APPEALS AVENGER
Judge Rakoff takes on insider- trading reversal
A Manhattan federal court trial judge has totally dissed a powerful appeals court— and by so doing could make it easier to prosecute Wall Streeters accused of insider trading.
Judge Jed Rakoff, who for years quietly groused about the Second Circuit Court of Appeals take on insider trading, ignored its precedentsetting December ruling and on Monday upheld the conviction of an Illinois man, Bassam Salman, who made $ 5 million trading off illegal tips from his brotherinlaw, a Citigroup investment banker.
Rakoff was able to throw some serious shade on the higher court by getting permission to sit temporarily on a San Francisco appeals court — the 9th Circuit Court of Appeals — and then writing an opinion on a West Coast insidertrading case.
The 2nd Circuit, redefining years of law, in December tossed the conviction of hedgefund manager Todd Newman, at the end of a chain of tippees, because prosecutors didn’t prove he knew the original tipster got a personal benefit — something more than just friendship.
Rakoff didn’t like the decision — or any of the related decisions leading up to last year’s gamechanger — feeling that prosecutors needn’t be forced to go that far to gain to prove a tippee’s guilt.
Sitting 3,000 miles away, Rakoff got his revenge. “To the extent Newman can be read to go so far, we decline to follow it,” Rakoff wrote.
On Tuesday, the decision had some top white collar lawyers and commentators buzzing.
Rakoff is the “only district court judge in America to cut back on the Second Circuit,” said John Coffee Jr., a professor in securities law who co-teaches a class with the judge at Columbia Law School.
“Formany lawyers, itwould be poetic revenge,” he added.
“New man is a controversial decision within the legal profession because it does make it hard to prosecute insider trading,” Coffee said.
Rakoff and the 2nd Circuit have traded barbs for years.
Back in a November 2012 insidertrading case, Rakoff needled the appeals court, calling its reasoning in a recently decided insidertrading case “delphic,” or murky.
In the 2014 Newman decision, the appeals court hit back. While alluding to Rakoff’s “somewhat delphic” label of its reasoning that prosecutors had to prove tipsters got a benefit, the court cast aside Rakoff’s statement.
Now, with two appeals courts possibly at odds over the law, it could be easier to get the Supreme Court to accept the case, six top securities lawyers told The Post.
A hearing by the Supreme Court could be good news for Manhattan US Attorney Preet Bharara, who has seen several of his convictions overturned because the Newman case.
The DOJ’s Solicitor General has until Aug. 1 to decide to try to bring the case before the High Court.
A spokesman for Bharara declined to comment.
“The 9th Circuit opinion carefully makes the point that Newman is a narrowly tailored decision and not the sweeping rewrite of insidertrading laws that some have declared,” Gregory Morvillo, a lawyer who represents Newman codefendant Anthony Chiasson told The Post. “What Salman does not do is create a split between the 2nd and 9th Circuits.”