Prosecutors say ruling that traders must be aware an informant received benefit endangers future insider trading cases
US federal prosecutors are attempting to overturn a landmark December 2014 court decision that saw the insider trading convictions of two hedge fund managers quashed. The ruling threatens other ongoing cases and makes it harder for law enforcers to pursue future insider trading cases, prosecutors argue.
Manhattan US Attorney Preet Bharara has asked the 2nd US Circuit Court of Appeals to reconsider the December 10 ruling that freed Anthony Chiasson, a founder of Level Global Investors, and Todd Newman, a former portfolio manager at Diamondback Capital Management. Prosecutors say the ruling conflicts with previous US Supreme Court precedents and appeals court decisions and is ‘deeply confounding’ for traders, judges and prosecutors.
‘The panel’s missteps will have serious consequences far beyond this case,’ prosecutors write in their request, according to Bloomberg. ‘The panel’s erroneous redefinition of the personal benefit requirement will dramatically limit the government’s ability to prosecute some of the most common, culpable and market-threatening forms of insider trading.’
Chiasson and Newman were convicted in 2012 of participating in a $72 mn insider trading scheme surrounding the leak of information about Dell and Nvidia. Newman was sentenced to four and a half years in prison and Chiasson was sentenced to six and a half years. The ruling also rejected the possibility of a new trial for the pair.
The three judges on the panel unanimously ruled that prosecutors must prove the accused knew the source of a tip received some benefit in order to obtain an insider trading conviction. The ruling also changes the definition of a benefit, stating it must be of ‘some consequence’ and not a less tangible benefit such as friendship.
Last week, a US district judge in Manhattan used the December ruling to throw out the case against four men who had pleaded guilty to charges of insider trading in relation to IBM’s 2009 takeover of SPSS.
