A federal appeals panel yesterday expressed skepticism about the legal theory under which two former hedge fund managers were convicted of insider-trading.
Lawyers for Anthony Chiasson and Todd Newman argued that the trial judge in the case erred when he instructed the jury that prosecutors did not need to prove that the men knew the sources of their information received a benefit. Prosecutor Antonia Apps countered that the government need only show that traders knew a tipster broke a duty to keep the information confidential.
U.S. Circuit Judge Barrington Parker called that theory “amorphous” and said it leaves financial institutions “at the mercy of the government” and unable to decide when they are allowed to use non-public information. Chiasson’s and Newman’s lawyers argued that the U.S. District Judge Richard Sullivan’s jury instructions contradicted those issued in similar cases by other judges.
“I’m concerned the government’s position on key points of the law seems to vary based depending on which judge you’re talking to,” Parker said. And he chastised prosecutors for maneuvering to get the case before Sullivan.
“Can you allay my concern that what the government did was move the indictments around until it got before its preferred venue, Judge Sullivan?” he asked.
Chiasson, the co-founder of Level Global Investors, and Newman, a former portfolio manager at Diamondback Capital Management, were convicted in 2012 of conspiracy and fraud. Prosecutors argued that they were members of a “corrupt circle” that included their analysts, who fed them information from other hedge fund analysts and corporate insiders. Chiasson and Newman argued that they were “downstream tippees” who did not know where the information came from.
The two have asked the U.S. Second Circuit Court of Appeals to toss their convictions and order a new trial. All of the men convicted of insider-trading during the government’s recent crackdown have sought the same; none have yet succeeded. Yesterday’s questioning indicates that Chiasson and Newman may be the first.