This morning, on the first day of its new term, the Supreme Court denied cert in the case of U.S. v. Newman and Chiasson, otherwise known as the non-insider insider trading case. Bloomberg News has the story here. This is the case of two corporate non-insiders who acted on a "tip" coming from an official company investor relations spokesperson, who would have given the same information to anyone who called, and where the tip passed through multiple layers before arriving at the defendants, where the defendants did not pay anything for the "tip" and the original guy who got the information from the spokesperson did not pay the spokesperson, and finally where the spokesperson himself was never prosecuted or charged with any wrongdoing. On these facts, Newman and Chiasson were convicted and sentenced to 4 1/2 and 6 1/2 years respectively. In December 2014 a unanimous Second Circuit reversed, held that what they were accused of was not a crime, and directed that there be no retrial. I have previously covered the subject of these prosecutions multiple times, most recently on August 9 here, and going back to July 13, 2014 in an article titled "The Impending Demise Of The Insider Trading Jihad."
In the August 9 article I predicted that "the Supremes are not going to give this one the time of day." Denying cert without opinion on the first day of the term for a petition that was only filed two months ago is the Supreme Court equivalent of "not giving it the time of day."
So where does that leave the insider trading jihad of Mr. Preet Bharara, and particularly the non-insider branch of the insider trading jihad? The answer is, at least for the non-insider portion, it's dead. If the Feds want to go on with this charade, their only avenue now would be to start a prosecution in some other jurisdiction (with a prosecutor other than Mr. Bharara), then try to get a court of appeals in that jurisdiction to take another approach from the Second Circuit, and then try to get the Supremes to take it on the ground that there is a "split" of the circuits. This would be a multi-year process in the best of circumstances. And most of the stock trading takes place in New York.
Up until today Mr. Bharara has tried to keep up the facade that he had 80+ good insider trading convictions, but now that game is over. How many of those 80+ convictions are about to get thrown out? Nobody has an exact count. Bloomberg says "at least 10." I think that's way low. It could easily be twenty or even more. That news will be dripping out over the next several months.
This was never more than a charade to begin with. When the financial crisis hit in 2008 - 09, there was a cry for scalps from the likes of Elizabeth Warren and Barney Frank. Their theory was that the stock market decline and the bank liquidity crisis could only be caused by greedy bankers and their dangerous trading practices. None of those calling for scalps has ever articulated a coherent theory of how insider trading had anything at all to do with the 2007/08 market bubble or its bursting, nor even a theory of how insider trading (let alone its non-insider branch) causes any harm to other investors in the market.
But no matter. Scalps were needed. So the prosecutors cast around for something they could charge lots of rich traders with, and the best they ever came up with was insider trading -- which had literally nothing to do with the market bubble or its bursting no matter how you look at it. But other than insider trading they never came up with anything that they could pin on individuals. Of course, they came up with endless ideas to shake down the big banks, who will never take any case to trial. See my tag on "Phony Prosecutions." But at least a few people other than yours truly keep asking the embarrassing question, how can there be a crime here if no individual ever gets prosecuted? (You mean it's just another shakedown of a bank? Really?)
Recently the Justice Department says it is supposedly is taking a new tack and will start focusing on the individual wrongdoers in its prosecutions of financial wrongdoing. I'll believe it when I see it. Here's the problem, government: When you prosecute a big bank, even if they did nothing wrong, you get a billion dollar settlement and a press conference and a front page article in the New York Times. When you prosecute an individual, next thing you know, they take you to trial, and you may well lose, or have the conviction reversed and the whole prosecutorial theory declared to be not criminal to begin with. Good luck!