Mary Jo White, the chairperson of the Securities and Exchange Commission (SEC) was concerned after the U.S. Second Circuit Court of Appeals overturned the insider trading conviction against two former hedge fund managers.
Yesterday, the Court of Appeals overturned the insider trading conviction against Anthony Chiasson of Level Global Investors and Todd Newman of Diamondback Capital Management. It was the first reversal out of the 82 insider trading convictions won by prosecutors in New York.
The Court of Appeals found that the federal prosecutors’ evidence was insufficient to warrant the conviction of Chiasson and Newman. Its ruling indicated that U.S. District Judge Richard Sullivan made a mistake when he ruled that the government is not required to show that the defendants knew that their insider sources provided insider information for personal benefit.
Although the government might like the law to be different, nothing in the ;aw requires symmetry of information in the nation’s securities market, according to the ruling of the Court of Appeals.
Narrow view of the insider trading law
During the New York Times Dealbook Conference in New York on Thursday, White said the SEC is reviewing the ruling of the Court of Appeals. The chairman of the commission said the cause for concern the overly narrow view of what classifies an insider trading.
“There’s no question, it’s a significant decision. My initial sense is that it is an over narrow view of the insider trading law, and that is a concern,” said White.
The SEC has been focusing on cracking down insider trading and regulating high frequency trading. One of the high profile insider trading cases pursued by the SEC was against SAC Capital Advisors, the hedge fund managed by billionaire Steven Cohen. The firm agreed to settle the case against it for more than $600 million.
Ruling a major blow to Attorney General Bharara
Market observers opined that the decision of the Court of Appeals to reverse the insider trading conviction against Chiasson and Newman is a major blow to the office of Manhattan U.S. Attorney General Preet Bharara.
Many believed that the ruling has a wide-ranging impact on some of his cases including the insider trading conviction against SAC Capital’s portfolio manager, Michael Steinberg. Judge Sullivan also presided on the case against Steinberg.