United States v. Blackwell

Roger Blackwell (defendant) served on the board of Worthington Foods (WF), a small natural-foods company. In July 1999, Kellogg Company initiated negotiations to buy out WF, and the buyout occurred in October 1999. Between July and October, many of Blackwell’s friends and family members invested in WF stock. The National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) investigated the prebuyout investment activity. Blackwell told the NASD and SEC that he had not disclosed the Kellogg-WF buyout to anyone. The SEC also received testimony from Kristina Stephan-Blackwell, Blackwell’s then-wife, and the Stephans, Stephan-Blackwell’s parents. Stephan-Blackwell and the Stephans denied that Blackwell had given them insider information about the buyout. In 2003, Blackwell and Stephan-Blackwell separated. Stephan-Blackwell subsequently learned that the United States government (plaintiff) was considering prosecuting Stephan-Blackwell for insider trading and perjury. Stephan-Blackwell obtained an immunity deal from the government and admitted to conspiracy, insider trading, and perjury. The government also learned from Jack Kahl, another individual who had purchased WF stock, that Blackwell had told Kahl in September 1999 to buy WF stock because Kellogg was going to buy out WF. The government subsequently charged Blackwell and other individuals with insider trading and related offenses. At trial, Stephan-Blackwell testified that she had informed the Stephans and others about the Kellogg-WF buyout and encouraged them to buy WF stock at Blackwell’s suggestion. Stephan-Blackwell testified that she and Blackwell had given the Stephans money to purchase WF stock and that the Stephans used the money to purchase the stock. Stephan-Blackwell further testified that she and Blackwell had lied to the NASD and SEC and that Stephan-Blackwell had coached her mother to lie to the SEC. Kahl testified at trial that Blackwell had informed Kahl of the buyout in September 1999. WF’s chief executive officer testified that Blackwell knew about the buyout because Blackwell was a WF board member. However, the chief executive officer also testified that wider rumors of a buyout circulated among WF employees during the summer of 1999. The defense presented testimony from multiple people who denied that Blackwell had told them about the buyout. Two defense witnesses also testified that they bought WF stock during the prebuyout period because, in their extensive stock-market experience, the stock was undervalued and appeared to be a good deal. The jury convicted Blackwell of insider trading and conspiracy to commit insider trading, among other things. Blackwell appealed.