US court of appeals to hear insider trading case that could jeopardise several guilty verdicts

A US appeals court will hear a case whose outcome could make it harder for the government to prosecute in cases of insider trading and end up jeopardising a number of high-profile guilty verdicts, Reuters reported.

The question facing the 2nd US Circuit Court of Appeals in New York on Tuesday, 22 April, is one over which lower court judges have been divided: whether conviction on ground of insider trading warranted that the recipient of non-public information must know that the source of the tip benefited from the disclosure.

The issue was at the heart of the appeal brought by 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.

In 2012, Newman and Chiasson were convicted for their roles in a scheme, which according to prosecutors raked in $72 million in illicit profits after trading on inside information about Dell Inc and Nvidia Corp.

According to the government, Newman, 46, and Chiasson, 49, traded on tips they received from analysts who worked at their hedge funds.

Chiasson and Newman were the recipients of information about Dell and Nvidia that insiders at the companies leaked to friends, who in turn passed it to a group of hedge fund analysts the government dubbed as a ''criminal club'' that shared their intelligence about company earnings so that they might all profit by trading on it.

The government cited the example of the original Dell tipper, an investor relations employee named Rob Ray, who shared information about Dell's earnings with a business school classmate and friend at asset management firm Neuberger Berman in exchange for advice about how to land a job on Wall Street.

According to the government, both Chiasson and Newman knew, by the time the Dell data got to them, that it came from someone on the inside who must have been violating his duty to keep it confidential, which made trading on it, a crime.

To further confound the issue, the whole thing appeared to depend on whether violating one's duty to keep something confidential by definition meant that the tipper received a benefit for giving the tip.

Bloomberg quoted  Richard Holwell, a former federal judge, now in private practice at Holwell Shuster and Goldberg, as admitting that this was a very fine point.