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Manhattan Judge Opens Door for More Insider Trading Convictions
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.
   Judge Jed Rakoff   
Manhattan judge opens door for more insider trading convictions

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.”

Illinois Resident Sentenced to Three Years in Prison for Insider Trading

U.S. Attorney’s Office
April 10, 2014

Northern District of California
(415) 436-7200

SAN FRANCISCO—Bassam Yacoub Salman was sentenced yesterday to three years in prison and ordered to pay $738,539.42 in restitution for engaging in an insider trading scheme, announced U.S. Attorney Melinda Haag and FBI Special Agent in Charge David J. Johnson.

Salman was found guilty by a jury on September 30, 2013, of one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371, and four counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff. The jury found that between 2004 and 2007, Salman, 54, of Orland Park, Illinois, engaged in securities fraud and insider trading relating to securities issued by United Surgical Partners International Inc. (USPI) and Biosite Incorporated (BSTE).

The charges against Salman were part of a larger, $5.3 million insider trading scheme first charged in 2009 against Maher Fayez Kara, of San Carlos, California, a former investment banker at Citigroup Global Markets Inc. in New York, and Maher Kara’s brother, Mounir Fayez Kara, also known as Michael F. Kara, of Walnut Creek, California. In July 2011, Maher Kara and Michael Kara both pleaded guilty to conspiracy and securities fraud charges.

“Insider trading is a scourge that too often victimizes innocent investors and publicly traded companies alike,” said U.S. Attorney Melinda Haag. “This sentence should warn those who might engage in insider trading that the consequences can be severe.”

“Forming a network of conspirators in an attempt to cheat the marketplace has consequences,” said FBI SAC David Johnson. “Our financial system is designed to benefit honest working people; contradicting this through white-collar crimes such as insider trading have criminal implications.”

Evidence at trial showed that on or about March 23, 2007, Salman, trading in an account owned by his brother-in-law, Karim Bayyouk, caused the purchase of approximately $100,000 in Biosite call options. Salman obtained the inside information about Biosite from Michael Kara, who had first obtained it from his brother, Maher Kara, who worked at Citigroup. Two days later, on March 25, 2007, Biosite announced it was merging with another company. After the merger announcement, Salman sold the options and realized a profit of approximately $947,922. Evidence at trial showed that Salman purchased securities in United Surgical Partners International Inc. using inside information obtained from Michael Kara and, initially, from Maher Kara.

On September 4, 2013, in a separate trial, another federal jury convicted Bayyouk, 49, of Livonia, Michigan, of obstructing and impeding an investigation by the Securities and Exchange Commission (SEC) into securities fraud and insider trading relating to Biosite Incorporated, in violation of 18 U.S.C. § 1505, arising from a telephone interview with the SEC on or about May 31, 2007. Bayyouk is scheduled to be sentenced on April 15, 2014.

The sentence was handed down by the Honorable Edward M. Chen, United States District Court Judge in San Francisco. Judge Chen also sentenced the defendant to a three-year period of supervised release. Salman will begin serving the sentence on July 7, 2014.

Assistant U.S. Attorneys Adam A. Reeves and Robert S. Leach are handling these cases with the assistance of Maryam Beros, Rayneisha Booth, and Patricia Mahoney. The prosecution is the result of a lengthy investigation by the FBI, with substantial assistance from the Division of Enforcement of the SEC’s San Francisco Regional Office.

This content has been reproduced from its original source.

© 2003 The E-Accountability Foundation