Making it more difficult to prosecute insider trading cases

On Behalf of | Oct 4, 2017 | Securities |

In 2013, the United States attorney in Manhattan dropped charges and convictions for insider trading against an employee of SAC Capital Advisors, Michael S. Steinberg, and six cooperating witnesses who had entered guilty pleas in the matter.

The dismissals came after the Supreme Court declined to review an appeals court ruling on two overturned insider trading convictions, indicating that it has become more difficult to successfully pursue what they construe to be certain wrongful trading practices.

The ultimate insiders

The trading convictions tossed out involved Anthony Chiasson and Todd Newman, former hedge fund managers accused of improperly trading the shares of two technology companies. The U.S. attorney, Preet Bharara, explained that in light of the appeals court ruling, maintaining guilty pleas would not be “in the interests of justice.” As for dropping charges against the cooperating witnesses, Columbia University professor of criminal law Daniel C. Richman opined that if prosecutors were to keep such pleas in place, it could adversely affect the value of witnesses working with investigations.

Friendly tips

The appeals court decided that the tips given to Chiasson and Newman concerning the technology companies were not unlawful because the employees who provided the tips did not expect to receive personal benefits in exchange for the information. Criminal defense attorneys have taken note of an example given by Deputy United States Attorney Joon Kim. It will be more difficult, Kim pointed out, for prosecutors to bring criminal charges against corporate executives who provide inside tips to friends or relatives while expecting nothing in return in terms of personal benefit.

Helping the defense

Prosecutors have long held that the definition of personal benefit can be something intangible, like simply wanting to help out a friend. However, the court takes a different view, saying this is too insubstantial a definition. Authorities must show that the exchange for a stock tip must involve something more than simple friendship or goodwill, which may present more of a challenge for the prosecution and less for the defense.

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