework, a letter would be considered a container. Suppose for a moment that instead of a computer Rainden had searched a briefcase and read dozens of the hundreds of letters inside. The majority must concede that in that situation, the government could read the letters that she opened but no more. The unopened letters would retain their Fourth Amendment protection.

This case is no different. At their core, e-mails are just that: electronic mail. Like letters, they are receptacles that contain and transmit information. And information itself is protected by the Fourth Amendment. See United States v. Jones, 132 S. Ct. 945, 949–53 (2012). Like letters, e-mails relay information to the intended recipient in such a way that others are not supposed to read it along the way.15 Until an e-mail is opened, the information inside is generally secret. If letters are containers, then so must be e-mails. That analogy alone should decide this case.

The majority contends that these e-mails are not containers, because anyone who bypasses the e-mail client’s password can open and see the subject, sender, date of transmission, and first sixty characters of each e-mail. But the password is a red herring since the question is concealment; even unlocked briefcases are protected by the Fourth Amendment. 16 The information provided about each e-mail by the client does not reveal its contents to the public in any sense meaningful for the Fourth Amendment. After all, every letter displays at least the recipient’s name, along with the date and location of postmarking. Moreover, senders know that this information will be visible on the face of an unopened e-mail. Anyone wanting to send a truly private message could use a nondescript subject line.

The best argument for the majority would be to analogize the sixty-character preview to the image thumbnails it briefly references from Tosti. See ante at 9. The majority does not explicitly draw this connection because it knows it cannot be sustained. Unlike photo thumbnails, e-mail previews do not reveal the entirety of an e-mail in miniaturized form. And persons e-mailing confidential information can place it deep enough in an e-mail that it will never appear in the preview, as one sender did in this case.17 Particularly conscientious senders can also encrypt their e-mails or password-protect their attachments, as one of Skrelly’s correspondents did here. Thus, even if a private searcher obtains some information about the content of an e-mail from the e-mail program, the message is not fully exposed as required by Jacobsen. Since part of it remains concealed, the e-mail itself remains protected by the Fourth

15 In fact, Skrelly was particularly conscientious about setting up his e-mail server such that it would be difficult for third parties to read it in transit. 16 Surely the majority would not contend that, were a locked suitcase opened by a private searcher wielding a lockpick, picked that lock, that the police would be free to open and read every sealed letter found inside. 17 See the anomalous e-mail in the stock tips folder.

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Amendment. Even Runyan, on which the majority relies, recognized that the exposure of illegally pornographic labels on film canisters “frustrated” the sender’s expectation of privacy “in part, but [did] not eliminate [it] altogether.” 275 F.3d at 459 (internal citation omitted). Similarly here the potential revelation of some private information inside an e-mail “d[oes] not simply strip the remaining unfrustrated portion of that expectation of all Fourth Amendment protection.” Walter v. United States, 447 U.S. 649, 658–59 (1980) (opinion of Stevens, J., joined by Stewart, J.).

One could argue that the suitcase full of letters scenario is a different matter because of the electronic nature of the communications here. Indeed it is. But the considerations arising from that distinction cut against the majority. The Supreme Court has recognized that warrantless searches of electronic communication devices pose such a significant threat to privacy that they must be authorized with the utmost care. See Riley v. California, 134 S. Ct. 2473, 2488–89 (2014). Specifically the Court was concerned by the vast amounts of highly private information on these devices such as locations visited, medical information, personal correspondence, and private photos. See id. at 2489–91 (discussing cell phones as a form of “microcomputer” which “could just as easily be called cameras, video players, rolodexes, calendars, tape recorders, libraries, diaries, albums, televisions, maps, or newspapers”). The Riley Court excluded cell phones from the scope of searches incident to arrest because the significance of the privacy interests at stake with respect to electronic devices transcended the original balancing which justified such searches of physical objects. Id. at 2484–85.

Accordingly in this case the electronic nature of the searches militates in favor of a narrow application of the private search doctrine’s container analysis.18 In fact the “extensive privacy interests at stake in a modern electronic [communication] device[s]” have lead several circuits to adopt a strict “file-by-file” approach to the private search doctrine. See, e.g., United States v. Lichtenberger, 786 F.3d 478, 485–87 (6th Cir. 2015) (citing Riley, 134 S. Ct. at 2473); see also United States v. Wicks, 73 M.J. 93, 102 (C.A.A.F. 2014), reconsideration denied, (C.A.A.F. Mar. 24, 2014); United States v. Carey, 172 F.3d 1268, 1273 (10th Cir. 1999). This approach provides a simple rule for law enforcement to follow: they can open any file (or e-mail) opened by a private searcher but no more (and no less). This approach easily maps on to private search cases involving electronic devices, including that of the e-mail inbox at issue here, and provides clear guidance for future cases.

