The U.S. Justice Department wants the Supreme Court to review the ruling in United States v. Newman that overturned the convictions of hedge fund managers Todd Newman and Anthony Chiasson. The defendants were accused of trading on secondhand information they received regarding earnings announcements for Nvidia and Dell. The information was not public at the time.
The two men denied the charges, which accused them of involvement in a scheme that made over $70 million from illegally trading technical stock. Chiasson and Newman were convicted of fraud and conspiracy in 2012.
Last year, the United States Court of Appeals for the Second Circuit threw out the convictions. The court found that the government failed to prove that the tipper had benefited from the alleged scam.
Neither Chiasson nor Newman ever directly interacted with the employees that were the source of the purported tips, which were then passed on to others. The Second Court said that it reversed the convictions because the jurors who ruled on the case were not told that they had to find that the two men knew that the tippers had benefited in return for disclosing the confidential information.
The court said that there needs to be evidence that a “meaningfully close personal relationship” exists, resulting in an exchange that is of consequence and “represents, at the minimum, a potential gain.” This gain must be of a pecuniary nature or one of similar value.
Solicitor General Donald Verrilli feels that the ruling will hurt participants in the market, place scrupulous market analysts at a disadvantage, and hurts the government’s ability to protect the securities market and make sure that it operates out of fairness and integrity.
It is up to the Supreme Court to decide whether to hear the case.
The SSEK Partners Group is a securities law firm that works with institutional investors and high net worth individual investors.
Supreme Court Review Could Redefine Insider Trading, New York Times, July 31, 2015
U.S. V. Newman (PDF)