Chiasson and Newman to Remain Free During Appeal, Court Rules

Two former hedge fund managers may remain free on bail while they challenge their insider trading convictions, a federal appeals court ruled on Tuesday.

The United States Court of Appeals for the Second Circuit in Manhattan ruled that Anthony Chiasson, the co-founder of Level Global Investors, and Todd Newman, a former portfolio manager at Diamondback Capital Management, will not have to report to prison while they fight their convictions.

A jury found Mr. Chiasson and Mr. Newman guilty last December of illegally trading the technology stocks Dell and Nvidia.

Tuesday’s ruling suggested that Mr. Chiasson’s and Mr. Newman’s lawyers had convinced the judges that there was a “substantial question” of law to be argued on appeal. Indeed, during the argument, Judge Barrington D. Parker Jr., said to a federal prosecutor arguing the government’s case, “sounds like we are going to have a lively appeal here.”

Lawyers for Mr. Chiasson and Mr. Newman are expected to make several arguments on appeal. Their primary argument relates to the proof required to convict a “tippee” of insider trading. Both Mr. Chiasson and Mr. Newman received confidential information about Dell and Nvidia third- or fourth-hand through several intermediaries, and not directly from inside tippers at the two companies.

Their lawyers maintain that to be convicted of insider trading, Mr. Chiasson and Mr. Newman were required to know that the insiders â€" an employee at Dell and an employee at Nvidia â€" leaked the confidential information in exchange for a personal benefit. And because both were so far removed from the information, neither had any ! knowledge of whether the tippers provided the secret data to benefit themselves, they argued.

Lawyers for Mr. Chiasson and Mr. Newman argue that the trial-court judge, Richard J. Sullivan, incorrectly instructed the jury on this issue, creating a legitimate issue to be argued before the appeals court.

The court is expected to hear oral arguments on Mr. Chiasson’s and Mr. Newman’s appeal in either December or January, and then will likely take several months to rule on the case.

Represented Mr. Chiasson in his appeal is Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison. Mr. Newman’s lawyers are Stephen Fishbein and John Nathanson of Shearman & Sterling.