Supreme Court Denies DOJ Appeal on Insider-Trading Prosecutions
DOW JONES & COMPANY, INC. 9:57 AM ET 10/05/15
WASHINGTON--The Supreme Court on Monday turned away a closely watched Justice Department appeal seeking more leeway to bring insider-trading prosecutions, a move that ends the government's effort to overturn a court ruling favoring Wall Street defendants.
The justices, without comment, said they wouldn't consider the department's challenge to a major appeals-court decision from last year overturning two insider-trading convictions of hedge-fund portfolio managers.
That ruling, from the Second U.S. Circuit Court of Appeals in New York, said it wasn't enough for prosecutors to show that someone who received an inside tip traded on material nonpublic information about a corporation.
Instead, prosecutors also had to prove that the tip recipient knew the confidential information came from an insider, and that the insider disclosed the information for a personal benefit, the appeals court said.
The decision took some steam out of a Justice Department crackdown on insider trading.
U.S. Solicitor General Donald Verrilli, in a petition asking the Supreme Court to hear the case, had argued the Second Circuit's legal rule would "hurt market participants, disadvantage scrupulous market analysts and impair the government's ability to protect the fairness and integrity of the securities markets."
The appeals court ruling tossed out the convictions of former hedge-fund traders Todd Newman and Anthony Chiasson for relying upon confidential information to make $72 million trading on shares of Dell Inc. and Nvidia Corp.
The appeals court said the men were several levels removed from the original sources of the confidential information and that prosecutors didn't prove beyond a reasonable doubt the defendants knew they were trading on inside tips. The court also said there was thin evidence that the original inside tippers at Dell and Nvidia received any personal benefit from disclosing the information.
Lawyers for the two traders had urged the Supreme Court to stay out of the case and leave the lower court ruling in place. They said the decision was correct and wouldn't have the disruptive effects the government claimed.
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