The U.S. dropped insider-trading charges against Michael Steinberg, a former fund manager at S.A.C. Capital Advisors who was convicted by a federal jury, in the latest fallout from a major appeals court ruling that made such prosecutions more difficult.
The government also abandoned charges against six people who pleaded guilty and cooperated with prosecutors in the case, U.S. Attorney Preet Bharara said in a statement Thursday. The decision comes after the U.S. Supreme Court declined to hear the government's challenge of a decision overturning the convictions of fund managers Todd Newman and Anthony Chiasson in a related case.
Prosecutors have now dismissed or lost on appeal 14 of 87 convictions won during a six-year crackdown on insider trading.
While others might challenge their insider-trading convictions, Mr. Bharara's deputy, Joon Kim, said in a phone interview that the government views the dismissals “to be largely the extent of the fallout from the Newman decision on our prior insider-trading cases.”
Still, some viewed it as a major setback for the office and the government's attempt to curtail illicit trading.
“To see in black and white the vacating of seven convictions is a blow in what we have seen in a campaign to change norms and attitudes about tipping inside information on Wall Street,” said Sam Buell, a Duke University law professor who served as lead prosecutor on the Justice Department's Enron task force. “This also shows the impact of the Newman decision, which has made it more difficult to prosecute sophisticated tipping chains in the investment industry.”
The decision follows the Supreme Court's refusal this month to review the appeals court ruling, which overturned the convictions of Messrs. Newman and Chiasson. Mr. Steinberg argued his conviction was based on essentially the same evidence.
“Based on legal developments subsequent to the defendant's guilty plea, the government has concluded that further prosecution would not be in the interests of justice,” prosecutors wrote in a memo to the three federal judges in Manhattan who are presiding over the cases.
Mr. Steinberg was the longest-serving employee at S.A.C. Capital to be convicted in the U.S. probe of insider trading. Mr. Steinberg, who handled technology, media and telecommunications stocks at S.A.C. Capital's Sigma Capital Management unit, was found guilty in 2013 of an insider scheme involving technology stocks that garnered more than $1.8 million in profits. He was sentenced to 3½ years in prison.
“Michael Steinberg did not commit any crime and is an innocent man,” his lawyer, Barry Berke, said in an e-mail. “We hope that his vindication will receive as much attention as his wrongful prosecution.”
S.A.C. pleaded guilty in 2013 and paid a record $1.8 billion fine to resolve U.S. claims over insider trading. It changed its name to Point72 Asset Management LP and agreed to manage only founder Steven Cohen's money. Mr. Cohen wasn't charged with wrongdoing.
“We are pleased that the ordeal for Mike Steinberg and his family is over,” Mark Herr, a spokesman for Point72, said in a statement.