Key Insider-Trading Informant Asks Court to Toss Conviction

Updated on
  • David Slaine proved to be a tip machine for prosecutors
  • U.S. has dismissed or lost on appeal numerous convictions

One of the U.S. government’s most productive informants in a broad probe of insider trading asked to have his conviction thrown out, saying he didn’t know that the source of the tip that led to his arrest had benefited from revealing the information.

David Slaine, a former managing director at Morgan Stanley and an ex-partner at the Galleon Group LLC hedge fund, was among the first to cooperate in the probe. His work led directly to the conviction of at least a dozen people and indirectly to that of at least a half-dozen others.

Slaine was sentenced to three years of probation after pleading guilty to two counts of securities fraud for trading on inside information in 2002, when he was head trader of the hedge fund Chelsey Capital. The Securities and Exchange Commission claimed that Slaine had used illegal inside information to trade for his own account and for Chelsey Capital.

On Wednesday, Slaine asked the court to throw out his January 2012 conviction, saying he had no idea that a former employee of Chelsey had paid a former UBS Securities LLC employee for inside information.

Prosecutors have dismissed or lost on appeal more than a dozen of almost 90 convictions won during a six-year crackdown on insider trading, after the U.S. Supreme Court let stand an appeals court ruling that overturned convictions in a related case. The appeals court said the government must prove that defendants knew that the people providing insider information had received a personal benefit from it.

Christian Saint-Vil, a spokesman for U.S. Attorney Preet Bharara, declined to comment on Slaine’s request.

While U.S. District Judge Richard Sullivan told Slaine at his sentencing in 2012 that he got his "life back," Slaine says his conviction "continues to impact his life in serious and direct ways."

The case is Slaine v. U.S., 1:15-cv-09814, U.S. District Court, Southern District of New York (Manhattan.)