Monday, December 15, 2014

Fallout from Landmark Insider Trading Decision Begins

A ruling that tossed out the insider trading convictions of two hedge fund managers may have opened the door for others charged with wrongful trading to get their cases or pleas dismissed.

US District Court Judge, Andrew L. Carter Jr.,  ordered the lawyers for the defendants in an unrelated insider trading case to come to court on Dec. 18 to discuss the implications of the ruling.

The day before, a panel of the United States Court of Appeals for the Second Circuit overturned the convictions of the hedge fund managers Anthony Chiasson and Todd Newman. Judge Carter said in his brief order that he wanted to discuss whether the appellate ruling affects a guilty plea by at least one of five defendants. In the case he is overseeing, five friends have been accused of receiving a secondhand tip about IBM’s plans to acquire SPSS for $1.2 billion in October 2009.

While the press is heralding the Second Circuit ruling as historic and ground breaking, it really isn't anything new. We have always taken the position that the accused insider trader has to know that the information he received was illegally obtained. Sometimes that is easy, but in many of these cases, particularly in the ones with lower level tippees, that is nearly impossible, since they typically do not know how the information was obtained.
"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" 
Hopefully this ruling will encourage the other circuit courts to return these cases to the law, and help stop innocent conduct from being turned into guilty conduct.

For more information, go to Some Accused of Insider Trading May Rethink Their Guilty Pleas  


Related:

Steve Cohen "ebullient" after learning of the Second Circuit decision

US appeals court vacates two insider trading convictions
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