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A case arising from one of the nation’s largest insider trading schemes took an unusual turn when a federal appeals court overturned 81 of 84 guilty counts for three defendants charged with insider trading and related crimes. The 2d U.S. Circuit Court of Appeals ruled that the Southern District of New York was not the proper venue for trying the three defendants from Kentucky, Jon Geibel, Chad Conner and Gordon Allen, in relation to multiple counts of insider trading. Many of the 84 charges included more than one defendant: Geibel was charged with 24 counts, Conner with 84 and Allen with 28. The 2d Circuit panel, in a decision written by Judge Rosemary Pooler, upheld the other three guilty counts, including a conspiracy charge to commit insider trading and two counts related to bribery. The case originated with great fanfare in March 2000, when prosecutors took action against 19 defendants who reaped more than $8 million in illegal profits. At the time, government attorneys called it the largest single criminal prosecution for insider trading, according to news reports. Eighteen of the 19 defendants, including Geibel, Conner and Allen, were found guilty or pleaded guilty to criminal charges. The 19th was found not guilty in March, the Securities and Exchange Commission (SEC) said in a recent statement. Confidential information The case stems from the activities of John Freeman, a part-time word processor at investment banking giants Goldman Sachs & Co. and Credit Suisse First Boston LLC. Freeman provided confidential information on mergers and acquisitions involving 23 publicly traded companies, including CIENA Corp. and Wang Laboratories Inc., according to government press releases. Some of the direct beneficiaries of the information were friends or co-workers. Others received information through Internet chatrooms, said prosecutors. Once Freeman released the information, it spread quickly, as the original recipients passed it on to others who then passed it on again, without ever notifying Freeman of their actions. None of the three defendants in the case ever dealt with Freeman directly, said the court, and he never knew that they benefited from his tips. Freeman cooperated with federal officials in their investigation of the growing criminal enterprise. He also pleaded guilty to 12 counts of insider trading when the government made its initial charges and the SEC penalized him with civil fines. The facts of the case reveal how insider information from a reliable and well-placed source soon disseminates beyond the original conspirators. Freeman began to pass insider information to James Cooper, a man he met through an Internet chatroom, in return for a percentage of trading profits, according to Pooler in the United States v. Jon Geibel, No. 02-1645. Cooper then passed the information to one of the defendants, Conner, a stockbroker, among others. Conner then passed insider information to Allen, one of his brokerage clients. Allen, the second defendant, then tipped Geibel, the third defendant, said Pooler, who was joined in the opinion by Judges James Oakes and Richard Wesley. Because Freeman did not know of all transfers of information, he received only $6,000 of the trading profits from these transactions, the panel said. In all, he had received $87,000 in payments from all of his tips. Conner’s tips to others, however, produced millions of trading profits, continued the judge. The nature of the interactions between Freeman and the defendants led the court to its first inquiry: Was the Southern District of New York the proper venue for the one count of conspiracy to commit insider trading? After going through a multipronged analysis, Pooler found that the southern district was the proper venue for the conspiracy charge, reasoning that any court located where a criminal act took place can serve as a proper forum for a criminal trial. The panel found a plethora of evidence to uphold the conspiracy verdict against the defendants for the illegal acts they committed together; however it held that Freeman was not included in the conspiracy because he had no knowledge of the defendants’ receipt of his tips.

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