US
prosecutors have concluded that testimonies from the former CIO of the Wyoming Retirement System (WRS) are not enough to support his guilty plea for insider trading.
In a letter filed Friday to a New York district judge, the prosecutors said John Johnson’s formal statements to the court in 2013 about his involvement in an insider trading scheme were “insufficient to support the guilty plea” on their own.
This conclusion follows a recent appellate ruling that raised the bar on evidence the government must present to establish violation of securities laws.
According to the decision made in December, prosecutors must now show that the person who received and traded on inside information was aware that the source also received a benefit for providing the tip.
WRS’s former chief pleaded guilty in March 2013 to four counts of securities fraud and conspiracy to commit securities fraud for activities that occurred in 2008—two years before he joined the pension plan as a senior investment officer.
US Attorney Preet Bharara wrote the that government was still prepared to prosecute Johnson and said both the evidence and the defendant’s testimonies were against him.
“The evidence clearly establishes that [Johnson] consciously avoided knowledge of the tipper’s benefit,” the letter said.
In addition, the prosecutors argued Johnson “purposefully avoided learning details about [his tipper’s] source of information… to create a ‘plausible level of deniability’ in his trading activities.”
According to court documents, Johnson received a tip from Matthew Teeple, then-analyst at hedge fund Artis Capital Management, about an upcoming merger of two technology firms. Teeple was allegedly tipped off by David Riley, a former chief information officer at one of the merging firms.
“The evidence clearly establishes that [Johnson] consciously avoided knowledge of the tipper’s benefit,” — US Attorney Preet BhararaJohnson made $136,000 in illegal profits with the information, the SEC estimated. He has since lost his position at the $7.5 WRS.
Both prosecutors and the defendant will discuss on March 13 whether Johnson would resubmit a plea with additional supporting evidence or retract it and go to trial.
The former CIO is awaiting sentencing scheduled for April 23, according to court documents. He faces a maximum of five years in prison and a fine of $272,000 for the district court’s charge of conspiracy, and a maximum of 20 years in prison and $5 million in fines for each securities fraud charges.
Johnson’s lawyer declined to comment at time of press.
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