(Wavebreak Media LTD)

A federal appeals judge put a prosecutor on the defensive over the Southern District U.S. Attorney’s Office approach to insider trading cases on Tuesday, questioning the message it sends Wall Street as it scores successes including 80 convictions over the last six years.

Judge Barrington Parker (See Profile), of the U.S. Court of Appeals for the Second Circuit, questioned the government’s methods as a three-judge panel heard oral arguments in the appeals of the December 2012 convictions of two former portfolio managers.

“We sit in the financial capital of the world, and the amorphous theory that you have, that you tried this case on, gives precious little guidance to all these institutions, all of these hedge funds out there, who are trying to come up with some bright line rules about what can and what cannot be done,” Parker told Assistant U.S. Attorney Antonia Apps, who vigorously defended the government’s actions and said the law has been clear for decades.

Parker’s attacks came after Southern District Judge Richard J. Sullivan (See Profile) declined to tell the jury that the defendants must know that the source of the inside information received a personal benefit from the disclosure for the defendants to be found guilty. Parker noted at least five other judges had required it, forcing the government to take “completely inconsistent views on a critical point of law.”

“Your theory leaves all of these institutions at the mercy of the government, whoever the government chooses to indict,” the judge said.

Questions by Parker over the jury instruction raised hopes of defense lawyers who crowded a Southern Circuit courtroom that the panel might overturn the convictions of Anthony Chiasson, of Manhattan, and Todd Newman, of Needham, Mass.

Chiasson, who co-founded Greenwich, Conn.-based Level Global Investors, was sentenced to 6 1/2 years in prison. Newman, who had worked for Stamford, Conn.-based Diamondback Capital Management, received 4 1/2 years. Both attended the hearing.

See Briefs filed by the government, Chiasson, Newman, and amicus National Association of Criminal Defense Lawyers.

The judges did not immediately rule.

The appeals issue also would seem to jeopardize last year’s insider trading conviction of Michael Steinberg, a former SAC Capital portfolio manager. A similar jury instruction was given at his trial.

Parker seemed to belittle a string of insider trading prosecutions that have emphasized records. The government said Chiasson earned $53 million for his hedge fund in one short sale, the largest illegal trade ever alleged in a federal criminal case in Manhattan when it was announced in early 2012.

The judge said the government likes to emphasize “how big the fund is.”

“It’s a billion-dollar fund so the gain was $50 million,” he said. “It looks huge so the jury’s eyes will bulge open.”

He said the government seemed to funnel cases “before their preferred venue, which is Judge Sullivan,” asking if it was “sheer coincidence” that the case ended up with the one judge “who had bought into the government’s theory on knowledge of personal gain.” His argument was joined by Judge Ralph Winter (See Profile), who asked if the government sometimes superseded indictments with new defendants to choose preferred judges.

Apps repeatedly poked holes in Parker’s reasoning, saying Sullivan properly presided over the trial. She said other judges have given the same jury instructions as Sullivan.