That decision reverberated further, upending the convictions of 14 people, with others like Gupta and Whitman seeking to add themselves to the list. Gupta was released from prison earlier this month after serving 19 months of his 30- month sentence for giving tips to his friend, billionaire fund manager Raj Rajaratnam.

Rajaratnam, who is serving an 11-year sentence, has also asked a federal judge to reconsider his case. The higher standard of proof mandated by Newman should be applied to him retroactively, he said in a request that’s pending. Christine Chung, his lawyer, declined to comment on the case.

Gupta and Whitman both “argued they were likely convicted for conduct that is not criminal in light of Newman,” Gupta’s lawyer Gary Naftalis said in a Jan. 11 letter to the federal appeals court. “The prejudice caused to Mr. Gupta by the now invalid pure relationship theory was devastating.”

The Supreme Court refused to consider the government’s appeal of the Newman decision, but agreed to look at the case of Bassam Yacoub Salman, an Illinois man who was convicted of insider trading on merger tips he got from a relative. Salman’s conviction was upheld by the Court of Appeals in San Francisco.


Decision’s Author


The author of that decision was U.S. District Judge Jed Rakoff, who was sitting as a visiting jurist on the San Francisco appellate panel after handling a number of the insider-trading cases as a trial judge in New York. Rakoff wrote in the Salman case that he wouldn’t follow the Newman reasoning and that it was enough that information was intended as a gift.

Rakoff’s disagreement with Newman “colored his handling” of Whitman’s request to set aside his conviction and grant his release on bail, the fund manager said in a Jan. 22 court filing to the appeals panel.

Congress is likely to pass a statute defining insider trading if the Supreme Court overturns Salman and agrees with Newman, said Samuel Buell of Duke University’s School of Law.

“The perception of fairness is harmed if people believe that the legal rule is easy to get around,” he said.


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