A purely formalistic container analysis, that attempts to identify the precise portions of electronic storage systems that enclose objects or other containers, is unworkable. This case demonstrates the difficulty of determining which electronic arrangements of information conceal others and which ones do not. If Skrelly used an e-mail program that did not include excerpts from e-mails beyond the subject line, would the majority conclude that the e-mails were containers? Or, what if the e-mail folder was only accessible to users over the Internet? After a private party searched such a folder, could law enforcement search the whole folder, or only the e-mails that were sent to it before the search? See Wicks, 73 M.J. at 102 (noting that the container

18 The majority’s attempt to distinguish Riley as being about warrant exceptions which are different from this case is flawed. See ante at 9–10. Defendants have “reduced privacy interests” in searches incident to arrest so any protection applicable to them would apply more strongly to defendants like Skrelly. Riley, 134 S. Ct. at 2488.

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approach should be limited to “static storage containers”). And why does opening an e-mail client—exposing the subjects, senders, and excerpts of the first hundred e-mails—necessarily remove any privacy protection for the remaining e-mails? In the physical context, items in a container may remain unexamined by a private searcher but are still rendered visible once he or she opens it. But the e-mails at the bottom of a large e-mail box or folder are not visible until one clicks through several pages of indexing. See Marcus v. Rogers, No. A-2937-09T3, 2012 WL 2428046, at *5 (N.J. Super. Ct. App. Div. June 28, 2012). All of these variables make consistent application of a strict container analysis challenging. See Orin S. Kerr, Searches and Seizures in a Digital World, 119 Harv. L. Rev. 531, 556 (2005). It was disjunctures like these that persuaded the Supreme Court in Riley to hold a doctrine that justified a search of an arrestee’s pockets inapplicable to a search of his cell phone. 134 S. Ct. at 2489 (explaining that “any extension of [the traditional] reasoning to digital data has to rest on its own bottom”).

The majority also overlooks a particularly problematic technological disjuncture in this case. Files (including e-mails) that a user organizes into particular folders on a digital interface are rarely stored on the computer’s hard drive using the same organizational system. See United States v. Crist, 627 F. Supp. 2d 575, 585–86 (M.D. Pa. 2008) (noting that hard drives are composed of multiple disks mounted together and the act of open a files on one “represent[s]a discrete intrusion into a vast store of unknown electronic information”); Christos H. Papadimitriou, Turing (A Novel about Computation) 97 (MIT Press, 2005). In order to economize space used, hard drives typically spread related files across several disks—and then, when asked to by the user, locate them using its own behind-the-scenes indexing system—. Id. E-mails, and other frequently-modified folders, are particularly likely to be spread out on several disks. See Paul Rudo, The Biggest Disk Defragmentation Myths, Enterprise Features (June 28, 2011), http://www.enterprisefeatures.com/ the-biggest-disk-defragmentation-myths.

This technological reality opens a significant hole in the majority’s analysis. If Rainden did not read any e-mails stored on the same disk as the two contested e-mails, then she arguably never opened the container in which they lay. We could overlook this technological distinction and allow the search of related files (from the same folder) on another disk within the hard drive. But then how could we justify prohibiting government examination of vacation photographs from an entirely different folder, which happen to be stored on the same disk as the e-mails Rainden opened when those files are all actually in the same container? Ultimately, the more precisely we try to define the scope of an electronic container for Fourth Amendment purposes, the more the majority’s application of the private search doctrine to digital information collapses. Its supposedly pure formalism is built on a foundation of arbitrary simplifications.

Even if we accept the fiction of file folders as containers, the majority’s reliance on them as an organizing principle procedures anomalous results. Under the majority’s analysis, defendants who happen to organize their correspondence into folders receive more protection than those who rely on a general inbox (whose entire contents would lose all Fourth Amendment protection as soon as private searcher accesses a single file in it). Similarly, a file which a business user spuriously decides to sort into the company’s file system would be treated differently than if the same user had instead quickly saved it into their “My Documents” folder. The majority’s approach also provides more protection for experienced criminals, who are more likely to use obscure subfolders to hide illicit files, than innocents storing their files more

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traditionally. These organizational decisions by users do not reflect their expectations of privacy nor the actual physical arrangement of their information, and consequently provide no legitimate or fair basis for denying Fourth Amendment protection.

E-mails—not folders—are Fourth Amendment containers, and Detective Woodward plainly searched messages that Rainden did not. And because Detective Woodward could not possibly have been substantially certain of what she would find in those messages, that search violated the Fourth Amendment.

B. Insufficient Certainty

Standing alone, the conclusion that Detective Woodward thoroughly examined “containers” that Rainden had not even opened is sufficient to decide the Fourth Amendment issue with respect to the Sodreckso e-mail and require us to at least vacate Skrelly’s conviction as to Count One. The government concedes that no reasonable police officer in Detective Woodward’s position could have known the contents of the other 400-plus e-mails in the General Inbox folder with anything near “substantial certainty.”

