Jurors found a former Perella Weinberg Partners LP banker guilty in a major victory for prosecutors worried a recent appeals court ruling had tied their hands in fighting insider trading.
Sean Stewart, 35, was convicted of tipping his father to five health care mergers he learned about at Perella Weinberg and previously at JPMorgan Chase & Co. In convicting Stewart on all nine counts, the jurors rejected claims that he’d been betrayed by his father, who lied to him about trading on inside information.
“It was very unfair,” Claudia Stewart, Sean’s mother, said after the jury of eight men and four women delivered their verdict in Manhattan federal court on Wednesday. “You have to know how devastating this is right now.”
The conviction signals that prosecutors haven’t been totally hobbled by a 2014 appeals court ruling that requires more from the government to prove insider trading. After that decision, which reversed the trial conviction of two traders, prosecutors dropped charges against a dozen others.
The U.S. Supreme Court last year declined to consider the case, prompting the U.S attorney in Manhattan, Preet Bharara, to warn that the new standard provides a “potential bonanza” for insiders leaking to friends and family. This year, though, they have brought charges against eight people and have now won the Stewart case.
The jury delivered the verdict on the sixth day of deliberations, having reached the decision on Tuesday but deciding to sleep on it, according to one of the panel members, Carmela Raiti of Putnam County.
“It’s fair to say this is a family tragedy,” Raiti said. “Nothing we do in life is isolated from those we know and love.”
She declined to say why it took five days to reach a verdict, although she admitted some issues divided the jury members along the way.
“We gave him as fair a consideration as you could give to anyone,” said jury member Emanuel Palermo.
Stewart is scheduled to be sentenced Feb. 17 and faces as long as 20 years in prison on the most serious charge. In his only comments, Stewart told the judge he understood he’d face consequences if he violated his bail conditions before sentencing.
“We’re obviously disappointed,” said Martin Cohen, one of Stewart’s lawyers. “We think the jury got it wrong.”
Carrie Cohen, a former federal prosecutor in Manhattan who’s now a white-collar defense lawyer at Morrison & Foerster LLP in New York, said that while the verdict wasn’t surprising, the jury may have been held up by the intricacies of the father-son relationship at the center of the case.
“Some of the jurors, I assume, were parents and they know that children talk to their parents about what’s going on in their lives — that may have struck a cord with jurors,” Cohen said in a phone call. In the end, Cohen said, the recorded conversation and other evidence may have helped them overcome any reservations.
The jurors heard testimony from more than a dozen prosecution witnesses, including two men who said they had traded on tips that they got from Sean’s father, Bob.
Mark Boccia, who owns restaurants in Queens, New York, told jurors he traded on tips Bob said he got from his son. Boccia was granted immunity from prosecution. Richard Cunniffe, a former friend of Bob, cooperated with the government and allowed FBI agents to record meetings and a phone call he had with him. Prosecutors claimed Sean benefited from his father’s illegal trades when Bob paid $10,055 for the photographer at Sean’s June 2011 wedding. The appeals court decision required prosecutors to prove the source of confidential information in insider-trading cases must have received a concrete benefit from leaking it, such as money or its equivalent, though it’s less clear what sort of benefit is required when the leak is to a friend or family member.
Cunniffe, who made most of what prosecutors said was $1.4 million in illegal profits from the trades, pleaded guilty before the trial. He’s cooperating in a bid to win a lenient sentence.
Bob Stewart also pleaded guilty and was sentenced to probation. His son tried to call his father as a defense witness, claiming he made statements clearing his son to the FBI and the SEC. Bob refused, invoking his Fifth Amendment right against self-incrimination, and didn’t take the witness stand.
Mark Gombiner, another of Stewart’s lawyers, said the defense was particularly hampered by a ruling preventing Stewart from presenting his father’s testimony. Bob Stewart told agents after his arrest that his son didn’t know he was trading on the confidential information, Gombiner said.
He said Sean will appeal.
Sean Stewart testified in his own defense, in a risky move that exposed him to hostile questioning from the prosecution. During parts of his two days on the stand, Sean told jurors he frequently talked about work, including the names of clients, in front of his wife and family.
He was grilled by prosecutors over lies he told to JPMorgan Chase compliance staff when they questioned him about his father’s trades in advance of a merger that Sean had worked on. He said he didn’t know about the trades in advance and lied to protect his father and to avoid injuring his career. Sean said he believed his father’s promises never to trade on information from his work again.
Claudia Stewart, Sean’s mother and Bob Stewart’s wife of 39 years, testified that when Sean saw his father it was almost always in the company of others. She said she never noticed them having private conversations.
The Stewarts gave equally to Sean and his brother Ryan, who was married a month after Sean, to cover wedding expenses, Claudia said.
Bharara has filed insider-trading charges against more than 100 individuals and four units of Steve Cohen’s SAC Capital Advisors. The charges have resulted in 87 convictions, most by guilty pleas. Charges against 14 defendants were dropped or thrown out as a result of the 2014 appeals court ruling. Eight cases are pending.
The case is U.S. v. Stewart, 15-cr-00287, U.S. District Court, Southern District of New York (Manhattan).