April 5, 2016 / 8:46 PM / 4 years ago

Judge won't refer N.Y. broker for prosecution over SEC testimony

NEW YORK, April 5 (Reuters) - A U.S. judge on Tuesday stopped short of urging that a former New York stockbroker face perjury charges over testimony at an insider trading trial, but left U.S. securities regulators the option to recommend prosecutors pursue charges.

U.S. District Judge Jed Rakoff in Manhattan said he was “deeply troubled” by testimony by former Euro Pacific Capital Inc broker Daryl Payton in a February civil trial in which he and a former colleague, Benjamin Durant, were found liable.

But Rakoff declined to grant the U.S. Securities and Exchange Commission’s request that he recommend prosecutors consider perjury charges for Payton, who previously did not face criminal insider trading charges because of a landmark appellate court ruling.

“Whether the SEC will choose to make its own referral is left to that agency’s discretion,” Rakoff wrote.

The SEC and Payton’s lawyers declined comment.

The SEC alleged that in 2009, an attorney at IBM Corp’s law firm told his friend, Royal Bank of Scotland Group Plc analyst Trent Martin, that he was working on IBM’s $1.2 billion acquisition of SPSS Inc.

While the lawyer expected Martin not to tell anyone, Martin bought SPSS stock and told his roommate, Thomas Conradt, a Euro Pacific employee, the SEC said.

Conradt then told four Euro Pacific colleagues, including Payton and Durant, who made hundreds of thousands of dollars trading before the deal’s announcement, the SEC said.

In a related criminal case, four people pleaded guilty, including Payton but not Durant.

But after a December 2014 appellate ruling limited the scope of U.S. insider trading laws, a federal judge threw out the guilty pleas and prosecutors dropped the case. The SEC, facing a lower burden of proof, chose to move forward in its case.

In his ruling, Rakoff said Payton’s trial testimony “seemed plainly at odds” with his plea statement, in which he admitted being told that IBM would acquire SPSS.

Those inconsistencies including calling the SPSS deal a “rumor” and that he “did not remembered the precise detail” that Conradt’s roommate had told him that IBM would buy SPSS.

In refusing to make a perjury referral, Rakoff expressed concern that his doing so could impede prosecutors from exercising independent judgment. He noted that as a result of being found liable, the SEC wanted Payton to pay $1.03 million.

“So, in a rough sense, he will receive some adverse consequence from his seeming perjury,” Rakoff wrote.

The case is Securities and Exchange Commission v. Payton et al, U.S. District Court, Southern District of New York, No. 14-04644. (Reporting by Nate Raymond in New York; Editing by Bill Trott)

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