United States v. McGee

Timothy McGee (defendant), a financial adviser, met Christopher Maguire at Alcoholics Anonymous (AA) meetings. McGee mentored Maguire for several years through Maguire’s sobriety struggles. McGee and Maguire developed a close relationship and shared confidences during that time. Maguire was an insider of a publicly traded company (PHLY). McGee repeatedly offered to be Maguire’s financial adviser, but Maguire declined. Following alcohol relapses, Maguire attended an AA meeting where Maguire told McGee that PHLY was being sold and that Maguire had difficulty handling the pressure of the sale. Maguire told McGee about PHLY’s impending sale before that insider information became public. Maguire trusted McGee with the nonpublic information about PHLY’s sale. McGee then purchased a large amount of PHLY’s stock without telling Maguire. After the sale of PHLY was announced to the public, the Securities and Exchange Committee (SEC) investigated McGee. McGee was indicted and convicted of securities fraud under the misappropriation theory of insider trading. The jury found that McGee breached a fiduciary duty that arose through McGee’s history, pattern, or practice of sharing confidences with Maguire, in violation of SEC Rule 10b-5, a rule that was created under Section 10(b) of the Securities Exchange Act of 1934. McGee appealed, challenging the SEC’s authority to create Rule 10b-5.