U.S. prosecutors said they are prepared to drop charges against five men accused of engaging in insider trading ahead of an IBM acquisition, citing an appellate court ruling that limited the ability of authorities to pursue such cases.
In an unusual letter late Wednesday, prosecutors in the office of U.S. Attorney Preet Bharara in Manhattan asked U.S. District Judge Andrew Carter to dismiss the indictment.
If Carter does so, Bharara’s office could appeal his ruling last week that the December appellate court decision applied to the case. The appellate ruling prompted the judge to throw out the guilty pleas of four of the five men.
But prosecutors said if Carter does not dismiss the indictment, they intend to drop the charges, saying the evidence “falls short” of the appellate court’s standards.
A hearing is scheduled for later Thursday. A Bharara spokeswoman declined comment.
The case was the latest affected by the ruling of the 2nd U.S. Circuit Court of Appeals that reversed the insider trading convictions of hedge fund managers Todd Newman and Anthony Chiasson.
The 2nd Circuit held that prosecutors must prove a trader knew that the source of a tip received a benefit in exchange for the information. It also narrowed what constitutes a benefit, saying it cannot be only friendship.
On Friday, Bharara asked the appellate court to reconsider the ruling, saying it will limit the ability of authorities to pursue such cases. Before the decision, Bharara’s office had won the convictions of 86 people for insider trading since 2009.
In the IBM case, prosecutors said Michael Dallas, a lawyer at IBM’s law firm, in 2009 told Trent Martin, then an analyst at Royal Bank of Scotland Group, about IBM’s planned $1.2 billion acquisition of SPSS.
While Dallas expected his friend Martin not to tell anyone else, the analyst bought SPSS stock and told his roommate, then Euro Pacific Capital Inc trader Thomas Conradt.
Conradt told his colleagues, traders David Weishaus, Daryl Payton and Benjamin Durant, according to authorities.
Carter last week cited the 2nd Circuit ruling in tossing the guilty pleas of Martin, Conradt, Weishaus and Payton ahead of a Feb. 23 trial for Durant.
Prosecutors had argued that because the information in the IBM case was misappropriated from the lawyer and not provided directly, the appellate decision did not apply.
Larry Krantz, Martin’s attorney, said he was pleased by Bharara’s decision. James Roth, Payton’s lawyer, said he believed his client would be “vindicated.”
The case is U.S. v. Conradt, U.S. District Court, Southern District of New York, No. 12-cr-00887.
(By Nate Raymond; Editing by Chizu Nomiyama and Jeffrey Benkoe)
This article originally appeared on Recode.net.