Crusading Manhattan US Attorney Preet Bharara’s six-year battle against Wall Street got derailed on Monday when the Supreme Court refused to hear the government’s appeal of a key insider-trading case.
Bharara, who has charged 96 people during his long-running probe, wanted the High Court to consider overturning an appeals court decision that made it tougher to prosecute some Wall Street traders.
The Manhattan appeals court ruled that Wall Streeters who received insider tips had to have known that the tipper was compensated for the info — and that the compensation couldn’t be just friendship but had to be of “some consequence.”
The decision has repercussions for those already convicted who are hoping to have their verdicts overturned — and for future prosecutions.
“The Newman decision goes some way to creating an obvious roadmap for unscrupulous investors,” Bharara said Monday. “You can think of this as a potential bonanza for friends and family of rich people with access to material non-public information.”
The case rejected by the Supreme Court, without comment, involves the convictions of former hedge-fund managers Todd Newman and Anthony Chiasson.
Newman, a former Diamondback Capital Management portfolio manager, and Chiasson, co-founder of Level Global Investors, were convicted in 2012 and sentenced to 4¹/₂ years and 6¹/₂ years in prison, respectively.
In a stunning rebuke to Bharara, those convictions were overturned last December as the three-judge appellate panel narrowed the definition of insider trading.
An appeals court ruled that the government had not proved that the two men knew that the tipper had received “at least a potential gain of a pecuniary or similarly valuable nature” from divulging the illicit information.
Newman and Chiasson had learned about upcoming earnings announcements from underlings at the now-defunct hedge funds and, as a result, were far removed from the original inside information.
In requesting the Supreme Court review, the Justice Department’s Solicitor General Donald Verrilli Jr. argued that “a gift of information to a trading friend or relative without receiving money or valuables as a result” was enough of a benefit.
He also said the narrow ruling by the appeals court impairs “the government’s ability to protect the fairness and integrity of the securities markets.”
Naturally, lawyers for Newman and Chaisson heralded Monday’s Supreme Court action. “There was no evidence that [Newman] knew there was anything wrong with the information he received,” his lawyers at Shearman Sterling said in a statement.
“[D]ozens of his outstanding colleagues lost livelihoods at his thriving [Level Global] fund, which became the collateral damage of this ill-conceived prosecution,” Chiasson’s lawyer Greg Morvillo said.
The so-called Newman decision is unlikely to upend more than a few other insider-trading convictions that Bharara successfully obtained — but it will take the wind out of the sails of future cases.
The most likely reversal one is that of former SAC Capital portfolio manager Michael Steinberg, who was convicted in 2013 under similar circumstances as Newman and Chaisson. His appeal was sidelined pending the Supreme Court decision on Newman.
Michael Kimelman, who spent 21 months in prison, is also trying to have his conviction overturned.
Even with the Newman decision, Bharara said he expects to maintain a 90 percent conviction rate on his insider-trading convictions.