But the CPP e-mail, which underlies Count Two, is a somewhat more troublesome beast. The government argues that it was entitled to examine the CPP e-mail because its contents were rendered obvious by the private search. This argument, we think, is at least colorable. Unlike the Sodreckso e-mail, the CPP e-mail was found in circumstances that were at least suggestive of its contents—the folder marked “Stock Tips.” But the Fourth Amendment does not allow the government to search unopened containers without a warrant whenever it has an inkling of what is inside. For the government to justify examining a container that a private searcher left untouched, the government has the burden of showing that it was “substantially certain” of what it would find. Runyan, 275 F.3d at 463; see also Jacobsen, 466 U.S. at 120 n.17 (“[T]he container could no longer support any expectation of privacy . . . [;] it was virtually certain that it contained nothing but contraband.”). Because the government has failed to meet its burden here, I conclude that Detective Woodward violated the Fourth Amendment when she examined the CPP e-mail.

What constitutes “substantial certainty”? And perhaps more importantly, what must the police be “substantially certain” that they will find for us to except them from the requirements of the Fourth Amendment? I think that the serious consequences of a “substantial certainty” decision requires that our answers to both of these questions erect a fairly high bar for the government to meet. Although in formal terms the private search doctrine is not described as a “warrant exception,” in practical terms that is exactly how it operates. By invoking the private search doctrine, the police avoid judicial oversight into their intrusion on effects that an individual sought to keep private. And if the doctrine is invoked wrongfully, the remedies available to the victim of a constitutional violation are limited. Incriminating evidence can be suppressed, and claims for money damages can be brought under 42 U.S.C. § 1983 or Bivens v. Six Unknown Federal Agents, 403 U.S. 388 (1971), but these are imperfect palliatives for a constitutional violation that cannot be undone.

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Because the stakes are so high, and because the applicability of the private search doctrine will for all practical purposes be judged by the officer on the scene, “engaged in the often competitive enterprise of ferreting out crime,” Johnson v. United States, 333 U.S. 10, 14 (1948), I think it better to err on the side of caution when formulating the standards by which it will be invoked. It is far too late in the day to change the formal rationale for the private search doctrine—that the government’s follow-on examination is no “search” at all—but we must uphold Fourth Amendment’s protection of privacy interests by enforcing Runyan’s commonsense limits to the doctrine. Little could erode its protections more than creating an expansive zone where they simply do not apply.

With this in mind, I would give Runyan’s second prong the following protective gloss: the police exceed the scope of a private search when they search a previously unopened container, unless, based on their replication of the original private search and their particular expertise, they are substantially certain that they will find nothing but contraband. This limitation—which I think is strongly suggested by the facts of Jacobsen and the other cases Runyan relies on, would provide sufficient protection for the Fourth Amendment interests at stake in the private search context without hamstringing the police when the lack of privacy interests remaining in a container is truly obvious.

Runyan relied on only two cases to illustrate when the police were “substantially certain” of what they would find in a particular container. See 275 F.3d at 462–63. And in both of those cases—Jacobsen, and United States v. Bowman, 907 F.2d 63 (8th Cir. 1990)—the police were not only certain that opening a container would yield something in particular, but were certain that it would yield contraband—cocaine. This is important because a substance’s or item’s status as “contraband” has a critical Fourth Amendment ramification—there is no privacy interest in the fact of possessing contraband. Jacobsen, 466 U.S. at 123–24 (citing United States v. Place, 462 U.S. 696 (1983)).

On at least this point, then, I agree with the majority that the concept of “substantial certainty” is to some degree sensitive to the particular privacy interests presented in each case. But unlike the majority, I do not think that “substantial certainty” is a free-floating inquiry inviting courts to arbitrarily declare certain types of information or conduct less “private” than others based on who knows what reasons. Rather, I think that the private search doctrine’s roots in cases involving overwhelming certitude that the police would find contraband tells us something important about when the privacy interests remaining after a private search are so low as to be nonexistent. Only in those—comparatively rare—circumstances do I believe it is appropriate to simply exempt police conduct from the reach of the Fourth Amendment by declaring it not to be a “search.”

In this case, Detective Woodward clearly could not have been “substantially certain” that she would only find contraband when she opened the CPP e-mail. After all, none of the e-mails that Rainden had opened were contraband, such that they could not support any expectation of privacy. Receiving corporate information from a corporate insider is hardly a crime. For it to be even an element of a crime, the insider information must be coupled with a number of other factual circumstances that, at the time of the government search, Detective Woodward did not know or have reason to know. To be sure, the e-mails uncovered by the private search would

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have justifiably raised suspicions. But we have a phrase for that in Fourth Amendment jurisprudence—probable cause to apply for a search warrant. Detective Woodward arguably had probable cause, but not the certainty I would find the Fourth Amendment requires in this kind of warrantless search.

