Wednesday, August 30, 2006
The Sixth Circuit affirmed the insider trading, conspiracy, obstruction, and false statement convictions of former Ohio State University business school professor Roger Blackwell (United States v. Blackwell here), and the case contains an important, if rather obvious, lesson in what a defendant should not do during testimony of a crucial witness. Blackwell was convicted of tipping a number of family members, friends, and colleagues about an impending purchase by Kellogg of Worthington Foods while Blackwell was a member of Worthington's board. The NASD and then the SEC began an investigation of suspicious trading in Worthington stock, and Blackwell and his wife, Kristina Stephan-Blackwell, denied tipping anyone. Blackwell, Stephan-Blackwell, and her parents testified in the Commission investigation. In fact, however, Stephan-Blackwell tipped her parents, and after she and Blackwell split up in 2003, she contacted the government and worked out an immunity deal. Not much later, another tippee, a friend of Blackwell's, worked out a similar arrangement, at which point the government indicted Blackwell and others.
At trial, Stephan-Blackwell was a key witness for the government, and during her testimony Blackwell allegedly mouthed "I hate you" to her. As recounted in the Sixth Circuit's opinion, this little tidbit appears to have been observed by three jurors and the judge, along with Stephan-Blackwell, and the government was allowed to cross-examine Blackwell about what he purportedly mouthed because the court viewed it as witness intimidation. Blackwell denied having done so, but the damage was done to his case. While Blackwell denied having tipped anyone, and offered a rather dubious "leakage theory" for how the purchasers decided to buy Worthington in advance of the Kellogg deal, the jury convicted him, perhaps in large part because he was not believable. An article published about the trial noted that the jurors who say they saw what Blackwell mouthed believed that it "destroyed his credibility" -- which is certainly not surprising. While there is something to be said for looking your accuser in the eye, communicating your feelings about her is not a particularly good idea.
The Sixth Circuit also affirmed the six-year sentence imposed on Blackwell even though he did not profit directly from the transactions in Worthington stock. (ph)