Why Insider Trading Ensnares Them All

but he just can't seem to win in court. Last week, the Supreme Court turned down Walter's appeal of his seventeen conviction for masterminding a six year insider trading scheme with former Dean's Food chairman Tom Davis. Insider trading, time and time again, seems to entrap people who should know better, from a former US congressman to a former student body president at the n y U Stern School of Business. Joining me is Peter Henning, a professor at Wayne State

University Law School. Peter, why did Billy Walters think the Supreme Court should review his conviction? The basis for his appeal was the fact that an FBI agent had been leaking information to the Wall Street Journal in the New York Times, and Walter's claim was that that ended up

tainting his conviction because of prosecutorial misconduct. Now the Supreme Court chose not to pursue the case, though I think mainly because after the Salmon decision in ten they're pretty much done with insider trading and they didn't see any real basis to overturn his conviction. So he's left serving out his approximately five years sentence. So Peter, insider trading

has been in the news a lot lately. We had a former congressman pleading guilty to tipping his son, a former Parella Weinberg partners managing director convicted of tipping his father, and a former student body president at n y U Stern leading guilty to trading on inside in information himself, all trading away their careers. Is there anything common to all of them? Well, in each case you had essentially a tipper. Congressman Collins tipped off his son, and then

his son in turn tipped off his fiancee's father. Both of them have entered guilty pleas along with Congressman Collins, so they were able to get information in advance. And that's also been true of the Sean Stewart case, who was at Parella Weinberg and also bilt to say, who was a junior analyst at RBC and had been student

body president at the Stern School of Business. In each of those instances, it's like they stumbled across very valuable information and then either used it for themselves or, in Sean Stewart's case, told his father and his father traded on five different deal and made well over a million dollars with someone else who he provided the information to. So inside information just has this allure to people that somehow they think that they can just trade on it

and no one's ever going to notice. Let's go into a little bit more depth on these, So let's start with former New York Republican Congressman Chris Collins, who tipped us on in a phone call on the White House lawn at Trump's first congressional picnic. And there's a wonderful picture where you can see Congressman Collins talking on the phone over the shoulder of Jared Kushner, and he got

that information. It was an Australian pharmaceutical company and one of their drug tests was not going to work, and so he knew that as soon as it got announced that that would drive the stock price down substantially. And so you can see him, and the government got all his phone records from his cell phone. You can see him trying to call his son, and eventually they talked for about six minutes, and then almost immediately the son

calls his fiance's father and essentially tips him off. So in these cases, it's really more of a matter that you get valuable information and you want to avoid losing a lot of money, and that was what happened in the Collins case, and his son and his fiance's father avoided about seven hundred thousand dollars in losses by being able to dump their shares before the information was disclosed. In your opinion, did a court ruling lead Collins to

make the guilty plea. I think it was that the Judge Broderick in the Southern District of New York rejected Congressman collins claim that what he was doing was protected by the speech or debate clause of the Constitution. In fact, what Judge Broderick found was that the government didn't use any information that it obtained in violation of the speech or debate clause, and therefore that really wasn't going to

be a defense for Congressman Collins. It would not have applied to his son or his fiance's father, but it was one possible lineup defense for Congressman Collins. But as soon as Judge Brodrick rejected that, and I expected, his attorneys said that we're not going to have much luck on appeal here. That's what led him to, I think,

decide to plead guilty. And now prosecutors are recommending a sentence of from forty six to fifty seven months, so that will be a substantial term of imprisonment for Congressman Collins. And there are news reports that he has been begging his associates and friends to write glowing letters about him in an attempt to get leniency. Does that work It has in the past, for example, in the case of inside or trading case of Rusjah Gupta, who had been

a head of Mackenzie. He ended up getting letters from, among others, Bill Gates. And that can be persuasive to a judge when people write and say that this is really a good person who went off the rails this

one time. But how much it's going to persuade Judge Broderick is a different question, because one of the basis for prosecutors seeking a significant sentence is that Congressman Collins lied to the FBI, and so I suspect that the government is going to argue very strenuously that lying to the FBI and trading on inside information is not just a one off, but in fact, this was something that Congressman Collins not only engaged in but should be punished for.

