Morrison & Foerster offers full recap on prosecutions/enforcement actions,
trials & settlements of 2014
Nothing fascinates Wall Street watchers like tales of insider trading – and nobody keeps a closer tab on insider enforcement than law firm Morrison & Foerster LLP, which just released its 2014 Insider Trading Annual Review.
This is the sixth year the firm has taken a deep dive into insider trading enforcement and related legal developments – the new edition arrives as the government is facing major setbacks following several years of aggressive and highly successful enforcement of insider trading laws.
“2014 will be remembered as the year that the DOJ's winning streak in insider trading cases came to an end,” write MoFo partners Chip Loewenson and Ruti Smithline, members of the firm’s Securities Litigation, Enforcement, and White-Collar Defense Group. Prior to joining Morrison & Foerster in 1990, Mr. Loewenson served as an Assistant United States Attorney in the Southern District of New York.
Following a perfect trial record in insider trading cases over the last five years by the U.S. Attorney's Office for the Southern District of New York, 2014 was poised to be another banner year following the high-profile conviction of SAC trader Matthew Martoma – but the streak ended when a jury acquitted the brother of former Galleon founder Raj Rajaratnam. “The acquittal not only ended the government's seemingly endless winning streak, but signified the end of the long-running 'Perfect Hedge' investigation that … brought down most of the insider trading defendants over the last few years,” MoFo recounts.
Securities Integrity
Loewenson and Smithline note the big blow that came in December, when the U.S. Court of Appeals for the Second Circuit overturned the convictions of two former fund managers, Anthony Chiasson and Todd Newman. "The blockbuster opinion cast doubt on countless other convictions and guilty pleas,” MoFo writes. Indeed, in late January, a court agreed to dismiss the indictments against five individuals previously accused of an inside ring tied to trades of IBM, while the government pursues its appeal of the Newman decision.
The MoFo lawyers write, “The U.S. Attorney's Office…is not going quietly; instead, it filed a blistering petition for rehearing . . . arguing that the panel not only got it wrong, but also 'threaten{ed} the integrity of the securities markets.' The viability of the panel opinion and its ripple effects are among the central events to watch in insider trading in 2015.” And they make clear that the DOJ wasn't the only agency to suffer some upsets.
“The SEC's losing streak in civil trials continued in 2014,” they write. “Defendants prevailed at trial in eight cases brought by the SEC. It is apparently no coincidence that… the trend for the SEC to bring more insider trading cases as administrative proceedings picked up steam in the last year.” In addition to analysis of key decisions and enforcement actions, MoFo's annual review gives an updated look at the fortunes of individuals who have cooperated with prosecutors, in turn receiving lighter prison sentences and civil penalties.
Fuzzy Math
Again, the Newman decision could have an impact. “With the Second Circuit holding casting doubt on convictions and cooperator pleas alike, the swift Rengan Rajaratnam acquittal, and more cooperators getting sent to prison, the calculus is less clear,” they note, adding, “It is now less clear just how much benefit a guilty plea plus cooperation actually buys.”
One of the most valuable features of the new MoFo report is its tracking of the penalties imposed in the more than 100 insider trading cases of 2014 – those brought by both the DOJ and SEC. MoFo identifies each defendant, when the matter was resolved, and describes the outcome, including whether there was a trial or settlement and any subsequent penalties or sentences.
The firm’s outlook for the year ahead: “The blockbuster Newman opinion fundamentally reshaped insider trading law. If the first few weeks of 2015 are any indication, the repercussions from the decision will be widespread. It remains to be seen whether the panel’s decision will stand as controlling law in the Second Circuit and be followed in other circuits. In 2015, we expect to see numerous legal battles to define the future contours of insider trading law.”
See the full Annual Review here
