U.S. insider trading cases face test at appeals court

Mon Apr 21, 2014 7:04am EDT
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By Nate Raymond

NEW YORK (Reuters) - A U.S. appeals court is set hear a case whose outcome could make it harder for the government to prosecute insider trading and potentially jeopardize several high-profile guilty verdicts, including that of SAC Capital Advisors portfolio manager Michael Steinberg.

The question facing the 2nd U.S. Circuit Court of Appeals in New York on Tuesday is one that has divided lower court judges: whether to be convicted of insider trading, the recipient of non-public information must know that the source of the tip benefited from the disclosure.

The issue is at the heart of the appeal brought by Todd Newman, a former portfolio manager at the hedge fund Diamondback Capital Management, and Anthony Chiasson, co-founder of the hedge fund Level Global Investors.

Newman and Chiasson were convicted in 2012 for their roles in a scheme prosecutors said reaped $72 million in illicit profits after trading on inside information about Dell Inc and Nvidia Corp.

The government said Newman, 46, and Chiasson, 49, traded on tips they received from analysts who worked at their hedge funds.

These analysts, the government said, were part of a "corrupt circle" of investment firm analysts that traded non-public information obtained from insiders at various companies, including Dell and Nvidia.

Newman has been sentenced to 4-1/2 years in prison, and Chiasson faces a 6-1/2 year term. Both men have been free on bail pending their appeal.

A ruling reversing Newman and Chiasson's convictions would mark a significant setback for Manhattan U.S. Attorney Preet Bharara, whose office has secured insider trading convictions of 80 individuals since October 2009.   Continued...

Michael Steinberg arrives at the Manhattan Federal Courthouse in New York, November 19, 2013. REUTERS/Brendan McDermid