By Nate Raymond
NEW YORK (Reuters) - Federal prosecutors in New York on Friday asked a U.S. appeals court to reconsider a landmark ruling that curtailed their ability to pursue insider trading cases and jeopardized several convictions.
Prosecutors under Manhattan U.S. Attorney Preet Bharara asked the 2nd U.S. Circuit Court of Appeals to grant a rehearing in the case of hedge fund managers Todd Newman and Anthony Chiasson, who in December won the reversal of their insider trading convictions.
Prosecutors sought a rehearing by both the three-judge panel that ruled for Newman and Chiasson as well as the full appeals court, potentially 15 judges under its rules.
In their petition, prosecutors argued the decision broke with U.S. Supreme Court precedent and "threatens the effective enforcement of the securities laws."
"The panel's missteps will have serious consequences far beyond this case," prosecutors wrote.
Lawyers for Newman and Chiasson declined to comment.
The 2nd Circuit ruling held that prosecutors need to prove a trader knew that the original source of a tip received a benefit in exchange for the information.
It also narrowed what constitutes a benefit, saying it must be of "some consequence" and cannot be only friendship - a holding prosecutors wrote would "dramatically limit" their ability to pursue cases.
Prior to the ruling, Bharara's office had secured 86 people's convictions for insider trading since October 2009. In its wake, several defendants have sought to take advantage of the decision in their own cases.
On Thursday, U.S. District Judge Andrew Carter in Manhattan threw out the guilty pleas of four men accused of engaging in insider trading ahead of IBM Corp's 2009 acquisition of SPSS Inc.
Carter on Friday asked prosecutors to provide details about their evidence as he considers whether to dismiss the case altogether.
Newman, 50, and Chiasson, 41, were found guilty in 2012 for their roles in a scheme prosecutors said reaped $72 million through trading on inside information about computer maker Dell Inc [DI.UL] and chipmaker Nvidia Corp.
Prosecutors said both men traded on tips they received from analysts working at their hedge funds who belonged to a "corrupt circle" of investment firm analysts that traded non-public information obtained from employees at various companies.
Prior to winning the appeal, Newman, a former portfolio manager at Diamondback Capital Management, and Chiasson, co-founder of Level Global Investors, had been sentenced to 4-1/2 years and 6-1/2 years in prison, respectively.
The case is U.S. v. Newman, 2nd U.S. Circuit Court of Appeals, No. 13-1837.