The convictions of two former hedge fund managers on insider trading charges were overturned on Wednesday, dealing a huge blow to Manhattan US attorney Preet Bharara's crackdown on Wall Street.
A federal appeals court not only tossed the convictions of Todd Newman and Anthony Chiasson but said the cases against them should be dismissed entirely, according to a court filing.
Chiasson, a former portfolio manager with now defunct Diamondback Capital, and Newman, who worked for Level Global, were found guilty of trading on tips passed through a network of analysts.
But they claimed not to have known that the leakers of the information further up the chain received some "personal benefit."
Defense lawyers argued the trial judge erred in his instructions to the jurors, who were not told to consider whether such knowledge was required to render a guilty plea.
"We conclude that the jury instructions were erroneous and that there was insufficient evidence to support the convictions," a three-judge panel wrote in its 28-page opinion.
Former Securities and Exchange Commission enforcement lawyer Eugene Goldman said the decision "could stop multiple insider trading cases in their tracks."
"This decision will burden the government with the difficulty of showing that a remote tipee was aware that the tipper shared the information for their personal gain," he said.
The case has ramifications for former SAC Capital honcho Michael Steinberg, who is basing the appeal of his conviction by Bharara's office on insider trading on the same issues.
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