Manhattan US Attorney Preet Bharara's ambitious Wall Street crackdown was dealt another blow Thursday when a federal judge tossed out four insider trading guilty pleas.
US District Judge Andrew Carter threw out the guilty pleas of four men who had admitted trading on insider information on IBM's $1.2 billion purchase of software firm SPPS.
Carter's ruling was the first since a stunning appeals court decision in December reversed two key insider-trading convictions — and upended insider trading rules and limited prosecutors' powers in the process.
"It's not a happy day for the government," said Stuart Slotnick, a white collar criminal defense lawyer. "It might be the first shoe to drop."
Indeed, another convicted insider trader — former Galleon Group trader Zvi Goffer — said on Thursday that he will ask to have his conviction and 10-year prison sentence reversed, too.
Zvi Goffer
The guilty-turned-innocent decisions are turning Bharara's near-perfect record of insider-trading convictions much more pedestrian. In just a few weeks, six of his 83 convictions have been overturned.
More are expected.
The six reversals stem from a December federal appeals court decision throwing out the convictions of hedge fund managers Todd Newman and Anthony Chiasson.
The two weren't guilty because they did not know that the source of the inside information got a financial benefit, the appeals panel ruled.
That ruling challenged the theory of insider trading that prosecutors had used in a wide-ranging crackdown that convicted those who were several people removed from the original illicit tip.
"Prior to 'Newman' certain elements of insider trading … were a little bit hazy," Carter said at a December hearing. "It just so happens that the circuit has indicated that legal theory doesn't work."
On Thursday he threw out the pleas of former Euro Pacific Capital traders Daryl Payton, Thomas Conrad and David Weishaus, along with Grent Martin, a former analyst at Royal Bank of Scotland.
Martin had learned about IBM's pending merger from a friend working at its law firm who expected him to keep it confidential. But the analyst bought SPSS stock and told his roommate, Condrad, who told his co-workers Weishaus and Payton.
They pled guilty in December 2013.
Michael SteinbergPhoto: R. Umar Abbasi
Another conviction expected to bite the dust is that of Michael Steinberg, the former SAC Capital money man nailed for insider trading in December of 2013. His appeal has been put on hold until the government decides whether to ask for a rehearing of the Newman case — and possibly even take it to the US Supreme Court.
Steinberg was part of a circle of friends who were passing around tips that eventually ensnared him, along with Newman and Chiasson. One of the cooperating witnesses in those cases, Danny Kuo, has said he might withdraw his plea, too.
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