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Todd Newman and Anthony Chiasson: Securities Fraud Appeal

Todd Newman and Anthony Chiasson: Securities Fraud Appeal

The subject matter of a New York lawsuit is being referred to as one of the most significant developments in insider trading law in a decade. Preet Bharara, United States Attorney for Manhattan, recently filed a petition in federal appeals court to rehear a Second Circuit Court ruling. The ruling handed down by the Second Circuit impacts the manner in which prosecutors bring cases against those accused of insider trading.

The ruling came down in December of 2014 and federal prosecutors quickly filed an appeal in late January of 2015. According to the prosecutors, the opinion issued by the Second Circuit is in conflict with both the United States Supreme Court and the Second Circuit’s own precedent.

The Case

Todd Newman and Anthony Chiasson

In December 2012, federal prosecutors brought criminal charges against Todd Newman and Anthony Chiasson for violations of federal securities laws. Essentially, both were charged with insider trading. Both Newman and Chiasson were hedge fund portfolio managers. Both were convicted along with 80 others whom Bharara has gone after in the past.

The evidence brought forward in trial demonstrated that the duo made $72 million in profit. Their success was due in large part to insiders at Dell and Nvidia who released the company’s quarterly earnings prior to the report going public. The argument for conviction from the prosecution was that the law required only that they prove the insiders violated secrecy duty for personal gain.

The defense responded that the law requires an additional element of proof that the defendants knew the leak was for the insiders personal gain. Manhattan United States District Court Judge Sullivan agreed with the prosecution. Newman and Chiasson were sentenced to prison for 54 months and 78 months, respectively.

The Appeal

The Second Circuit agreed with the defendants. The pair was granted bail from their respective prison sentences pending a ruling from the Second Circuit. According to the appeals court opinion, We agree that the jury instruction was erroneous because we conclude that in order to sustain a conviction for insider trading, the government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed information and that he did so in exchange for a personal benefit.

This heightened legal standard clarifies a previously murky area of insider trading law. The ruling changes what prosecutors are required to prove. They must now show that the defendant knew the insider exchanged the information and the defendant knew this was done for personal gain. Convictions for insider trading based on a previous understanding of the requisite mens rea, or mental state, will likely be appealed based on this ruling for an Securities Fraud violation

The Petition

Bharara’s office filed a petition in late January. This petition was in response to the Second Circuit’s opinion and requested that the panel of judges rehear the case. According to Bharara, The Opinion breaks with Supreme Court and Second Circuit precedent, conflicts with decisions of other (federal appeals court) circuits, and threatens the effective enforcement of security law.

The petition goes on to state that if the court will not rehear the case, the United States Court of Appeals for the Second Circuit ought to consider the issue.

If you are faced with a federal appeal, contact our experienced team of appeals attorneys at Brownstone Law.


Federal Appeal Lawyers In Antitrust
Author Name
Robert L Sirianni
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