And even if I agreed with the majority that law enforcement can search a container if officers are substantially certain it contains something other than contraband, I would still find that the search here violated the Fourth Amendment. Unlike the bundles of drugs at issue in Bowman and Jacobsen, the e-mail at issue here could have contained any information from a large and diverse array of innocuous material or subjects. The fact that it was grouped with e-mails that Detective Woodward knew contained one kind of information, in a folder labeled as such, is certainly relevant, and would have been a powerful fact in a probable cause affidavit. But it hardly establishes substantial certainty. After all, as Skrelly’s attempt to conceal evidence of his affair in a folder with an anodyne name shows us here, those labels and groupings can be manipulated.

I would hold that both challenged e-mails were obtained in violation of the Fourth Amendment.

C. Remedy

The next issue is whether or not that violation merits suppressing the e-mails at trial. Because neither the district court nor the majority here found a Fourth Amendment violation, neither considered the exclusionary rule. But that is just as well—its application here is obvious. This search violated the Fourth Amendment, and the government has made no argument that this case falls into one of the exceptions to the exclusionary rule. Further, the government has made no argument that the constitutional violation was harmless. I would therefore reverse the conviction.

II. Insider Trading Liability

On the personal benefit issue, the majority and I agree that the requirement of personal benefit to the tipper is essential for tipper–tippee liability under § 10(b) of the Exchange Act. 15 U.S.C. § 78j(b). However, I cannot accept the majority’s stance that tipper–tippee liability under the gift theory in Dirks v. SEC, 463 U.S. 646, 664 (1983), can arise from the relationship between Stump and Skrelly. First, the evidence in the case is insufficient to support a finding of personal benefit to Stump because, as a matter of law, the jury had to find that evidence showed Stump actually received—or expected to receive—a personal benefit. Second, even accepting the majority’s novel, liberal standard of a benefit, the evidence is insufficient to give rise to an inference of a personal benefit to Stump arising from his relationship to Skrelly.

A. The Correct Standard for Personal Benefit

At the onset, the majority mistakenly affirms Skrelly’s conviction based on the jury’s inference of a personal benefit to Stump, without substantial evidence to prove its existence. The error of a rule permitting a tippee’s conviction based on an inference, rather than actual evidence, of a personal benefit is evident given the nature of a tippee’s duty not to trade, precedent from other circuits, and the policy implications of such a rule.

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1. Fiduciary Principles Underlying Tippee Liability

As a legal principle, the liability of both tipper and tippee requires as an element the breach of a fiduciary duty. For the initial tippers, fiduciary duty is easier to prove.19 They are either corporate insiders who have a duty not to act to benefit themselves preferentially over their shareholders under the classical theory of insider trading, Chiarella v. United States, 445 U.S. 222, 228–29 (1980), or they are corporate outsiders who issuers entrust with confidential information who violate their fiduciary duties by trading thereon under the misappropriation theory of insider trading, United States v. O’Hagan, 521 U.S. 642, 652 (1997). Tippees, in contrast, bear no special relationship to the issuers in whose stock they trade. The Supreme Court thus held in Dirks that “a tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach.” 463 U.S. at 660. This is true regardless of which type of tip actionable under Dirks the tippee receives. Under the “exchange theory,” tippees may be liable if “there . . . [is] a relationship between the [tipper] and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the particular recipient.” Id. at 664. Neither party contends that this theory is applicable in this case—no evidence in the record suggests a quid pro quo. The other type of tip, applicable here, falls under the “gift theory,” which applies when an insider gifts confidential information to a trading relative or friend. Id. Here, “[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.” Id. The information given by Stump to Skrelly constitutes such a gift. But whichever theory applies, an imputed fiduciary duty is essential for conviction.

The majority and I agree that a personal benefit to the tipper constitutes a principled and vital limiting principle for tippee insider trading liability. Stump is certainly a fiduciary of Sodreckso, as he is a director. Gantler v. Stephens, 965 A.2d 695, 708–09 (Del. 2009) (holding explicitly that directors and officers alike bear fiduciary duties to the corporation). But Stump’s fiduciary duty does not transfer to Skrelly solely by virtue of the tip he gave Skrelly. Stump’s fiduciary duty does transfer to Skrelly if Stump receives a personal benefit from the tippee under the exchange theory—in other words, when the tipper has made a tip for an improper purpose. On this issue, I disagree with the majority’s conclusion that a sufficiently close relationship can, on its own, give rise to an inference that the tipper received a personal benefit.

