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By Bob Van Voris and Patricia Hurtado
Dec. 10 — A federal appeals court Dec. 10 threw out the guilty verdicts of two hedge fund managers central to U.S. Attorney for the Southern District of New York Preet Bharara's investigation of insider trading, ruling that jury instructions tainted their verdicts and imperiling other cases brought in his multiyear probe.
Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Capital Management LLC portfolio manager Todd Newman argued that their convictions should be overturned because jurors weren't required to find that they knew the source of their illegal tip received some benefit in exchange, an essential element in proving insider trading. The investigations led to the shuttering of the two hedge funds.
The government said jurors only needed to find that the men knew the tip was material nonpublic information and that the tipper was breaching a fiduciary duty by revealing it.
The U.S. Court of Appeals for the Second Circuit favored the fund managers' argument. By essentially exonerating the two men, the court undercut the conviction of SAC Capital Advisors LP fund manager Michael Steinberg, whose jury received the same instructions.
Steinberg's conviction was among the biggest victories for Bharara in his prosecutions of Wall Street wrongdoing, particularly at SAC Capital Advisors LP.
Prosecutors argued that the information was so detailed and so “overwhelmingly suspicious,” that the traders should have known it was illicitly obtained. The appeals court disagreed, reasoning that prosecutors had provided “scant information” that Chiasson and Newman had such knowledge.
“No reasonable jury could have found beyond a reasonable doubt that Newman and Chiasson knew, or deliberately avoided knowing, that such information originated with corporate insiders,” the appeals court opined. “In short, the bare facts in support of the governments theory on the case are consistent with an inference of innocence.”
Jim Margolin, a spokesman for Bharara, declined to immediately comment. Greg Morvillo, Chiasson's lawyer, said he was “delighted” with the opinion.
To contact the editor responsible for this story: David E. Rovella at email@example.com
©2014 Bloomberg L.P. All rights reserved. Used with permission.
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