Insider trading convictions vacated
NEW YORK – A federal judge on Thursday vacated guilty pleas by four men in an insider trading case involving an IBM deal, acting on a recent appeals court ruling that tightened the legal standard for proving such transactions constitute a crime.
U.S. District Judge Andrew Carter entered not guilty pleas on behalf of the four defendants, and scheduled a Friday conference for prosecutors to "evaluate the sufficiency of the government's intended proof at trial."
The scheduled February trial of a fifth man who had pleaded not guilty in the case was also delayed.
The decisions marked the latest legal setback for the Department of Justice following the December ruling in which the U.S. Court of Appeals for the Second Circuit ruled that Manhattan federal prosecutors relied on an overly broad legal interpretation in their sweeping crackdown on suspected Wall Street insider trading.
The three-judge panel's decision said that to sustain an insider trading conviction prosecutors must prove beyond a reasonable doubt that a person charged with receiving non-public corporate information must know the information had been improperly disclosed by an insider "in exchange for a personal benefit."
Overturning the convictions of former portfolio managers Todd Newman and Anthony Chiasson, the appeals court ruling prompted predictions that other cases in nearly unbroken string of insider-trading convictions won by Manhattan U.S. Attorney Preet Bharara's office would likely face similar reversals.
Carter turned that prediction into reality in the case of Thomas Conradt, David Weishaus, Trent Martin and Daryl Payton. They pleaded guilty to trading on non-public information in advance of IBM's 2009 agreement to buy business software provider SPSS in a $1.2 billion acquisition.
The information came from a lawyer working on the deal. He mentioned it to Martin, a friend he did not believe would tell others or use the details for personal trading.
Carter wrote in his Thursday decision that he was "skeptical" that the guilty pleas were sufficient in the wake of the appeals court decision. After weighing arguments from prosecutors and defense lawyers, the judge wrote h e was "swayed" by the higher court's "meticulous and conscientious effort ...to clarify the state of insider-trading law" in New York's southern federal district.
Prosecutors had argued in a Dec. 19 filing that the appeals court ruling was "erroneous." But they conceded that if Carter decided the new standard should be applied to their case, "dismissal would be the appropriate remedy."