NY insider trading ruling tests prosecutors beyond Wall Street
By Nate Raymond
NEW YORK (Reuters) - A court ruling that sharply curtailed the ability of prosecutors including Manhattan U.S. Attorney Preet Bharara to pursue insider trading cases is increasingly testing regulators' abilities across the country.
Defendants in California and Massachusetts have sought to take advantage of a December ruling from the 2nd U.S. Circuit Court of Appeals in New York that narrowed the definition of insider trading, making it harder for prosecutors to pursue their cases.
The challenges raise the possibility that the 2nd Circuit decision, legally binding only in New York, Connecticut and Vermont, could be adopted by other jurisdictions nationally or could create a split among the federal courts.
The ruling reversed the convictions of Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors.
A three-judge panel held that prosecutors need to prove a trader knew the original source of a tip received a benefit in exchange for the information. It also narrowed what constitutes a benefit, saying it must be of "some consequence" and cannot be only friendship.
Samuel Lieberman, a defense lawyer involved in a similar challenge, said judges across the country often look to the 2nd Circuit for guidance.
"The 2nd Circuit is the leading appeals court for insider trading," he said. "So disregarding it comes with some peril."
While the pace of prosecutions had looked set to slow from the pace of recent years, the appeals court's ruling could slam the brakes on authorities' efforts to pursue future cases. The decision's effect was quickly felt in New York, where Bharara's office on Friday filed papers asking the court to reconsider the ruling. Continued...