NEW YORK, Jan 29 (Reuters) - U.S. prosecutors said they are prepared to drop charges against five men accused of engaging in insider trading ahead of an IBM Corp acquisition, citing a major appellate court ruling limiting authorities’ abilities to pursue such cases.
In an unusual letter late Wednesday, prosecutors under Manhattan U.S. Attorney Preet Bharara asked U.S. District Judge Andrew Carter to dismiss the indictment.
Such a decision would allow Bharara’s office to appeal Carter’s ruling last week that the December appellate court decision applied to the case, a holding that prompted the judge to throw out four of the men’s guilty pleas.
But prosecutors said if Carter will not dismiss the indictment, they intend to drop the charges, saying its evidence “falls short” of the appellate court’s standards.
A hearing is scheduled for later Thursday. The defendants’ lawyers and Bharara’s office did not respond to requests for comment.
The case marked the latest fallout of a ruling by the 2nd U.S. Circuit Court of Appeals reversing the insider trading convictions of hedge fund managers Todd Newman and Anthony Chiasson.
The 2nd Circuit held that prosecutors need to prove a trader knew that the source of a tip received a benefit in exchange for the information. It also narrowed what constitutes a benefit, saying it must be of “some consequence” and cannot be only friendship.
Bharara’s office had before the ruling secured 86 people’s convictions for insider trading since October 2009.
Prosecutors on Friday asked the 2nd Circuit to reconsider the ruling, saying it will “dramatically limit” authorities’ abilities to pursue insider trading cases.
In the IBM case, prosecutors said a lawyer at IBM’s law firm told former Royal Bank of Scotland Group Plc analyst Trent Martin in 2009 about the company’s planned acquisition of SPSS Inc for $1.2 billion.
While the friend expected Martin not to tell anyone, the analyst bought SPSS stock and told his roommate, then Euro Pacific Capital Inc trader Thomas Conradt, who in turn told his colleagues, traders David Weishaus, Daryl Payton and Benjamin Durant, authorities said.
Carter last week in light of the 2nd Circuit ruling tossed the guilty pleas of Martin, Conradt, Weishaus and Payton ahead of a Feb. 23 trial for Durant.
Prosecutors had argued that because the information in the IBM case was misappropriated from the insider and not provided directly, the appellate decision did not apply.
The case is U.S. v. Conradt, U.S. District Court, Southern District of New York, No. 12-cr-00887. (Reporting by Nate Raymond in New York; Editing by Chizu Nomiyama)