“The Government presented absolutely no testimony or any other evidence that Newman and Chiasson knew that they were trading on information obtained from insiders, or that those insiders received any benefit in exchange for such disclosures or even that Newman and Chiasson consciously avoided learning of these facts.”
— The Court of Appeals for the Second Circuit
The Appellate victory
Anthony and his co-defendant, Todd Newman, appealed their convictions for insider trading to the U.S. Court of Appeals for the Second Circuit arguing, among other things, that the trial court judge ignored Supreme Court precedent and misapplied the law in instructing the jury. The Court heard oral arguments in April, 2014 and in a landmark, unanimous ruling that December, the three judge panel overturned their convictions finding that the government failed to prove they engaged in insider trading. The Government’s petition to the Supreme Court of the United States was rejected in October 2015 and the Appeal’s Court decision remains intact.
Back To Top ∧“The circumstantial evidence in this case was simply too thin to warrant the inference that the corporate insiders received any personal benefit in exchange for their tips.”
— The Court of Appeals for the Second Circuit
The Decision’s impact
This was the first time an appeals court overturned convictions in connection with the U.S. Attorney’s crackdown on insider trading. The Court emphatically rejected the Government’s position that prosecutors were not required to prove that the recipient of inside information – the “tipee” – knew the source of the information – the “tipper” – breached a fiduciary duty in exchange for a personal benefit. That position was embraced by the trial court judge.
“The government’s overreliance on our prior dicta (language in prior opinion) merely highlights the doctrinal novelty of its recent insider trading prosecutions, which are increasingly targeted at remote tippees many levels removed from corporate insiders.”
— The Court of Appeals for the Second Circuit
Characterizing the legal rationale supporting Anthony’s acquittal as "dramatically wrong" the government filed a request for reconsideration by the three judge panel that heard the appeal or for a rehearing en banc. Both requests were denied without comment in April 2015. Two weeks later, the trial court judge dismissed the indictment, and both Chiasson and his co-defendant were fully exonerated. In addition to being a complete vindication of Anthony both personally and professionally, the Court’s opinion is a victory for investors and their advisors more generally. The ruling reaffirmed what courts have previously acknowledged – that it is the job of a portfolio manager to gather as much market intelligence as he or she lawfully can, particularly from their analysts, and to trade on it.
“Nothing in the law requires a symmetry of information in the nation’s securities markets… insider trading liability is based on breaches of fiduciary duty, not on informational asymmetries.”
— The Court of Appeals for the Second Circuit
The Court affirmed that efficient capital markets depend not only on the protection of property rights in information, but also “require that persons who acquire and act on information about companies be able to profit from the information they generate.”
By establishing certainty about what the law requires, this landmark case and the Second Circuit opinion in which it culminated protects and supports the essence of efficient markets and the critical role investment professionals play in them: getting more rather than less information into the market through accurately priced stocks. The law’s greater clarity will serve to benefit portfolio managers, research analysts and legal/compliance professionals who confront these issues on a daily basis.
Back To Top ∧Case History
In early 2012, Anthony Chiasson, a hedge fund portfolio manager and co-founder of Level Global LP, Todd Newman, a former portfolio manager at Diamondback Capital Management LLC and several others, were charged with insider trading as part of a crusade launched by the U.S. Attorney for the Southern District of New York, Preet Bharara. The indictment alleged that a group of financial analysts at various hedge funds and other institutional investors exchanged financial information they obtained, mostly indirectly, from company insiders at Dell Inc. and Nvidia Corporation, and that the analyst group passed this information to portfolio managers at their companies. Anthony, one of those portfolio managers, was alleged to have traded on the information for the benefit of his hedge fund. He steadfastly maintained his innocence and, in November 2012, went to trial.
The charges against Anthony were based entirely on information that his analyst provided to him – the government did not claim that Anthony had any contact with any of the insiders or tippees. In fact, they acknowledged that he was four people removed from the original sources of the information and did not even know who they were. Nor was there a shred of evidence that Anthony knew the insiders breached a fiduciary duty in exchange for a personal benefit in their disclosure of the information which, according to a 1983 Supreme Court opinion, is a critical element of the crime. Before the jury began deliberating, Anthony’s lawyers asked the Judge to instruct them that, in order to establish guilt, they had to find the government proved this critical element beyond a reasonable doubt, but the Judge refused. Anthony was convicted and sentenced to 78 months in prison.
Steadfastly maintaining his innocence, Anthony appealed and was totally vindicated by the 2nd Circuit Court of Appeals in its unequivocal and emphatic, unanimous ruling. The Supreme Court of the United States also denied the Justice Department’s request to review the case in October 2015.
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