On November 9, 2009, Michael Kimelman's home was searched by FBI agents, he was taken away in handcuffs and then charged with being a part of an insider trading scheme. Shortly after that was offered a deal by government prosecutors ... plead guilty to a felony and avoid prison (probation). It is a deal most defendant's dream of when they find themselves in the cross-hairs of a federal criminal case. Kimelman turned the deal down and went to trial to prove his innocence. In a two week trial in 2011, Kimelman, along with two co-defendants, brothers Zvi and Emanuel Goffer, were all found guilty. Kimelman was sentenced to 30 months in prison, which he has already served, and was released in August 2013 ... a month after losing an appeal to the 2nd Circuit to have his conviction overturned. He is currently in his last year of supervised release.
The crime they were convicted of alleged that Zvi acquired inside information through an intermediary who had contacts in mergers/acquisitions at the law firm Ropes & Gray. That information made it to Kimelman who traded on it. The indictment charged Kimelman with conspiracy to commit insider trading based on purchases of 3Com Corporation stock in August 2007.
In a motion to vacate his conviction and sentence filed Thursday, attorney Alexandra A.E. Shapiro stated that "Kimelman was a remote tippee who was three steps removed from the Ropes & Gray attorneys .... There was no direct evidence that Kimelman ever received inside information." There was also no evidence that he knew of any payment or that he even knew the lawyers who were the source of the information. The motions contained an interesting footnote stating that, "In fact, the FBI lead case agent testified that she could not point to a single instance in any wiretapped call, consensual recording, email message, or instant message in which Kimelman received or discussed receiving inside information from Goffer ..." Further, there were no witnesses who testified at trial who new of Kimelman's receiving inside information. In light of the recent Newman decision, which overturned the convictions of Todd Newman and Anthony Chiasson based on their lack of knowledge of a benefit to the tipper (source), it seems like Kimelman has a good argument ... even if it comes after he has already served his prison term. Of note, Shapiro worked on the appellate team of Anthony Chiasson.
Zvi Goffer filed his own motion to have charges against him tossed in January. One key point in that motion was that while he paid the intermediary, he did not even know the tippers at the law firm nor if they were even paid. If Zvi did not know the tippers, then how could Kimelman? Goffer is currently serving a 10 year prison sentence in Lewisburg, PA (release date August 2020). Earlier this year, U.S. District Judge Sullivan, who presided over the trial, denied Goffer's request to be released from prison pending a ruling on that motion.
U.S. Attorney Preet Bharara is challenging the Newman decision and filed a request for an en banc hearing in the 2nd Circuit. According to the New York Times reporting on Bharara's brief, the heart of the three-judge panel’s decision to overturn the convictions of Newman and Chiasson is a question of what the two traders knew about a leak of inside information. They rejected Judge Sullivan’s instructions to the jury ruling that Mr. Chiasson and Mr. Newman needed to know that insiders at technology companies were improperly leaking confidential information to hedge funds in exchange for some “personal benefit.” If the current ruling stands, which seems likely, then Kimelman's motion should be granted.
Judges are seriously considering the Newman decision in current cases even with the challenges coming from Bharara. In January, U.S. District Judge Andrew L. Carter, Jr. vacated the guilty pleas of four individuals who had traded on confidential information associated with an
