Brokers Claim Ignorance in Echo of Insider Trial AppealPatricia Hurtado
Two ex-stockbrokers accused of insider trading tied to International Business Machines Corp.’s $1.2 billion acquisition of software company SPSS Inc. argued their case should be thrown out because they didn’t know the source of a tip broke a fiduciary duty to keep it secret.
Seizing on an argument now being considered in another case by a federal appeals court in Manhattan, Benjamin Durant and Daryl Payton told a judge they’re so far removed from the source of the tip that they didn’t know the purported leaker breached his duty not to disclose secret information.
“In cases like this one that involve tipping chains, the final tippee must know that the information was obtained through a breach,” Peggy Cross-Goldenberg, a lawyer for Durant, said in a pre-trial motion asking a federal judge in Manhattan to dismiss the indictment.
The case before the U.S. Court of Appeals in New York concerns Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Capital Management LLC portfolio manager Todd Newman, both sentenced to prison last year after being convicted at a trial.
They’ve argued they’re at the end of a long chain of tippees and didn’t know that data passed to them by their analysts originated from company insiders who breached a fiduciary duty by leaking information in exchange for a personal benefit.
The appeals court hasn’t ruled on whether “remote tippees” in insider cases must know that leaks were in exchange for such a benefit. Without citing the Newman and Chiasson appeal, Durant and Payton raised the same argument in their filing.
Prosecutors say Durant and Payton, who deny wrongdoing, reaped almost $300,000 trading on a tip that came from a lawyer representing IBM in a 2009 deal.
Prosecutors say the tip originated with an associate at a New York law firm who isn’t identified in court papers. The lawyer allegedly passed the news to his friend, Trent Martin, who then told his roommate, Thomas Conradt. Conradt shared it with Payton, Durant and David Weishaus, prosecutors said.
At the time, Conradt, Weishaus, Payton and Durant worked as stockbrokers at Euro Pacific Capital Inc., according to the Financial Industry Regulatory Authority.
Payton and Durant bought securities in SPSS in the days before the announcement of the deal, prosecutors said. When the news became public, SPSS’s shares rose 41 percent, generating $53,000 in profit for Durant and $243,000 for Payton, regulators said in a related civil lawsuit.
Weishaus, Conradt and Martin have pleaded guilty and await sentencing.
Payton and Durant said in their court filing that they didn’t know the unidentified lawyer had a duty to keep the IBM information secret or that Martin breached his duty to that attorney. Their trial is scheduled for December.
The case is U.S. v. Martin, 12-cr-00887, U.S. District Court, Southern District of New York (Manhattan).
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