NEW YORK (Reuters) - The U.S. Securities and Exchange Commission urged jurors on Friday to hold two former New York stockbrokers liable for insider trading, in a test of its ability to pursue such cases after an appellate court’s ruling reshaped the law.
At the close of a trial in Manhattan federal court, an SEC lawyer urged jurors to hold ex-Euro Pacific Capital Inc brokers Daryl Payton and Benjamin Durant liable for trading on a tip in 2009 that IBM would acquire SPSS Inc for $1.2 billion.
“They knew exactly what they were doing, and that what they were doing was wrong,” said David Axelrod, the SEC attorney.
Matthew Fishbein, Payton’s lawyer, acknowledged the brokers traded on the tip. But he said the trades were not illegal, a position the defendants adopted after an appellate ruling limited the reach of insider trading laws.
“Not every person who purchases stocks based on material non-public information commits insider trading,” Fishbein said.
The trial comes amid ongoing litigation over what constitutes insider trading, an issue the U.S. Supreme Court last month said it would review.
The trial followed a 2014 ruling by a federal appeals court in New York holding 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, which overturned two hedge fund managers’ convictions, prompted prosecutors in a criminal case against Payton, Durant and three other men to drop the charges. All but Durant had pleaded guilty.
The SEC continued to press a related civil case against Payton and Durant. It said they learned about the SPSS deal from Euro Pacific colleague Thomas Conradt, who heard about it from his roommate, Trent Martin.
The SEC alleged that Martin, a Royal Bank of Scotland Group Plc analyst, learned about the news from a friend at IBM’s law firm, Michael Dallas, who expected Martin to not tell anyone.
Fishbein argued evidence showed Dallas intended Martin to trade on the tip, making the SEC wrong in claiming Martin had a duty to keep it secret.
Even if Martin did have such a duty, Fishbein said the alleged benefits he received from Conradt for the tip, like chores around the apartment, were inconsequential, nor did Payton or Durant know about them.
But Axelrod said Martin like the others knew the information’s value.
“You don’t get something for nothing in this world,” he said.
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 Tom Brown