Bharara loses challenge to insider trading ruling

US prosecutors have lost a bid to challenge a federal court ruling setting a higher bar to prove insider trading, which could rein in future prosecutions of such offences and affect cases that have already resulted in guilty pleas.

On Friday, the US Appeals Court for the Second Circuit rejected an appeal by Preet Bharara, the US Attorney for Manhattan, who wanted a three-judge panel that overturned two insider trading convictions in December to hear the case again.

The appeals court also rejected a petition asking the entire appeals court to review the overturned convictions of Todd Newman, a former portfolio manager at Diamondback Capital, and Anthony Chiasson, a former money manager at Level Global Investors.

Although the chance that the entire appeals court would hear the case in what is known as an en banc proceeding was slim, prosecutors hoped that the court would at least grant a rehearing from the three-judge panel to clarify some legal issues.

The appeals court decision means the ruling redefining insider trading is likely to stand, marking a blow to the US Attorney's office in Manhattan, which had developed an impressive record of some 80 insider trading convictions. Prosecutors have said the decision will have an affect on only a small number of cases.

In December, an appeals panel ruled that there was not enough evidence to convict Mr Newman and Mr Chiasson. The court said prosecutors had to show a tipster received a "consequential" benefit in an explicit quid pro quo. The ruling also said the end user of the information had to know that the tip was illegally obtained.

The decision could affect cases related to the circle of defendants linked to Mr Chiasson and Mr Newman. The conviction of Michael Steinberg, a former portfolio manager at SAC Capital who was sentenced to three-and-a-half years in prison, could also be overturned.

The case against SAC Capital founder Steven Cohen could also be affected. He was accused by the Securities and Exchange Commission of failing to supervise Mr Steinberg and another senior employee, Mathew Martoma, who was sentenced to nine years in prison in September.

If the conviction of Mr Steinberg is also thrown out, that would wipe out a substantial basis of the SEC case against Mr Cohen.

"Today's decision reaffirms that Michael Steinberg did not commit a crime and never should have been prosecuted" said Barry Berke, Mr Steinberg's attorney. "The decision requires his conviction to be thrown out as well."

The appeals court ruling has already had an influence on other cases. Citing that decision, a district court judge in January vacated the guilty pleas of four defendants who were charged with insider trading related to IBM's 2009 acquisition of software firm SPSS.

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