A little known secret to insider trading is that it is not illegal to trade on material non-public information, U.S. defense attorney Gregory Morvillo of Morvillo LLP told guests at the EisnerAmper (Cayman) brand launch. It is only illegal if the information is stolen from the shareholders or stolen from the company, he said.
Accounting firm EisnerAmper (Cayman), formerly PKF (Cayman), celebrated the launch of its new brand on Oct. 14 with a cocktail event at the Grand Cayman Beach Suites. The firm announced in August that it was joining the U.S. accountancy firm EisnerAmper LLP and EisnerAmper Ireland to form a new global network called EisnerAmper Global with 200 partners and 2,000 professionals in Cayman, the U.K., the U.S. and Ireland.
The event featured a presentation by Mr. Morvillo, who successfully defended the insider trading case brought against hedge fund manager Anthony Chiasson of Level Global Investors.
Mr. Chiasson initially was sentenced to six-and-a-half years in prison for insider trading but was exonerated on appeal. He was charged based on two trades he made after he received non-public material information from Dell and Nvidia through several middlemen.
Mr. Chiasson was convicted at the first trial because “the judge made an error in our estimation,” when he instructed the jury on the law in the United States, Mr. Morvillo said.
He explained that in the United States it is illegal to trade on material non-public information that is obtained in breach of a fiduciary duty.
Fiduciary duty, in turn, is defined as information provided in exchange for a personal benefit to the tipper. This definition of personal benefit includes giving information to close friends and relatives, but if a close personal friendship cannot be proven, no crime has been committed.
In addition, the law says the person who receives the tip must know of the breach and has to know of the personal benefit to the tipper in order to be convicted, Mr. Morvillo noted. “If you don’t, you have not violated the law. Insider trading at its heart is a fraud and you have to participate in the fraud.” The appeals court agreed and two subsequent government appeals were unsuccessful.
In the case, Mr. Chiasson was four and five levels removed from the tipper. The insider and the first level receiver of the tip were not close friends and there was no tangible beneficial exchange, Mr. Morvillo explained.
Financial service providers in Cayman need to know what the law is and that the U.S. government reaches not only to the people who run hedge funds, but also to independent directors and back office staff. “The government’s arms are incredibly long,” Mr. Morvillo said.