NEW YORK (Reuters) - Lawyers for two former Wall Street stockbrokers urged jurors on Tuesday to reject a U.S. regulator’s claims they illicitly traded on a tip about an IBM Corp deal, saying their conduct did not constitute illegal insider trading.
At the start of a trial in Manhattan federal court, lawyers for ex-Euro Pacific Capital Inc brokers Daryl Payton and Benjamin Durant admitted they traded on non-public information about IBM’s 2009 acquisition of SPSS Inc for $1.2 billion.
But they said the U.S. Securities and Exchange Commission was wrong to press claims that they broke the law, a position the defendants adopted after a recent appeals court ruling limited the reach of insider trading laws.
“Trading on non-public information alone is not a violation of our nation’s securities laws,” Sean Hecker, a lawyer for Payton, said in his opening statement.
But SEC lawyer David Axelrod told jurors that Payton and Durant knew their information was obtained illegally, and that they used it to make more than $883,600.
“It was like sharks attracted to blood in the water,” Axelrod said.
The trial marks a test for the SEC amid litigation over what constitutes insider trading, an issue the U.S. Supreme Court last month said it would review.
The trial came after a December 2014 ruling by a federal appeals court in New York that traders could be held liable only if they knew a tip’s source received a benefit of “some consequence,” not just friendship, in exchange.
That ruling overturned the convictions of two hedge fund managers. It prompted federal prosecutors in the IBM case to drop criminal charges against five defendants, including Payton, 40, and Durant, 39. All but Durant had pleaded guilty.
But the SEC, which faces a lower burden of proof, chose to press its civil case against Payton and Durant. Andrew Ceresney, head of the SEC enforcement division, attended the trial’s start, signaling the importance of a victory for the regulator.
Axelrod said Payton and Durant learned about the SPSS deal from Euro Pacific colleague Thomas Conradt, who heard about it from his roommate, Trent Martin.
Martin, a Royal Bank of Scotland Group Plc analyst, learned about the news from a friend at IBM’s law firm, who expected Martin to not tell anyone, Axelrod said.
Scott Morvillo, Durant’s lawyer, said what the SEC claimed Martin received for the tip - general chores by Conradt around the apartment including negotiating a rent reduction - did not constitute an illegal “benefit.”
The case is Securities and Exchange Commission v. Payton et al, U.S. District Court, Southern District of New York, No. 14-04644.
Reporting by Nate Raymond in New York; Editing by Andrew Hay