Whitman Granted Bail Pending Newman-based Appeal

Feb 2 2016 | 7:58pm ET

The Second Circuit Court of Appeals has granted bail to former hedge fund manager Doug Whitman pending appeal after a hearing on Tuesday raised questions whether the insider-trading conviction against Whitman could stand following the infamous Newman ruling.

In the Newman case, the Second Circuit ruled that prosecutors must prove that a trader knew the source of an inside tip received some kind of benefit in exchange, as well as greatly narrowing the definition of what constitutes that benefit. The ruling reversed the convictions of former Diamondback executive Todd Newman and Level Global co-founder Anthony Chaisson, and significantly raised the bar necessary for insider trading convictions.

The decision threw a large number of recent insider trading cases into limbo or, in some cases, resulted in their dismissal. The conviction of former SAC Capital portfolio manager Michael Steinberg, for instance, was tossed entirely, leading indirectly to a settlement with SAC Capital founder Steven Cohen. 

Amid the continued debate, the U.S. Supreme Court has agreed to hear a case that define determine exactly what constitutes "personal benefit" in the context of insider trading.

The order to grant Whitman’s release from a Sacramento, CA halfway house comes with approximately four months left in Whitman’s original two-year sentence. The three-judge panel gave no further explanation for its decision in the order.  

Whitman’s initial appeal was lost in February of 2014, prior to the decision in the Newman case, which came in December of that year. Had it been heard subsequent to the Newman decision, “this court would have tossed the conviction,” said Circuit Judge Barrington Parker during the Tuesday hearing, according to Reuters. 

Parker also voiced concerns about why the U.S. Attorney’s office under Preet Bharara opposed Whitman’s release, given the Newman decision and the fact that his renewed appeal would not be heard until after his sentence is completed. 

Whitman was originally convicted for using tips from company insiders to earn nearly $1 million in trades on Google, Polycom and Marvell Technology. He will now be freed pending the upcoming appeal.

The case is Whitman v. United States, 2nd U.S. Circuit Court of Appeals, 15-2686.

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