There's lots of news this weekend in the world of phony federal prosecutions, so I'm going to break it into three separate posts.
For Part I, the government last week finally filed its cert petition in the case of U.S. v. Newman and Chiasson. Here is a pdf of the cert petition. U.S. v. Newman and Chiasson is the case where non-insiders were convicted of "insider trading" in one of U.S. Attorney Preet Bharara's one-time unbroken string of 80+ "insider trading" convictions. Problem was, lots of the defendants, including Newman and Chiasson, were not insiders at all. Most of those non-insider defendants had pled guilty and thus couldn't appeal, but Messrs. Newman and Chiasson took their cases to trial and then appealed to the Second Circuit Court of Appeals. Last December the Court of Appeals reversed those convictions, and further directed that Newman's and Chiasson's cases were not to be retried because what they were accused of was not a crime.
You are probably asking, how does it come about that the government only files its cert petition at the end of July when the reversal was way back in December? Easy -- if you're the government, you can play out the string for a long time. First they asked the Second Circuit for a rehearing en banc (denied in April), and then they used up all their allowed time to file for cert, and then they even got a further extension from Justice Ginsburg. Meanwhile a few dozen wrongly convicted people (nobody knows the exact number) languish in limbo. Do they recognize any obligation to do the right thing by these people -- a question I asked back in December when the Second Circuit first reversed the Newman/Chiasson convictions? Absolutely not. Hey, this is the government.
Indeed, it seems that the whole idea is to keep up for as long as possible the pretense that they have 80 good convictions out there and no bad ones. I previously predicted that the Supremes are not going to give this one the time of day, and if cert gets denied, it will probably be sometime this fall. On the other hand, just a few weeks ago, on July 6, in a case called Salman, a panel of the Ninth Circuit declined to follow the Second Circuit's Newman/Chiasson opinion, giving the government the opening to argue that the Supremes should take the case due to a circuit split. Oh, the Ninth Circuit's Salman opinion was written by none other than Southern District of New York Judge Rakoff, sitting by designation. And here's a little something that I find rather extremely fishy. The Salman case was only argued on June 9. The decision came out on July 6 -- rather an extraordinarily short time for a Court of Appeals to turn a decision on an important issue like this. But it still would not have been time for the government to claim a circuit split in its cert petition -- except for that extra extension granted by Justice Ginsburg. Could the government possibly have been tipped off on what was going on in the Ninth Circuit? Just one more indication that you are not on a level playing field when you are up against the government. See also, IRS.
Anyway, read the government's cert petition, and you will see that it is all about the hubris that they can create a world of perfect fairness if only they can make up the criminal law as they go along, and nothing about whether people should be able to discern from the actual laws passed by Congress what is a crime and what is not.
If allowed to stand, the court of appeals’ novel personal-benefit standard will restrict enforcement of Section 10(b)’s ban on insider trading, create uncertainty in the financial community about the boundaries of legitimate conduct, and produce disparate results in different circuits in the application of the federal securities laws. . . . [T]he decision below unjustifiably impedes the government’s ability to restrain and punish tippers and tippees engaging in culpable behavior.
I like that part about restricting enforcement of "Section 10(b)'s ban on insider trading." Try reading Section 10(b) for yourself and see if you can find that. All I can find is a ban on "any manipulative or deceptive device or contrivance." Needless to say, the government doesn't quote the actual language of Section 10(b) anywhere. I'll bet not one in one hundred people given the text of the Exchange Act could correctly identify those quoted words as the language that supposedly prohibits insider trading, let alone so-called "insider trading" by non-insiders.
And the other good part is that supposedly it is the Second Circuit's decision that will "create an uncertainty in the financial community about the boundaries of legitimate conduct." As far as I know -- and I am in this business -- prior to the Second Circuit's Newman opinion, nobody had a clue what the "boundaries of legitimate conduct" may be, and the Second Circuit's opinion has only made things a little better. Even with the Second Circuit's opinion (assuming it survives this review) you are still in a position where the language of the statute gives you no clue what is legal and what is not, and you need to read multiple court decisions and lots of tea leaves to try to guess how you can hope to conduct your life without getting thrown in the clink.