Richard Smith (defendant) was the Vice President of North American Sales for PDA Engineering, Inc. (PDA). PDA was a publicly traded company. Smith acquired over 50,000 shares of PDA stock. Through his position with PDA, Smith learned of internal financial projections regarding the company’s future earnings. These projections showed that the company was performing below expectations. Smith then proceeded to sell all his existing shares, and he short-sold additional shares. In a short sale, the trader makes money when the share price drops. Smith’s parents also sold their shares and short-sold additional shares. Smith was investigated by the Securities and Exchange Commission (SEC) and was eventually charged with 11 counts of insider trading. At trial, the district court instructed the jury about what the government needed to prove to obtain a conviction on the insider trading counts. The district court told the jury that: (1) the government must prove a causal relationship between the material, nonpublic information in Smith’s possession and Smith’s trading of PDA stock, and (2) the nonpublic information only needed to be a significant factor in Smith’s decision to trade the stock rather than being the sole reason. The jury convicted Smith on all 11 counts of insider trading. Smith appealed to the United States Court of Appeals for the Ninth Circuit.