NEW YORK (Reuters) - A federal judge in Manhattan on Friday threw out the 2013 insider trading guilty plea of a former trader at SAC Capital Advisors LP, the hedge fund once run by billionaire Steven A. Cohen, saying recent changes in the law meant there were not enough facts to support the plea.
The trader, Richard Choo-Beng Lee, 62, had been a major cooperating witness and one of the first to plead guilty in former Manhattan U.S. Attorney Preet Bharara’s insider trading crackdown, which began in 2009 and led to more than 80 guilty pleas and convictions.
While rejecting Lee’s claim that new evidence showed he was actually innocent, U.S. District Judge Paul Gardephe found no evidence that Lee knew of any personal benefits that insiders at Yahoo Inc and 3Com Corp might have received by divulging confidential information on which prosecutors said he traded.
Gardephe said such knowledge was central to establishing insider trading liability for accused “tippees” like Lee, under decisions issued in 2014 by the federal appeals court in Manhattan and 2016 by the U.S. Supreme Court.
“There is no reason to believe that Lee - in using the phrase ‘breach of fiduciary duty’ during his 2013 allocution - understood that phrase to include the liability components” in the later decisions, Gardephe wrote. “His guilty plea must be vacated.”
James Margolin, a spokesman for U.S. Attorney Geoffrey Berman in Manhattan, declined to comment. Lee’s lawyer did not immediately respond to requests for comment. Gardephe scheduled a July 10 conference to discuss the next steps in the case.
The decisions Gardephe cited had previously led to the overturning of several insider trading guilty pleas and convictions won by Bharara, including the conviction of former SAC portfolio manager Michael Steinberg.
Another convicted former SAC portfolio manager, Mathew Martoma, is serving a nine-year term.
Now called Point72 Asset Management LP, SAC pleaded guilty to fraud and paid $1.8 billion in U.S. criminal and civil settlements. Cohen was not criminally charged.
Lee helped manage $1.25 billion at SAC before admitting to securities fraud and conspiracy charges, court papers show.
U.S. District Judge Kevin Castel sentenced him in 2015 to three weeks in prison, which Lee’s lawyer at the time called “unfair” given his client’s cooperation.
In asserting his innocence, Lee said he would not have pleaded guilty had he known about instant messages uncovered in 2017 that showed many of his Yahoo trades were based on news of a planned partnership with Microsoft Corp that had already been widely disseminated.
The case is U.S. v. Lee, U.S. District Court, Southern District of New York, No. 13-cr-00539.
Reporting by Jonathan Stempel in New York; Editing by Susan Thomas