In a blow to the U.S. Justice Department's Wall Street crackdown, a federal appeals court overturned two insider-trading convictions, saying it isn't always illegal to buy or sell stocks using inside information, the Wall Street Journal reports. The case raised the bar for prosecutors on a crime that is already hard to prove, and will limit the types of cases the government can pursue. The Second Circuit Court of Appeals said prosecutors must prove traders knew that the person who provided an inside tip gained a tangible reward for doing so. The judges said it may be legal to trade on inside information, even if it gives an investor an unfair advantage in the markets, as long as the tipper didn't commit an illegal breach of duty.
Judge Barrington Parker said the Supreme Court had rejected the notion that insider-trading law prohibits all trading using confidential information. He said that, “although the government might like the law to be different,” not every instance of financial unfairness constitutes fraud. The 3-0 decision overturned the 2012 convictions of former hedge-fund traders Todd Newman and Anthony Chiasson. The judges said prosecutors have been too aggressive in their interpretation of the law.