Tipper personal benefit is an appropriate limiting principle for tippee liability under § 10(b) and Rule 10b-5. A fiduciary duty is a “duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.” Restatement (Second) of Torts § 874 cmt. a (1979). When a tipper acts to impart a benefit to himself personally at the expense of the company, he violates his duty. Where the tipper has disclosed such nonpublic information to a tippee, not only is the tipper potentially liable, but his duty not to trade and possible liability should he do so also transfer to the tippee. Dirks, 463 U.S. at 659 (“[T]he tippee’s duty to disclose or abstain is derivative from that of the insider’s duty.”). So far, so good.

19 At least one other circuit has noted that a tipper may breach his duty for the purposes of tippee’s liability even if the tipper was not convicted or found civilly liable, or if his conviction or liability was reversed. See United States v. Evans, 486 F.3d 315, 319 (7th Cir. 2007). The majority and I both agree with the Seventh Circuit on this point.

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However, the inquiry does not end here. Courts should be cautious in finding that individuals who have no meaningful relationship to a company inherit from tippers derivative fiduciary duties not to trade, especially in light of the severe penalties that persons who violate such duties may face under securities laws. See 15 U.S.C. § 78ff(a) (imposing penalties of up to $5 million or 20 years’ imprisonment for criminal violations of the Exchange Act). In practice, the presence of derivative fiduciary duties is the sole factor that renders a tippee’s trade based on a tip of material nonpublic information illegal—the thin line between liable tippees and any other trader of the very same stock. E.g., Chiarella, 445 U.S. at 233 (noting that there is no “general duty between all participants in market transactions to forego actions based on material nonpublic information”). It defies logic, then, to affirm Skrelly’s conviction based solely from the inference of a personal benefit arising merely from the fact of the relationship between him and Stump. That part of a brief, overheard sauna conversation such as in this case can give enough information to assume that a tipper received or will likely receive a personal benefit from the tippee is ridiculous.

The majority asserts that requiring a showing of actual or potential personal benefit eliminates the distinction between the gift and exchange theories in Dirks. Yet by denying the applicability of legal standards of evidence from the personal benefit requirement, the majority eviscerates the analysis of the very essence of a tippee’s liability. If a relationship of the type described here automatically gives rise to a personal benefit, there is precious little a tippee can do to establish that no personal benefit actually did accrue to the tipper—and thus, precious little a tippee can do to avoid liability. This contravenes the logic of Dirks, which deliberately kept narrow the scope of tipper–tippee liability. Virtually anyone who receives a tip of information and trades on that basis, regardless of whether they had a relationship with a company or its insiders or outsiders, faces severe sanctions under the majority’s rule.

To be sure, there are ways of maintaining the distinction between Dirks’ exchange and gift theories of liability other than by de facto eradicating the personal benefit requirement. A paradigmatic example of tipper–tippee liability arising out of an exchange is where two parties with insider information expressly trade tips about stock in which each is privy to nonpublic information, and for which tips one party gives presents to another. E.g., United States v. Jiau, 734 F.3d 147, 153 (2d Cir. 2013) (finding a tippee liable where she gave her insider tipper presents and tips regarding different stocks in exchange for insider stock tips). In contrast, a gift may occur where a tippee provides no temporally proximate compensatory benefit to the tipper for a tip of insider information, but where the tipper generally receives personal benefits from the tippee over the course of a protracted personal relationship between the two. E.g., United States v. Salman, 792 F.3d 1087, 1094 (9th Cir. 2015) (tippee liable where his “personal benefit” arose from the mutually-beneficial relationship he had with the tipper, his brother-in-law). The personal benefit requirement is flexible enough to sanction truly liable tippees, whether the tipper receives a “pecuniary” personal benefit or something more “reputational.” SEC v. Obus, 693 F.3d 276, 285–86 (2d Cir. 2012) (citing Dirks, 463 U.S. at 663–64). Whichever way this court construes the requirement of a personal benefit, it should not do so in a way that renders the requirement a nullity.

2. The Standard in Other Circuits

In addition to abandoning the foundations of securities law, the majority’s rule diverges from most circuits on the prosecution’s burden of proof for establishing a personal benefit. The

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majority of the circuits have not merely mentioned, but also relied on, actual evidence of personal benefit to convict tippers and tippees under Dirks’s gift theory—not a mere inference of a personal benefit from the tipper–tippee relationship. Both the Seventh and Eleventh Circuits have sustained tippees’ convictions based on evidence offered specifically to prove that the tipper had actually received or had an expectation of a personal benefit. The Seventh Circuit did so in the civil misappropriation case SEC v. Maio, 51 F.3d 623 (7th Cir. 1995). In particular, the Seventh Circuit examined facts indicating a personal benefit beyond those facts establishing that a relationship existed between the insider tipper and the two tippees: a history of favors between the parties, the timing of the parties’ telephone conversations and the suspect stock sales, and the absence of any legitimate business justification offered by the tipper for his disclosures. Id. Likewise, the Eleventh Circuit held in SEC v. Yun, 327 F.3d 1263 (11th Cir. 2003), that “the SEC must prove that a misappropriator expected to benefit from the tip.” Id. at 1275.20

The case on which the majority most heavily relies, United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert denied, 136 S. Ct. 242 (2015), also affirms the Seventh and Eleventh Circuits’ position. The Newman court could not be more explicit:

To the extent Dirks suggests that a personal benefit may be inferred from a personal relationship between the tipper and tippee . . . we hold that such an inference is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.

