MANHATTAN (CN) - Former SAC Capital portfolio manager Michael Steinberg and six cooperating witnesses in his case had their charges dropped on Thursday after prosecutors exhausted their appeals of a ruling that raised the bar for inside-trading convictions.
Today's announcement by U.S. Attorney Preet Bharara falls two weeks after the U.S. Supreme Court declined to disturb the Second Circuit's holding in United States v. Newman.
Blotting Bharara's record of aggressive and successful prosecutions of insider-trading crimes, the underlying ruling freed Level Global Investors co-founder Anthony Chiasson and ex-Diamondback Capital Management portfolio manager Todd Newman.
Prosecutors had portrayed Chiasson and Newman during a six-week trial as "part of a criminal club of portfolio managers and analysts" who netted $68 million and $4 million, respectively, on inside tips about Dell and Nvidia Corp.
Chiasson received a 6 1/2-year sentence in 2013, and Newman received a 3 1/2-year sentence.
A three-judge panel of the Second Circuit found the evidence against the men insufficient, however, and went farther by emphasizing the need for prosecutors to prove that an inside trader must have acted "in exchange for a personal benefit."
The Manhattan U.S. Attorney's Office had long argued in previous cases that a personal benefit is sometimes intangible, especially if the tips are given to a friend, colleague and family.
U.S. Solicitor General Donald Verrilli warned that, because the "widely publicized ruling in this case raises the bar to prosecuting insider trading, it increases the chances that such conduct will proliferate."
Though the government hoped for a Supreme Court reversal, the justices denied their petition for certiorari on Oct. 5.
Bharara's office announced today that Newman's legacy would force him to dismiss the charges that he brought against SAC's Steinberg and six cooperating witnesses whose cases grew out of the Newman investigation.
"These prosecutions were all undertaken in good faith reliance on what this office and others, including able defense counsel for all those who pled guilty, understood to be the well-settled law before Newman," Bharara emphasized.
Barry Berke, an attorney for Steinberg with Kramer Levin Naftalis & Frankel, said the development proves his client "did not commit any crime and is an innocent man."
"We hope that his vindication will receive as much attention as his wrongful prosecution," Berke said in a statement.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.