NEW YORK (Reuters) - U.S. prosecutors on Thursday abandoned a high-profile insider trading case against Michael Steinberg, formerly a portfolio manager at SAC Capital Advisors, and six others, saying the case was no longer consistent with the law.
Manhattan U.S. Attorney Preet Bharara said the decision was based on a December federal appellate court ruling that narrowly defined what constitutes insider trading and that the U.S. Supreme Court this month declined to review.
The ruling marked a major setback for an insider trading crackdown underway since 2009 under Bharara that resulted in cases against 96 people, 14 of whom have escaped charges thanks to the ruling.
Steinberg, 43, was in the process of appealing his 2013 conviction on similar grounds as the case at issue in the ruling on insider trading. He had been sentenced to 3-1/2 years in prison. His lawyer as well as those for other defendants welcomed Thursday’s announcement.
“We hope that his vindication will receive as much attention as his wrongful prosecution,” said Barry Berke, Steinberg’s lawyer.The news followed last year’s decision by the 2nd U.S. Circuit Court of Appeals curtailing prosecutors’ ability to pursue insider-trading cases.
The appeals court threw out the 2012 convictions of hedge fund managers Todd Newman and Anthony Chiasson, who like Steinberg were convicted for trading on inside information about Dell Inc [DI.UL] and Nvidia Corp (NVDA.O).
Steinberg, who was charged in the same conspiracy, was expected to obtain similar relief. Six others in the case, meanwhile, pleaded guilty and became government cooperators: Spyridon Adondakis, Sandeep Goyal, Jon Horvath, Danny Kuo, Hyung Lim and Jesse Tortora.
In a statement, Bharara said insisting their pleas stand “would not be in the interests of justice” after the ruling.
“These prosecutions were all undertaken in good faith reliance on what this office and others, including able defense counsel for all those who pled guilty, understood to be the well-settled law” before the ruling, Bharara said.
Bharara had previously said the appellate court ruling could affect a subset of his office’s cases and would create a “category of conduct that arguably will go unpunished going forward.”
Joon Kim, Bharara’s deputy, said Thursday he expected dropping charges against Steinberg and the other six to be “largely the extent of the fallout” of the ruling on cases the office had brought, though it may remain subject to litigation.
Steinberg and Horvath were among eight current or former employees of Steven A. Cohen’s SAC Capital hedge fund to plead guilty or be convicted at trial for insider trading during the crackdown.
SAC agreed in 2013 to plead guilty to fraud charges and pay $1.8 billion in criminal and civil settlements.
SAC Capital last year rebranded itself Point72 Asset Management as it shifted toward being a family office managing Cohen’s fortune.
While Cohen was never charged criminally, the U.S. Securities and Exchange Commission has sought to bar him from the securities industry for failing to supervise two portfolio managers including Steinberg and prevent insider trading.
It was unclear what effect dropping Steinberg’s case might have on Cohen’s case. An SEC spokesman declined comment.
A Point72 spokesman said it was “pleased that the ordeal for Mike Steinberg and his family is over.”
The case is U.S. v. Steinberg, 2nd U.S. Circuit Court of Appeals, No. 14-2141.
Reporting by David Ingram and Nate Raymond; Editing by Meredith Mazzilli and Leslie Adler