U.S. Fifth Circuit - The FindLaw 5th Circuit Court of Appeals Opinion Summaries Blog

Court Upholds Convictions for Stealing Confidential Information

Sean James Hager felt like his employer didn't have his "long-term interests at heart."

So he devised a plan for his future. Using his employer's confidential information, he started a company that sold parts to the employer and netted about $1.16 million for himself.

That was the plan anyway -- until he was convicted of wire fraud and other crimes. In United States of America v. Hager, he also made another mistake.

Confidential Information

Hager was a long-time salesman for Velocity Electronics, a computer parts distributor in Texas. The company bought and sold parts, basically brokering deals.

The company used a proprietary software system to track inventory, suppliers, clients, and sales. With the program, Velocity employees could not sell products unless the sales price made a 20 percent profit.

Employees signed agreements to keep the inside information confidential. Otherwise, competitors could use the information to compromise Velocity's negotiations.

Between 2008 and 2012, Hager used the information to sell parts to Velocity through a company he created called Echt Electronics. Velocity paid more than $2.7 million to Hager's company until he was caught, tried, and convicted of wire fraud and related charges.

"Honest Services"

On appeal to the U.S. Fifth Circuit Court of Appeals, Hager argued that the business information was not confidential under Skilling v. United States. In that case, the U.S. Supreme Court vacated the conviction of an Enron official for "honest services" wire fraud.

The appeals court, which had also ruled in the Jeffrey Skilling case, said the decision did not change the law. The judges said confidential business information is still a cognizable property right, and the Fourth and Second Circuits reached the same conclusion in other cases.

Hager also complained the trial judge precluded evidence that would have showed Velocity's founders were sued for allegedly stealing proprietary information from their former employers. The appellate panel noted the judge allowed him to discuss the lawsuit and submit documents, but he didn't do so.

"Failing to present this information to the jury may well have been a strategic blunder, but it was not due to an error by the district court," the jurists said.

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