By Nate Raymond
NEW YORK (Reuters) - Two former hedge fund managers persuaded a U.S. appeals court on Tuesday to allow them to remain free on bail as they seek to have their insider-trading convictions thrown out.
Todd Newman, a former portfolio manager at hedge fund Diamondback Capital Management, and Anthony Chiasson, co-founder of hedge fund Level Global Investors, had been set to begin prison sentences later this summer.
The two were convicted in December of illegally trading in Dell Inc and Nvidia Corp stock based on non-public information supplied by research analysts.
After a hearing on Tuesday, the 2nd U.S. Circuit Court of Appeals in New York granted their request to remain free on bail while they pursued their appeal, which they argued raised substantial issues under the law.
Chiasson, 48, and Newman, 45, have been free on $2.5 million and $3 million bonds, respectively, since their arrests in January 2012.
Newman was scheduled to begin serving his sentence on July 8 after a judge gave him a 4-1/2-year prison term in May. Chiasson was set to begin serving on August 13 after being sentenced to 6-1/2 years in prison.
The case raises legal issues of whether prosecutors at trial must prove a recipient of a tip knew that the person who provided the illegal information did so for a personal benefit.
Judges have disagreed on this point in recent cases.
Lawyers for Chiasson and Newman argued that in their case, U.S. District Judge Richard Sullivan declined to instruct the jury that the two men had to have knowledge of the alleged benefit received by the tipper.
Mark Pomerantz, a lawyer for Chiasson, said the jury was improperly instructed, affecting how the trial was conducted.
"The trial would have assumed an entirely different dynamic," he said.
The same legal issue was recently raised in the case of Michael Steinberg, a fund manager at SAC Capital Advisors who was indicted in March on insider trading charges.
Steinberg, who is set to face trial on November 18, sought unsuccessfully to reassign his case to a judge other than Sullivan on the basis of his ruling on the issue of tip recipients in the Newman and Chiasson case.
In granting Newman and Chiasson's bail motion on Tuesday, Circuit Judge Jose Cabranes said the appeals court would send their case back to Sullivan for any bail modifications that become necessary.
A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined comment.
The case is US v. Newman et al, 2nd U.S. Circuit Court of Appeals, No. 13-1837.
(Editing by Matthew Lewis)