Speaking at a conference, U.S. Securities and Exchange Commission Chair Mary Jo White said Thursday "there is no question it's a significant decision," adding her agency was reviewing the Wednesday ruling, which she called "overly narrow."
Some defendants who cooperated and pleaded guilty in the prosecution of Newman and Chiasson are now considering taking the extraordinary step of withdrawing their pleas, two lawyers said Thursday.
The three-judge panel not only found that prosecutors needed to prove a trader knew that the original source of non-public information has received a benefit in exchange for the tip, but also narrowed what actually constituted such a benefit.
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In several such cases, the defendants were tipped based on information they received third- or fourth-hand, rather than straight from the source, which made it tougher to prove their awareness that source had obtained something tangible in return.
The ruling threatens to challenge a broad insider trading crackdown underway since 2009 under Manhattan U.S. Attorney Preet Bharara, whose office during his tenure has secured 82 other convictions.
While the pace of prosecutions had looked set to gradually slow from the breakneck pace of recent years, the appeals court's ruling could slam the brakes on authorities' efforts to pursue future cases.
Many on Wall Street say that despite Bharara's thrusts against the practice, trading on privileged information remains common amid the current M&A boom, with Merck & Co's acquisition of Cubist Pharmaceuticals Inc just the latest deal to have seen unusual options activity before being announced.
Among those threatening to withdraw plea deals is Danny Kuo, a former Whittier Trust Co analyst who pleaded guilty in 2012 and turned cooperator. Roland Riopelle, Kuo's lawyer, said in an interview he had calls into the U.S. Attorney's Office. While he had not made a definite decision, the issue was "certainly worth studying."
"If there's no crime there, that's a good reason to withdraw your plea," he said.
Kuo was nearly sentenced to six months in prison in July by U.S. District Judge Richard Sullivan, whose ruling in the Newman and Chiasson case was subject to the appeal.