Id. at 452. The relationship itself is not sufficient—the prosecution must show that it generated an actual or potential personal benefit. The majority dismisses this language, claiming that the Second Circuit’s alleged adoption of this standard was dicta. But Newman shows otherwise: “[T]he Government had to prove beyond a reasonable doubt that [the tippees] knew that the tippers received a personal benefit for their disclosure.” Id. at 450–51 (emphasis added). The Second, Seventh, and Eleventh Circuits therefore agree that actual or potential personal benefit must be proven by evidence, not merely inferred from a relationship. The majority’s holding contradicts the reasoned decisions of these circuits.

Only the Ninth Circuit might join the majority’s decision today. In United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), that court explicitly disagreed with the Second Circuit’s understanding of Dirks: “[Defendant] Salman reads Newman to hold that evidence of a friendship or familial relationship between tipper and tippee, standing alone, is insufficient to demonstrate that the tipper received a benefit. . . . To the extent Newman can be read to go so far, we decline to follow it.” Id. at 1093. But Salman’s mere recentness is not reason enough to depart from the sounder reasoning in Maio, Yun, and Newman. To the extent the decisions of other circuits guide this court, it is worth noting that three of the four circuits that have dealt with the proper standard issue have rejected the majority’s inference rule. Furthermore, if any circuit 20 While the case before us concerns an insider tipper, the Yun court correctly noted that:

[T]here is no reason to distinguish between a tippee who receives confidential information from an insider . . . and a tippee who receives such information from an outsider. . . . In either case, the tippee is under notice that he has received confidential information through an improper breach . . . [a]nd should the tippee nonetheless trade on the confidential information, his potential liability would not vary according to the theory . . . under which the case is prosecuted.

327 F.3d at 1276. Both the majority and dissent in this case are similarly convinced.

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should receive deference for its expertise in securities laws, it is the Second Circuit—as the majority readily acknowledges. Thus, this circuit should have adopted a requirement that the prosecution prove actual personal benefit to the tipper to sustain a tippee’s conviction under § 10(b).

3. Consequences for Securities Markets

Finally, to maintain functioning securities markets, the personal benefit requirement must be a meaningful threshold for § 10(b) prosecution in light of vigorous—if not overeager—enforcement of securities laws since the 2008 financial crisis. In recent years, the SEC and the DOJ have been unduly aggressive in seeking to punish any and all trades that appear to have been made based on an informational advantage, regardless of the strength of a defendant’s duties not to do so. See Susan B. Heyman, Rethinking Regulation Fair Disclosure and Corporate Free Speech, 36 Cardozo L. Rev. 1099, 1116–19 (2015) (giving a general overview of recent SEC and DOJ enforcement in this area); Morrison & Foerster, LLP, 2014 Insider Trading Annual Review, 17–34, http://www.mofo.com/~/media/Files/ClientAlert/2015/02/150211InsiderTradingAnnualReview.pdf (listing SEC enforcement activities and criminal prosecutions in 2014, including outcomes). To be sure, such enforcement activity is a laudable response to the recent market collapse and recession, which was driven in no small part by indiscretions of corporate insiders and outsiders alike. See, e.g., Christopher P. Montagano, Note, The Global Crackdown on Insider Trading: A Silver Lining to the “Great Recession,” 19 Ind. J. Global Legal Stud. 575 (2012). The government is under immense public pressure to punish those responsible for the economic crisis and to prevent future recurrences by enforcing securities laws.

However, given its roots in the laws of derivative fiduciary duties, insider trading should be narrowly limited to truly culpable behavior. Professor Jonathan Macey has noted that recent upticks in insider trading prosecutions have been based on “vague conceptions of fairness,” rather than the purpose of securities laws in maintaining a functioning market. An Insider-Trading Watershed, Wall St. J. (Dec. 12, 2014), http://www.wsj.com/articles/jonathan-macey-an-insider-trading-watershed-1418342567. He lauded the Second Circuit’s Newman decision as “a game-changer. . . signal[ing] to prosecutors that they cannot bring flawed cases and then hide behind the excuse that the law is vague.” Id. I agree. To allow the SEC and DOJ to prosecute without actual evidence of a personal benefit is to permit the government to assume a duty exists for all recipients of gifts of material nonpublic information—a duty whose assumed existence the Court has repeatedly rejected in tipper–tippee cases. See O’Hagan, 521 U.S. at 661; Chiarella, 445 U.S. at 233.

