Federal prosecutors appeal insider trading ruling
NEW YORK — Ratcheting up a legal battle in a government crackdown on Wall Street insider trading, federal prosecutors are appealing a December court ruling they contend makes it harder to stop such crimes.
Manhattan U.S. Attorney Preet Bharara filed a late-Friday petition asking the three-judge federal appeals court panel that issued the ruling to rehear the case his petition said "represents one of the most significant developments in insider trading law in a decade."
Alternatively, the 25-page petition asked the entire U.S. Court of Appeals for the 2nd Circuit to consider the issue.
"The Opinion breaks with Supreme Court and Second Circuit precedent, conflicts with the decisions of other (federal appeals court) circuits, and threatens the effective enforcement of the securities laws," Bharara's petition contended.
The argument focuses on the December 2012 convictions of Todd Newman and Anthony Chiasson, two former hedge fund portfolio managers who were added to the list of more than 80 insider trading convictions won by Bharara's office.
Prosecutors argued that evidence showed the two collectively made $72 million in profits for their hedge funds by trading on secret information that insiders at tech firms Dell and Nvidia leaked in advance of the companies' quarterly earnings announcements.
Bharara's office contended that existing laws on insider trading required them to prove only that the insiders had violated their secrecy duty and had in fact acted for personal benefit.
Lawyers for Newman and Chiasson, however, argued that prosecutors should be required to prove that the defendants knew the insiders had leaked the information for personal gain.
Manhattan U.S. District Court Judge Richard Sullivan, who presided over the case, ruled in favor of the prosecution claim. After the ensuing convictions, Chiasson was sentenced to 78 months in prison and Newman was sentenced to 54 months behind bars. Both were granted bail pending appeal to the 2nd Circuit panel.
Ruling that the prosecution evidence had been "insufficient," the closely watched December ruling by the appeals court reversed the insider trading convictions.
"We agree that the jury instruction was erroneous because we conclude that, in order to sustain a conviction for insider trading, the government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit," the higher court ruled.
The appeals court decision is likely to have broad impact on insider trading prosecutions across the nation. This week alone, Manhattan federal judge Andrew Carter cited the tighter legal standard set as he vacated guilty pleas by four men in an insider trading case involving an IBM transaction.
Anticipating similar reversals in New York federal courts and elsewhere, Bharara's petition argued that the appeals court ruling erroneously and "significantly weakens protections against the abuse of inside information by market professionals with special access, and threatens to undermine enforcement efforts that are vital to fairness (and the perception thereof) in the securities markets."
Chiasson defense attorney Gregory Morvillo, however, said the appeals court made the correct legal call.
"The unanimous decision issued by the 2nd Circuit panel unequivocally confirmed Mr. Chiasson's innocence under the law, and we have great confidence in the opinion because it is well rooted in Supreme Court and Second Circuit precedent," Morvillo said in a statement issued Friday night.