Let's turn now to Sean Stewart, the former Perella Weinberg Partners managing director. For the second time, he heard a jury pronounce him guilty for insider training and it took them just sixty five minutes. That's right, and that is a very quick decision by the jury, which leads me to think that Stewart's claimed that he really just kind of accidentally told his father that they were drinking beers

and he was telling his father about his work. That the jury did not buy that story and therefore convicted him, and he was convicted on nine counts, and nine counts in sixty five minutes is very quick, and so will he be facing additional prison time He's already served over a year in federal prison from his la your conviction. It will be an interesting question whether Judge Rakoff will impose additional time on him. Now, Judge Rakoff has been

fairly tough on insider traders. For example, he gave Rajac gupt to two years in prison for tipping off Raj Raj Rottenham. So there is at least a chance that Sean Stewart will be sent back to a federal prison. Will find out at the end of January when his sentencing is scheduled. What I've found fascinating about the trial and the retrial of Sean Stewart was that we've discussed before, the most important decision for a defendant is whether to

take the stand or not. Stewart didn't take the stand in his second trial, but he did in his first, so it seems like nothing work for him. No, it didn't.

And by taking the stand in the first trial, that was really because his father couldn't testify, and his father didn't testify in the second trial either to say that he just got the information from Sean more or less by accident, and so really by not testifying, I think that let the jury see that there really wasn't that much to the defense, that it was really just an accident that his father took this information and went out

and tipped someone else and traded on it. I think the power of the insider trading narrative is very, very strong, and when jurors see confidential information being doled out, the immediate reaction is you've done something wrong and therefore you're guilty of a crime. And finally we have the former student body president at the n y U Stern School of Business who earned his graduate degree and is now

pleading guilty to insider trading. And the amount involved was just a little bit under a hundred thousand dollars, which always leads me to the question would you sell your career on Wall Street for a hundred thousand dollars? And the answer to that question ought to be no. But in fact, in this situation built to siy is the former student body president at the Stern School of Business,

And you just wonder what was the temptation there? What was it that he saw and said to himself, well, I'm going to go ahead and make a hundred thousand dollars because now he is likely to be sentenced to a term in a federal prison, and any hopes that he had of a Wall Street career are basically done. No firm is ever going to touch someone who has been convicted of insider trading. We've seen that repeatedly, and so he has very little hope of a financial career

in the future. And you wonder, why what is it that drew him to buy the options and then make a hundred thousand dollars and get caught. You mentioned the Supreme Court has sort of done with insider trading. Do you think we've seen the last of all the high profile, you know, appellate court rulings on insider trading. Is it a settled area now? I think it is a fairly

settled area. And after the Salmon case in the Supreme Court made it very clear that if you are providing information to a family member or a close friend, that that's really the end of the analysis, that that is enough to establish what the Supreme Court is called the quid pro quo for giving information and then getting something in return. And it's that warm, fuzzy feeling that you get when you give a gift. So in the Salmon case, one brother was giving a gift to another brother to

be able to make some money. And the Supreme Court I think has largely resolved the tipping issue, so whether they'll really returned insider trading, it would have to be a case that really brings up some new issues. But for the most part, insider trading law is fairly well settled. I would say the cases are easy to determine. There's always a little bit at the edges, but for the most part it is a fairly well settled area of law. Now,

thanks Peter. That's Peter Handing, professor at Wayne State University Law School. Thanks for listening to the Bloomberg Law Podcast. You can subscribe and listen to the show on Apple Podcasts, SoundCloud, and on Bloomberg dot com slash podcasts. I'm June Brosso. This is Bloomberg. Yeah,