A U.S. judge said Thursday he would likely vacate the guilty pleas of four men accused of engaging in an insider trading scheme ahead of an IBM Corp deal, as fallout continued from an appellate ruling curtailing authorities' abilities to pursue such cases.
U.S. District Judge Andrew Carter in Manhattan questioned whether the pleas had an "insufficient factual basis" in light of the decision from the 2nd U.S. Circuit Court of Appeals, a view shared by the defendants' lawyers.
The 2nd Circuit on Dec. 10 held that prosecutors needed to prove a trader knew that the original source of non-public information received a benefit in exchange for the tip.
Legal experts have said the decision will make it harder to pursue cases involving so-called remote tipees, in which defendants were tipped based on information they received third-or-fourth hand, instead of directly from the source.
Prosecutors from Manhattan U.S. Attorney Preet Bharara's office on Thursday urged Carter to hold off on his decision to give them time to submit briefing on why the appellate ruling did not apply.
Carter agreed, but said the decision was "pretty clear."
"My inclination is you're wrong on that," Carter said at one of a series of hearings to a prosecutor.
The proceedings marked the latest reverberations from the 2nd Circuit decision reversing the insider trading convictions of hedge fund managers Todd Newman and Anthony Chiasson.
Thursday's hearing centered on guilty pleas entered before the appellate ruling came down by former Euro Pacific Capital Inc traders Daryl Payton, Thomas Conradt and David Weishaus as well as Trent Martin, a former analyst at Royal Bank of Scotland Group Plc.
Authorities said in 2009, Martin learned from a friend working at IBM's law firm that it planned to acquire software maker SPSS Inc in a deal later valued at $1.2 billion.
While the friend expected Martin to keep the details secret, the RBS analyst bought SPSS stock and told Condradt, his roommate, prosecutors said.
Condradt in turn told his co-workers Weishaus, Payton and Benjamin Durant, who has pleaded not guilty, authorities said.
If their pleas are vacated, the men would go to trial with Durant on Feb. 23. He had been scheduled for trial Jan. 12, but Carter on Thursday adjourned it a month in light of the appellate ruling.
A spokeswoman for Bharara declined comment. He has said he is considering appealing the 2nd Circuit decision.
The case is U.S. v. Conradt, U.S. District Court, Southern District of New York, No. 12-cr-00887.