Moreover, the heightened burden of proof on the issue of personal benefit is absolutely vital to protect communications between insiders and financial analysts. These communications are not merely innocuous; they are essential for facilitating securities-market transactions. Market analysts are indispensable in a properly functioning securities market because they provide publicly consumable information for market participants to trade on. Heyman, 36 Cardozo L. Rev. at 1129. Indeed, the well-being of the securities markets relies on the proper pricing of all stocks, which itself relies on the accuracy by which the price of a stock represents the value of the company in which it represents an ownership interest. That price is determined by individual market participants’ decisions to buy and sell stock. The more informed market participants’ decisions are, the more efficient their decisions to sell and buy, and the more the

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resulting price accurately represents the company’s true value. See, e.g. Bruce G. Carruthers & Arthur L. Stinchcombe, The Social Structure of Liquidity: Flexibility, Markets, and States, 38 Theory & Soc. 353, 353 (1998) (noting the necessity of knowledgeable buyers and sellers for the existence of an efficient, liquid market). For all of this to happen, analysts must talk to insiders about some material non-public information.

The Supreme Court in Dirks recognized the value of analysts:

[T]he role of market analysts . . . is necessary to the preservation of a healthy market. It is commonplace for analysts to “ferret out and analyze information,” and this often is done by meeting with and questioning corporate officers and others who are insiders. And information that the analysts obtain normally may be the basis for judgments as to the market worth of a corporation's securities. . . . It is the nature of this type of information, and indeed of the markets themselves, that such information cannot be made simultaneously available to all of the corporation's stockholders or the public generally.

463 U.S. 646, 658–59 (1983) (internal citations omitted). For example, hedge fund managers use “legitimate financial modeling” to determine how a company will perform, and whether to invest in it. Newman, 773 F.3d at 454. For their models to be accurate and useful for themselves and for the market, they must check their assumptions—which are based on nonpublic data from insiders. These “tips” are certainly not illegal—and indeed are valuable—unless insiders and, for longer tipper–tippee chains, analysts, actually gain from them.

The practical danger of the majority’s rule is that it discourages analysts and insiders from forming personal relationships with each other—personal relationships that inevitably form in the context of repeated interactions, and which help build trust and confidence between company insiders and market analysts. Without requiring proof of an actual or prospective personal benefit, tipper-tippee liability is essentially strict liability for insiders and analysts who discuss anything business-related with their friends, if those friends trade on their stock. See Stephen Bainbridge, Insider Trading at the Supreme Court: With Newman down, will Salman go?, ProfessorBainbridge.com (Oct. 9, 2015), http://www.professorbainbridge.com/professorbainbridgecom/2015/10/insider-trading-at-the-supreme-court-with-newman-down-will-salman-go.html. For all of the above reasons, the majority’s standard is not—and cannot—be good law.

B. Is There a Personal Benefit under the Inference-Based Standard?

Further, I disagree that Skrelly’s conviction could be sustained even if, as the majority would have it, an inference of a personal benefit to Stump arising from a sufficiently close relationship is all that is required under Dirks. As the majority notes, this case is one of first impression in this Circuit. As such, we look to the law of other circuits as persuasive, though not binding, authority on the sufficiency of the evidence. Even if this court was correct that the leading cases in other circuits adopted an inference-based rule, the facts in our case simply do not provide substantial evidence to support an inference of personal benefit.

The facts before us are clearly distinguishable from the extreme case where a relationship is so close as to almost invariably give rise to such an inference: a tight-knit family relationship. Such was the case in the Ninth Circuit’s Salman decision. There, defendant Bassam Yacoub

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Salman mirrored his brother-in-law Michael Kara’s trades at the latter’s encouragement. Salman, 792 F.3d at 1088–89. Michael based his own trades on information he received from his younger brother Maher Kara, an insider at the company in whose stocks he traded. Id. The evidence was more than sufficient to establish that Maher and Michael’s relationship was close and mutually beneficial—in other words, sufficient to give rise to an inference of actual and potential personal benefit to tipper Maher:

Michael helped pay for Maher’s college . . . stood in for their deceased father at Maher’s wedding, and . . . coached Maher in basic science to help him succeed at his job. Maher . . . testified that he “love[d] [his] brother very much” and that he gave Michael the inside information in order to “benefit him” and to “fulfill[ ] whatever needs he had.” For example . . . on one occasion, [Maher] received a call from Michael asking for a “favor,” requesting “information,” and explaining that he “owe[d] somebody.” After Michael turned down Maher’s offer of money, Maher gave him a tip about an upcoming acquisition instead.

