Wall Street's victory over Uncle Sam continued Thursday as seven more insider trading convictions went up in smoke.
U.S. Attorney Preet Bharara said he will move to dismiss charges against SAC Capital trader Michael Steinberg and six cooperating witnesses in a case that has become a thorn in the New York prosecutor's side.
"These prosecutions were all undertaken in good faith reliance on what this office and others, including able defense counsel for all those who pled guilty, understood to be the well-settled law before Newman," Bharara said in a statement.
As recently as July 2014, Bharara had a perfect record after having wracked up 80 convictions in his widespread insider trading crackdown. Now, a total of nine convictions have been squashed, including those of hedge fund managers Anthony Chiasson and Todd Newman, who triggered the recent round of annulments.
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Chiasson and Newman were found guilty in 2012 of using inside information to make millions for their hedge funds. But the U.S. Court of Appeals for the Second Circuit reversed their convictions in a ruling that addressed long-held questions about how close someone needs to be to the source of an illegal tip to be culpable.cooperating witnesses.
Specifically, the appeals court ruled that in order to be convicted of insider trading a person must have direct knowledge of the insider doling out the tips. The court also said the government must prove the person being accused of illegal trading was aware that the tipper received some sort of benefit, like cash or a job, in exchange for the information provided.
Bharara challenged the decision as critics charged that it would open the door to improper trading by allowing Wall Streeters to profit off information they understood to be wrongfully obtained as long as they were far enough removed from the original source.
In a final death blow, the United States Supreme Court declined to hear the case this month, leaving Bharara no choice but to drop the charges against Chiasson and Newman.
Thursday's reversals are just the latest fallout form the U.S. Supreme Court's refusal to examine the issue.
"Michael Steinberg did not commit any crime and is an innocent man," said his attorney Barry Berke. "We hope that his vindication will receive as much attention as his wrongful prosecution."
All of the reversals thus far are tied to the same alleged insider trading ring, which involved massive Wall Street hedge funds including SAC Capital, Level Global and Diamondback Capital. Today, only SAC Capital still exists, although in diminished form, and it is now called Point72 Capital.
The hedge fund managers — including Newman of Diamondback, Chiasson of Level Global and Steinberg of SAC — were accused to trading on tips they received from their staff analysts, who pleaded guilty to wrongfully obtaining non-public information on Dell and Nvidia.
Although the analysts pleaded guilty, they, too, were often removed from the original source of the stock tips in question. A tip on computer company Dell , for example, originated from an employee in Dell's investor relations department who allegedly disclosed the company's earnings to an analyst named Sandy Goyal, who, in turn, passed it on to Jesse Tortora, an analyst at Diamondback who later said he passed it on to Newman.
Tortora also allegedly passed the information on to Sam Adondakis, an analyst at Level Global who testified at trial against Chiasson.