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Supreme Court rejects insider-trading case
The justices let stand a decision by the federal appeals court in New York a year ago that threw out insider trading convictions of two high-profile hedge fund managers.
“Mr. Newman is hopeful that the decision today will help ensure that others avoid a similar fate”, his lawyers said.
Insider trading became a top priority under Bharara’s watch, resulting in the conviction of Galleon Group hedge fund founder Raj Rajaratnam and a $1.8 billion settlement and guilty plea by SAC Capital Advisors LP.
As is their custom, the justices gave no reasons for turning down the case.
The Supreme Court on Monday denied a request from prosecutors to review the case, preserving the controversial ruling.
The court’s decision could also jeopardize a number of other insider trading convictions secured by Bharara’s office, including one against Michael Steinberg, a former trader who worked for Steven A. Cohen, the billionaire investor.
“We think there is a category of conduct that arguably will go unpunished going forward”, Bharara said in conference call with reporters.
The Obama administration in July filed a petition for a writ of certiorari to reconsider the appeals decision, saying it conflicted with Supreme Court precedent and that the ruling would cheat legitimate financial analysts and investors and create “an obvious roadmap for unscrupulous insiders and tippees”.
The case concerned trading at two hedge funds that was said to be based on inside information about coming earnings announcements.
The Justice Department can take its busted insider trading theories back where they came from, because the Supreme Court won’t be riding to validate its theories.
In the ruling reversing the convictions of Newman and Chiasson, a three-judge panel held that prosecutors must prove that a trader knew a tip’s source received something in exchange. That ruling was based on a 1983 Supreme Court decision, Dirks v. Securities and Exchange Commission, which requires evidence the insider “directly or indirectly” gained something from the initial disclosure.
The appeals court ruling tossed out the convictions of former hedge-fund traders Todd Newman and Anthony Chiasson for relying upon confidential information to make $72 million trading on shares of Dell Inc. and Nvidia Corp. His appeal is awaiting the outcome of the Supreme Court ruling. For starters, the Second Circuit’s holding stands: the government must prove that an insider disclosed confidential, non-public information for a personal benefit, which must be “of a few consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. “The Second Circuit Court of Appeals’ pronouncement of Mr. Chiasson’s innocence, as well as that court’s harsh chiding of the government’s tactics, has withstood all challenges and is now final”.
The appeals court said prosecutors failed to present enough evidence the men willfully engaged in insider trading or conspired to break the law.