Guy Convicted Of Insider Trading Still Convicted Of Insider Trading

Despite a valiant attempt at appeal.
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Shortly after his first, now seemingly inconsequential, defeat at an insider-trading trial, Preet Bharara turned his energy to the former chief information officer of Foundry Networks, David Riley, who Preet thought was a little too free with said information with a hedge fund manager buddy. And while a jury agreed with the prosecutor, Riley figured that the Manhattan U.S. Attorney’s defeat on appeal by two other hedge fund managers amounted to a “get out of jail free” card. Or, in this case, a “don’t go to jail at all” card, since Riley won’t be sentenced until next month.

Alas, Riley doesn’t have quite as much distance between himself and the source of the inside stuff, since, you know, he was the source of the inside stuff, and, you know, he was the one with the fiduciary duty. These are the sorts of details that judges tend to notice, and, well….

While acknowledging that her jury instructions would have been different, U.S. District Judge Valerie Caproni in Manhattan said in a decision late on Tuesday that evidence introduced at trial "left no reasonable doubt of Riley's guilt…."

Riley said Caproni's jury instructions were defective, in light of the later 2nd Circuit decision, because they suggested he could obtain a personal benefit by leaking information for the purpose of "maintaining or furthering a friendship."

Caproni, though, said Riley obtained at least three "concrete" personal benefits: contacts for a side business he was developing, investment advice, and help securing a new job.

"The evidence was more than sufficient to support the jury's conclusion that Riley tipped inside information in anticipation of receiving a personal benefit," Caproni wrote.

U.S. judge upholds insider trading conviction despite law change [Reuters]

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Members Of Insider Trading "Club" Were Good At Obtaining Material Non-Public Information, Not So Good At Playing It Cool On Conversations Recorded By The Feds

Later this week, Anthony Chiasson, a Level Global co-founder, and Todd Newman, a former Diamondback portfolio manager, will go to trial in Federal Court for allegedly making $67 million in ill-gotten gains, based on inside information they obtained about Nvidia Corp and Dell Inc. According to U.S. Attorney Preet Bharara, Chiasson and Newman, who've both pleaded not guilty, were able to rack up all their profits by teaming up with a bunch of friends and forming an insider trading club, which is a lot like a book club or fight club in that they took roll, traded canapé duties, and drank Pinot Grigio, but different in that instead of discussing The Art Of Fielding or punching each other in the face, they spent every Monday night from 7 to 9 sharing material non-public information with each other. “This case describes a tight-knit circle of greed on the part of professionals willing to traffic in confidential information,” Bharara said when the charges were announced in January. “It was a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered inside information.” In the beginning, when the club was first formed, there was a spirit of camaraderie, as the club members happily traded tips for everyone's mutual benefit. Unfortunately, things started to break down when some people agreed to cooperate with the government by recording their friends admitting wrongdoing, in exchange for leniency. Former Diamondback analyst Jesse Tortora, for instance, gave fellow club member Danny Kuo a call at the direction of the FBI on December 1, 2010, a conversation that Chiasson and Newman's lawyers are trying to use as evidence that Tortora, who will be testifying against them, lacks credibility, based on the fact that when asked by Kuo if his phone was being tapped, Tortora didn't say "Yup! Helping the Feds build a case against you, actually." “What’s happening, man?” Tortora asked during the call, according to a transcript prosecutors submitted to the court. “Dude, is your phone tapped?” Kuo replied. “Wait, is the phone tapped?” Tortora asked, adding, “Why do you ask that?” Despite losing major points for repeating the question-- you never repeat the question!-- and the extremely unconvincing "Oh, why do you ask" attempt to act natural and not like he was working for the government, Tortora ultimately recovered. After Kuo and Tortora discussed defense strategy to explain their trades were made after legitimate research, Kuo concluded the call with a final warning to Tortora about making future calls from a personal telephone, according to the transcript. “I would seriously invest in some quarters, and start calling from 7-Elevens,” Kuo said. Hedge Fund Founder Faces Jury as FBI Raids Yield Trial [Bloomberg]