 "US asks SC to review insider trading ruling")
Preet Bharara, the United States attorney in Manhattan, is getting one more chance to preserve his near-perfect record in insider trading prosecutions.
Bharara prevailed on Thursday in persuading the Justice Department to ask the Supreme Court to review an appellate court ruling that sharply narrowed the definition of insider trading.
Donald B Verrilli Jr, the solicitor general, filed a petition with the court asking the justices to examine the ruling by a three-judge appeals panel in December that overturned the convictions of two hedge fund managers, Anthony Chiasson and Todd Newman.
The ruling was a major setback for Bharara, whose office secured over 80 convictions in a multiyear crackdown on insider trading on Wall Street. The ruling, if left standing, threatens to undermine several of the convictions and pleas won by his office.
Bharara has argued for months that the ruling will make it more difficult for federal prosecutors to pursue insider trading cases in the future and could open the door to more rogue trading on Wall Street. Verrilli adopted much of Bharara's view in urging the Supreme Court to intervene.
In his petition, the solicitor general said the appellate decision "unjustifiably impedes the government's ability to restrain and punish" those who provide confidential tips and those who benefit from them. The ruling, Verrilli said, will "hurt market participants, disadvantage scrupulous market analysts and impair the government's ability to protect the fairness and integrity of the securities markets."
In April, the United States Court of Appeals for the Second Circuit rejected Bharara's request to reconsider the ruling, handing him another setback. With few legal options left Bharara sought to appeal the ruling to the Supreme Court, in a move that many legal analysts consider to be a bit of a gamble because the high court could agree to take on the case and enshrine the appellate court decision as the law of the land.
Still, that risk was seen as one worth taking. The appellate court ruling has raised concern that the authorities will have a higher burden of proof when mounting insider trading cases. Under the ruling, prosecutors have to show, among other things, that a person passing an inside tip expected to receive something "of some consequence" in return.
"The government's decision to seek Supreme Court review of the Newman decision shows how significantly that case has altered the landscape of insider trading law," said John T Zach, a former assistant United States attorney in Manhattan who had been involved in the trial of Chiasson and Newman.
By filing the petition, the government is "signaling that it strongly believes that the Supreme Court's prior decisions criminalized that type of insider trading and that allowing Newman to legalize it would deeply undermine the public's confidence in the securities markets," Zach said.
Chiasson, a co-founder of Level Global Investors, and Newman, a former portfolio manager at Diamondback Capital Management, were convicted in 2012 of conspiring with six others to illegally trade technology stocks, reaping $70 million.
But the appellate court overturned the convictions of the two men in a decision that federal prosecutors contend misinterpreted portions of Dirks V the Securities and Exchange Commission, a 32-year-old Supreme Court case that is considered the cornerstone of insider trading law in the United States.
That appeals court decision in December narrowed the parameters of insider trading by coming up with a new definition for what constitutes the exchange of a personal benefit to the person who passes an inside tip. Until now, the ruling in Dirks had been interpreted by most lower courts as meaning the personal benefit received by a person passing information could be as simple as wanting to help a friend.
But the appellate court said that friendship was not enough, that the person providing the tip must also have received something more tangible.
The ruling also said that anyone trading on the information had to be aware of the exchange of that benefit to be found guilty of insider trading.
In the case of Chiasson and Newman, the appeals court found the two were too far down the chain of sharing information to know whether the corporate insiders at Dell and Nvidia had received a personal benefit for passing on information about earnings. The court then went further and said the corporate insiders had not even received a personal benefit under its interpretation of the Dirks ruling.
On Thursday, Gregory Morvillo, Chiasson's lawyer, said a Supreme Court review of the definition of personal benefit would not have any impact on his client.
"Regardless of that definition, the Second Circuit acquitted Chiasson because there was no evidence that he had knowledge of any benefit provided to any corporate insider," he said.
"Chiasson remains confident that the carefully reasoned analysis of the Second Circuit is well grounded in the facts and the law and will withstand Supreme Court review," Morvillo added. John A Nathanson, a lawyer for Newman, declined to comment.
Some lawyers thought the Justice Department might be better off not taking the case to the Supreme Court, predicting that federal judges, even ones in New York, would eventually start to whittle away at the appellate ruling and bring it more in line with the definition as it existed under the Dirks decision.
In one recent case, a decision from the United States Court of Appeals for the Ninth Circuit in California drew some distinctions with the appellate ruling in New York.
The decision, written by Jed S Rakoff, a federal judge in Manhattan temporarily assigned to the Ninth Circuit in San Francisco, took a more favorable interpretation for the government of proving benefit that was more in line with how courts have traditionally interpreted Dirks.
Verrilli seized on the Ninth Circuit ruling in his petition to urge the Supreme Court to take on the appeal from the Second Circuit ruling. He pointed to the rulings as an example of a judicial circuit split - the kind of situation the Supreme Court is known to abhor because it raises the specter of federal courts enforcing the laws unevenly.
"The Ninth Circuit thus rejected the novel personal benefit test fashioned by the court in this case," Verrilli wrote. He added that the different judicial rulings could lead to "uneven enforcement of the securities laws against individuals who are all participating in the same nationwide capital markets."
It remains to be seen whether the Supreme Court will take the case. Justice Antonin Scalia, for one, has suggested that it should be up to Congress to regulate and prosecute insider trading, not the courts.
