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A case arising from one of the nation’s largest insider trading schemestook an unusual turn when a federal appeals court overturned 81 of 84guilty counts for three defendants charged with insider trading andrelated crimes. The 2nd U.S. Circuit Court of Appeals ruled that the SouthernDistrict of New York was not the proper venue for trying the threedefendants from Kentucky, Jon Geibel, Chad Conner and Gordon Allen, inrelation to multiple counts of insider trading. Many of the 84 chargesincluded more than one defendant: Geibel was charged with 24 counts;Conner, with 84; and Allen, with 28. The 2nd Circuit panel, in a decision by Judge Rosemary Pooler, upheldthe other three guilty counts, including a conspiracy charge to commitinsider trading and two counts related to bribery. The case originated with great fanfare in March 2000, when prosecutorstook action against 19 defendants that reaped more than $8 million inillegal profits. At the time, government attorneys called it the largestsingle criminal prosecution for insider trading, according to newsreports. Eighteen of the 19 defendants, including Geibel, Conner andAllen, were found guilty or pleaded guilty to criminal charges. The 19thwas found not guilty in March, the Securities and Exchange Commission(SEC) said in a recent statement. The case stems from the activities of John Freeman, a part-time wordprocessor at investment banking giants Goldman Sachs and Credit SuisseFirst Boston. Freeman provided confidential information on mergersand acquisitions involving 23 publicly traded companies, including CIENAand Wang Laboratories, according to government press releases. Some ofthe direct beneficiaries of the information were friends or co-workers.Others received information through Internet chatrooms, saidprosecutors. Once Freeman released the information, it spread quickly, as theoriginal 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 Freemandirectly, said the court, and he never knew that they benefited from histips. Freeman cooperated with federal officials in theirinvestigation of the growing criminal enterprise. He also pleaded guiltyto 12 counts of insider trading when the government made its initialcharges and the SEC penalized him with civil fines. The facts of the case reveal how insider information from a reliable andwell-placed source soon disseminates beyond the original conspirators. INFORMATION FLOW Freeman began to pass insider information to James Cooper, a man hemet through an Internet chatroom, in return for a percentage of tradingprofits, according to Judge Pooler in the United States v. Jon Geibel,02-1645. Cooper then passed the information to one of the defendants, Conner, a stockbroker, among others. Conner then passed insiderinformation to Allen, one of his brokerage clients. Allen, thesecond defendant, then tipped Geibel, the third defendant, saidPooler, who was joined in the opinion by Judges James Oakes andRichard Wesley. Because Freeman did not know of all transfers of information, hereceived only $6,000 of the trading profits from these transactions, thepanel said. In all, he had received $87,000 in payments from all of histips. Conner’s tips to others, however, produced millions of tradingprofits, continued the judge. The nature of the interactions between Freeman and the defendantsled the court to its first inquiry: Was the Southern District the propervenue for the one count of conspiracy to commit insider trading? After going through a multi-pronged analysis, Pooler found thatthe Southern District was the proper venue for the conspiracy charge,reasoning that any court located where a criminal act took place canserve as a proper forum for a criminal trial. The panel found a plethora of evidence to uphold the conspiracy verdictagainst the defendants for the illegal acts they committed together,however it held that Freeman was not included in the conspiracybecause he had no knowledge of the defendants’ receipt of his tips. In addition, the panel noted that some of the acts furthering theconspiracy were made in the Southern District: Conner sent a letterto regulators based in New York to explain questionable trades and hehad a conversation with an undercover agent in New York. The courtconcluded that the district therefore constituted a proper venue for theconspiracy charge. When it came to the individual insider trades, the court found no suchlink to the Southern District. “Although Freeman’s original thefts may have set in motion the chain ofevents ultimately leading to defendants’ trades,” the panel held, “venuecannot be grounded merely on Freeman’s initial misappropriation and thefact that the information originated in New York.” UNUSUAL APPEAL The appeal was unusual in that the question of venue is normally clearearly on, said Geibel’s defense attorney, Robert Anello of Morvillo,Abramowitz, Grand, Iason & Silberberg. In this case, the defendants resided in Kentucky and their tradesgenerally involved options rather than actual stocks in New York-basedexchanges, so there were few connections to the Southern District, saidAnello. The court also confirmed Conner’s and Allen’s conviction toconspire to commit bribery originating from Conner’s payment of$4,000 to Freeman. The appeals court instructed Southern District Judge George Daniels toresentence the defendants. Conner, Allen and Geibel had receivedsentences of 50, 40 and 36 months, respectively.

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