| NEW YORK, April 22
NEW YORK, April 22 A U.S. prosecutor faced tough
questioning by a federal appeals court Tuesday over what must be
proved to secure insider trading convictions, with one judge
calling the government's view of the law "amorphous."
The 2nd U.S. Circuit Court of Appeals in New York heard
arguments in the case of Todd Newman, a former portfolio manager
at the hedge fund Diamondback Capital Management, and Anthony
Chiasson, co-founder of the hedge fund Level Global Investors.
The three-judge panel weighed whether recipients of
non-public information can be found guilty of insider trading
without any requirement prosecutors prove they knew the source
of the tip benefited from the disclosure.
Antonia Apps, a lawyer for the government, argued
prosecutors only need to establish that the recipients of
insider information knew the tipper breached a duty to keep it
"And here of course the defendants were told it came from
the inside," she said.
Her arguments were met by a round of sharp questioning by
the panel, including U.S. Circuit Judge Barrington Parker, who
said the government's "amorphous theory" gave little guidance to
Wall Street firms on how they can legally use non-public
"Your theory leaves all these institutions at the mercy of
the government," Parker said.
Newman, 49, and Chiasson, 40, were found guilty in 2012 for
their roles in a scheme the government said reaped $72 million
in illicit profits after trading on inside information about
Dell Inc and Nvidia Corp.
Prosecutors said both men traded on tips they received from
analysts working at their hedge funds who were members of a
"corrupt circle" of investment firm analysts that traded
non-public information obtained from employees at various
At their trial, U.S. District Judge Richard Sullivan did not
require proof Newman and Chiasson knew insiders at Dell and
Nvidia received a benefit.
Lawyers for Newman and Chiasson argued the government is
required to prove that tippees knew an insider received a
personal benefit in exchange for non-public
Mark Pomerantz, a lawyer for Chiasson, said his client
"didn't know the insiders had disclosed the information in
exchange for job advice, friendship or some other personal
The defense lawyers say Sullivan's ruling contradicted
decisions by Manhattan judges in four other cases including that
of Galleon Group hedge fund founder Raj Rajaratnam and SAC
Capital portfolio manager Mathew Martoma.
Apps faced repeated critical questioning by Parker, who was
among a panel of judges that last year allowed Newman and
Chiasson out on bail pending appeal after they were sentenced to
4-1/2 years and 6-1/2 years in prison, respectively.
"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.
A ruling in favor of Newman and Chiasson could impact other
cases brought under Manhattan U.S. Attorney Preet Bharara, whose
office has secured 80 insider trading convictions of individuals
since October 2009.
Among those cases would be the one against Michael
Steinberg, a SAC Capital portfolio manager convicted in December
in a case that involved the same alleged "corrupt circle" of
Sullivan, who presided over his case, instructed the jury in
Steinberg's case in the same way he did in the trial of Newman
"Can you allay my concern that what the government did was
move the indictments around until it got before its preferred
venue, Judge Sullivan?" Parker said.
Steinberg's lawyer Barry Berke attended the arguments on
Tuesday. He declined to comment.
The case is U.S. v. Newman, 2nd U.S. Circuit Court of
Appeals, No. 13-1837.
(Reporting by Nate Raymond in New York; editing by Andrew Hay)