Bharara prevailed on Thursday in persuading the Justice Department to ask the Supreme Court to review an appellate court ruling that sharply narrowed the definition of insider trading.
Donald B Verrilli Jr, the solicitor general, filed a petition with the court asking the justices to examine the ruling by a three-judge appeals panel in December that overturned the convictions of two hedge fund managers, Anthony Chiasson and Todd Newman.
The ruling was a major setback for Bharara, whose office secured over 80 convictions in a multiyear crackdown on insider trading on Wall Street. The ruling, if left standing, threatens to undermine several of the convictions and pleas won by his office.
Bharara has argued for months that the ruling will make it more difficult for federal prosecutors to pursue insider trading cases in the future and could open the door to more rogue trading on Wall Street. Verrilli adopted much of Bharara's view in urging the Supreme Court to intervene.
In his petition, the solicitor general said the appellate decision "unjustifiably impedes the government's ability to restrain and punish" those who provide confidential tips and those who benefit from them. The ruling, Verrilli said, will "hurt market participants, disadvantage scrupulous market analysts and impair the government's ability to protect the fairness and integrity of the securities markets."
In April, the United States Court of Appeals for the Second Circuit rejected Bharara's request to reconsider the ruling, handing him another setback. With few legal options left Bharara sought to appeal the ruling to the Supreme Court, in a move that many legal analysts consider to be a bit of a gamble because the high court could agree to take on the case and enshrine the appellate court decision as the law of the land.
Still, that risk was seen as one worth taking. The appellate court ruling has raised concern that the authorities will have a higher burden of proof when mounting insider trading cases. Under the ruling, prosecutors have to show, among other things, that a person passing an inside tip expected to receive something "of some consequence" in return.
"The government's decision to seek Supreme Court review of the Newman decision shows how significantly that case has altered the landscape of insider trading law," said John T Zach, a former assistant United States attorney in Manhattan who had been involved in the trial of Chiasson and Newman.
By filing the petition, the government is "signaling that it strongly believes that the Supreme Court's prior decisions criminalized that type of insider trading and that allowing Newman to legalize it would deeply undermine the public's confidence in the securities markets," Zach said.
Chiasson, a co-founder of Level Global Investors, and Newman, a former portfolio manager at Diamondback Capital Management, were convicted in 2012 of conspiring with six others to illegally trade technology stocks, reaping $70 million.
But the appellate court overturned the convictions of the two men in a decision that federal prosecutors contend misinterpreted portions of Dirks V the Securities and Exchange Commission, a 32-year-old Supreme Court case that is considered the cornerstone of insider trading law in the United States.
That appeals court decision in December narrowed the parameters of insider trading by coming up with a new definition for what constitutes the exchange of a personal benefit to the person who passes an inside tip. Until now, the ruling in Dirks had been interpreted by most lower courts as meaning the personal benefit received by a person passing information could be as simple as wanting to help a friend.
But the appellate court said that friendship was not enough, that the person providing the tip must also have received something more tangible.
The ruling also said that anyone trading on the information had to be aware of the exchange of that benefit to be found guilty of insider trading.
In the case of Chiasson and Newman, the appeals court found the two were too far down the chain of sharing information to know whether the corporate insiders at Dell and Nvidia had received a personal benefit for passing on information about earnings. The court then went further and said the corporate insiders had not even received a personal benefit under its interpretation of the Dirks ruling.
On Thursday, Gregory Morvillo, Chiasson's lawyer, said a Supreme Court review of the definition of personal benefit would not have any impact on his client.
"Regardless of that definition, the Second Circuit acquitted Chiasson because there was no evidence that he had knowledge of any benefit provided to any corporate insider," he said.
"Chiasson remains confident that the carefully reasoned analysis of the Second Circuit is well grounded in the facts and the law and will withstand Supreme Court review," Morvillo added. John A Nathanson, a lawyer for Newman, declined to comment.
Some lawyers thought the Justice Department might be better off not taking the case to the Supreme Court, predicting that federal judges, even ones in New York, would eventually start to whittle away at the appellate ruling and bring it more in line with the definition as it existed under the Dirks decision.
In one recent case, a decision from the United States Court of Appeals for the Ninth Circuit in California drew some distinctions with the appellate ruling in New York.
The decision, written by Jed S Rakoff, a federal judge in Manhattan temporarily assigned to the Ninth Circuit in San Francisco, took a more favorable interpretation for the government of proving benefit that was more in line with how courts have traditionally interpreted Dirks.
Verrilli seized on the Ninth Circuit ruling in his petition to urge the Supreme Court to take on the appeal from the Second Circuit ruling. He pointed to the rulings as an example of a judicial circuit split - the kind of situation the Supreme Court is known to abhor because it raises the specter of federal courts enforcing the laws unevenly.
"The Ninth Circuit thus rejected the novel personal benefit test fashioned by the court in this case," Verrilli wrote. He added that the different judicial rulings could lead to "uneven enforcement of the securities laws against individuals who are all participating in the same nationwide capital markets."
It remains to be seen whether the Supreme Court will take the case. Justice Antonin Scalia, for one, has suggested that it should be up to Congress to regulate and prosecute insider trading, not the courts.
© 2015 The New York Times News Service