Id. at 1089 (summarizing facts giving rise to a finding of personal benefit). As first-time acquaintances on a golf excursion, Stump and Skrelly have neither the long history nor the personal closeness of the Kara brothers in Salman.

Tippers and tippees need not be related by flesh and blood to give rise to an inference of personal benefit in a gift theory of tippee liability under the majority’s rule, but there must be some compelling proof of a personal relationship. Other circuits have affirmed convictions or civil liability for tippees who were part of covert networks of insider tippers who would exchange tips and other gifts, Jiau, 734 F.3d at 153, tippees who received tips from college friends, Evans, 486 F.3d at 319,21 tippees who shared office space and regularly interacted with tippers, Yun, 327 F.3d at 1268, 1280, tippees whose tippers both provided services for them and were personal friends, SEC v. Sargent, 229 F.3d 68, 72–73, 77 (1st Cir. 2000), and tippees who were family of the tipper’s personal friends, Maio, 51 F.3d at 627. Hence, Skrelly is not immune simply because he is not Stump’s relative.22

However, Skrelly’s relation to Stump is simply unlike any of the cases in which any other circuit has convicted tippees or found them liable. Assuming that the majority’s reading of the personal benefit rule in Newman is accurate, that same case is particularly instructive as to why no reasonable inference of personal benefit could arise from Stump and Skrelly’s relationship. The Newman court reversed the conviction of two remote tippees based on the insufficiency of personal benefit in the first link in the chain: between the initial tippers at Dell and NVIDIA and the first-degree intermediate tippees. 773 F.3d at 455. Skrelly and Stump have a less close relationship than Dell tipper Ray, and his first intermediate tippee Goyal. Id. at 452–54. Prior to

21 Analogously, at least one circuit has vacated summary judgment for a civil defendant where the defendant tippee was a college friend of the tipper. Obus, 693 F.3d at 280. 22 In these friendship relationships, though—and likely, too, in family relationships—the personal benefit inference is likelier to fall apart if the initial tipper is several steps removed from the defendant tippee. While the existence of such a relationship chain is not a barrier to liability or conviction, see, e.g., Maio, 51 F.3d at 627 (defendant was the friend of a family member of the original tippee’s personal friend), courts must find the inference for each step in the chain between the initial tipper and the defendant tippee. E.g., Newman, 773 F.3d at 453 (vacating remote tippees’ convictions based on no personal benefit between the initial tipper and the first intermediate tipper in a long tipper-tippee chain). Because Stump and Skrelly were in direct contact, this is not an issue here.

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the tip, Ray and Goyal knew each other from business school. Id. Stump and Skrelly met for the first time on the date of the tip. And what alleged personal benefit Goyal gave Ray over the course of their interactions—minor career advice, such as resume suggestions—did not give rise to an inference of personal benefit because that “benefit” was typical of what any fellow alumnus or business contact would give. Id. Here, nothing that Skrelly gave Stump even approaches that kind of “benefit.” Certainly, Skrelly’s “thank you” e-mail—the only fact in this case that could remotely support an inference of personal benefit—cannot suffice to give rise to an inference of personal benefit to anyone, much less to the person being thanked, i.e. the tipper Stump. If that qualifies as a personal benefit, I apparently have a sufficiently close relationship for tipper–tippee liability with every law student who applies to clerk for me.

If the relationship in this case falls short of Goyal and Ray’s relationship, which did not meet the personal benefit test in Newman, it would defy reason for us to accept a personal benefit inference in this case. Stump’s relationship with Skrelly is most analogous to that between NVIDIA tipper Choi and first-degree intermediate tippee Lim. Id. at 453–54. Both tipper–tippee pairs are “mere casual acquaintances”—hardly even construable as a relationship. Id. at 453. Lim testified that he did not provide anything of value to Choi, and did not know whether Choi was trading NVIDIA stock during the period in question. Id. While the record in Skrelly’s case does not contain similar testimony, the facts in this indicate that the contact between Stump and Skrelly can hardly be called a “relationship,” much less give rise to an inference of personal benefit to Stump. Consequently, even under the majority’s flawed rule, Skrelly’s conviction was not supported by substantial evidence.

III. Conclusion

It is a rare catastrophe that a court butchers the law and fumbles the facts in one go. But such a disaster has emerged from the majority today. By its misapplication of Fourth Amendment doctrine and its misinterpretation of securities law, the majority improperly upholds Skrelly’s conviction. The district court committed prejudicial error by admitting the e-mails in question in violation of the Fourth Amendment, and allowed Skrelly’s conviction for insider trading without substantial evidence. For these reasons, I dissent.

App. 1

APPENDIX

App. 2