Supreme Court might hear insider trading case

August 03 02:45 2015

A groundbreaking case that challenges the legal definition insider trading might be headed to the U.S. Supreme Court. The Department of Justice (DOJ), in a petition backed by the U.S. Solicitor General Donald Verrilli Jr., said it is seeking review by the highest court in the land over a a ruling that, left to stand, would dramatically narrow what counts as illegal insider trading.

GTY 492293181 A CLJ CIT ESI USA NYWhether the Supreme Court will hear the case — prosecuted by Manhattan U.S. Attorney Preet Bharara — remains to be seen. But the outcome of this next phase could dramatically affect how insider trading is prosecuted across the nation. In December, Bharara suffered a major setback in his massive insider-trading crackdown when the U.S. 2nd Circuit Court of Appeals overturned the convictions of Level Global co-founder Anthony Chiasson and Diamondback portfolio manager Todd Newman.

The appeals court ruled that the government presented “no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.” Under the ruling, a person must have direct knowledge of the insider doling out the tips and know that he or she was breaking the law to be convicted of insider trading. The court said the government must also prove that the tippee knows the tipper received some sort of benefit in exchange for the information provided.

In its filing Thursday, the DOJ challenged this viewpoint, saying the appeals court relied on a “novel test” that has “created a conflict with circuits” that have relied on other interpretations based on precedent. “The effect of the new rule will be to hurt market participants, disadvantage scrupulous market analysts, and impair the government’s ability to protect the fairness and integrity of the securities markets,” the petition said.