Co-authored by Brian Schmidt
The U.S. District Court for the District of South Carolina set aside the convictions of two employees of Medical Manager Corporation for conspiracy to commit mail, wire and securities fraud. In the indictment, the government asserted, among other things, that the defendants had conspired to manipulate the company’s revenue and earnings to fraudulently inflate the market price of its stock and to use the fraudulently inflated stock to facilitate the acquisition of certain target companies. After a jury trial in which the defendants were convicted, the defendants moved to set aside the verdict on the ground that the statute of limitations had started to run when a merger that allegedly resulted from the conspiracy was consummated.
The government argued that the statute of limitations had not run because the conspiracy continued as long as the defendants received benefits from it, pointing to the receipt of stock options by the defendants several years after the merger. The district court rejected the government’s argument, holding that the court “cannot accept the de facto position that but for the conspiracy, defendants would not have received stock options.” In so holding, the court pointed out that the company was successful and that employees who were not alleged to be part of the conspiracy also received options. In addition, the court held that the receipt of the options was not evidence of a continuing conspiracy because the government had not introduced any evidence that the value of the stock options had been inflated as a result of the alleged fraud. (United States v. Kang, Crim. No.: 9:05-CR-00928, 2010 U.S. Dist LEXIS 53003 (D.S.C. May 27, 2010))