The US 2 nd Circuit Court of Appeals upheld a ruling by US District Judge Robert Sweet of the US District Court for the Southern District of New York that the government had failed in its legal burden to present proof against computer firm executive John Cassese, according to the New York Law Journal.
Cassese, the former chairman and president of the New Jersey-based Computer Horizons Corp., was convicted by a federal court jury of insider trading violations in connection with a tender offer between two other computer companies. Sweet overrode the jury, asserting that the evidence supporting the verdict was insufficient.
In a split two to one vote, the appellate majority found that the government, “giving it all the presumptions to which it is entitled — failed to prove beyond a reasonable doubt that Cassese willfully violated Rule 14e-3 even under the more relaxed definition of willfulness it proposes.”
According to the court ruling, Cassese entered merger discussions with another company, Compuware, in 1999. But Computer Horizons’ board rejected a proposal from Compuware that would have paid $22.50 per share to buy out Computer Horizons, a price that would have netted Cassese $33 million in cash.
A few months later, Compuware Chief Executive Peter Karmanos Jr. called Cassese and informed him that Compuware was no longer interested in buying Computer Horizons. He also told Cassese that Compuware was about to acquire another company, DPRC.
Cassese promptly bought 15,000 shares of DPRC and quickly sold them following the public announcement that Compuware was seeking to acquire DPRC by tender offer. The sale netted him a profit of $149,000.
The SEC filed an insider trading complaint against Cassese in 2002 and Cassese consented to an order of judgment against him. He wound up disgorging his profits from the sale and paying $170,000 in penalties and interest. He was also indicted for insider trading.
At the 2nd Circuit, Circuit Judge B.D. Parker said the evidence was insufficient under any standard, and so the court “need not reach the difficult question of whether the Government must prove that a defendant believed a transaction related to a tender offer where only a violation of Section 14(e) is charged.”
Among that evidence, prosecutors argued, was that Cassese used two brokerage accounts to buy the DPRC shares, the timing of his purchase was suspicious, he later tried to cancel the trades, he told a Compuware investment banker he “had made a stupid mistake,” and the confidentiality agreement sent to him when his own company was in talks with Compuware specifically warned him about trading on information received during merger negotiations.
As for the evidence, he said, “viewed singly, each of the areas of proof by the Government was characterized by modest evidentiary showings, equivocal or attenuated evidence of guilt or a combination of the three.”
The 2 nd Circuit Court ruling is here .