A Manhattan federal court trial judge has totally dissed a powerful appeals court — and by so doing, could make it easier to prosecute Wall Streeters accused of insider trading.
Judge Jed Rakoff, who for years quietly groused about the 2nd Circuit Court of Appeals’ take on insider trading, ignored its precedent-setting December ruling and on Monday upheld the conviction of an Illinois man, Bassam Salman, who made $5 million trading off illegal tips from his brother-in-law, a Citigroup investment banker.
Rakoff was able to throw some serious shade at the higher court by getting permission to sit temporarily on a San Francisco appeals court — the 9th Circuit Court of Appeals — and then writing an opinion on a West Coast insider-trading case.
The 2nd Circuit, redefining years of law, in December tossed the conviction of hedge-fund manager Todd Newman, at the end of a chain of tippees, because prosecutors didn’t prove he knew the original tipster got a personal benefit — something more than just friendship.
Rakoff didn’t like the decision — or any of the related decisions leading up to last year’s game-changer — feeling that prosecutors needn’t be forced to go that far to prove a tippee’s guilt.
Sitting 3,000 miles away, Rakoff got his revenge. “To the extent Newman can be read to go so far, we decline to follow it,” Rakoff wrote.
On Tuesday, the decision had some top white-collar lawyers and commentators buzzing.
Rakoff is the “only district court judge in America to cut back on the 2nd Circuit,” said John Coffee Jr., a professor in securities law who co-teaches a class with the judge at Columbia Law School.
“For many lawyers, it would be poetic revenge,” he added.
“Newman is a controversial decision within the legal profession because it does make it hard to prosecute insider trading,” Coffee said.
Rakoff and the 2nd Circuit have traded barbs for years.
Back in a November 2012 insider-trading case, Rakoff needled the appeals court, calling its reasoning in a recently decided insider-trading case “delphic,” or murky.
In the 2014 Newman decision, the appeals court hit back. While alluding to Rakoff’s “somewhat delphic” label of its reasoning that prosecutors had to prove tipsters got a benefit, the court cast aside Rakoff’s statement.
Now, with two appeals courts possibly at odds over the law, it could be easier to get the Supreme Court to accept the case, six top securities lawyers told The Post.
A hearing by the Supreme Court could be good news for Manhattan US Attorney Preet Bharara, who has seen several of his convictions overturned because of the Newman case.
The Department of Justice’s solicitor general has until Aug. 1 to decide to try to bring the case before the high court.
A spokesman for Bharara declined to comment.
“The 9th Circuit opinion carefully makes the point that Newman is a narrowly tailored decision and not the sweeping rewrite of insider-trading laws that some have declared,” Gregory Morvillo, a lawyer who represents Newman co-defendant Anthony Chiasson, told The Post. “What Salman does not do is create a split between the 2nd and 9th Circuits.”