By Joseph Ax
NEW YORK (Reuters) - Two New York stockbrokers must face civil insider trading charges brought by U.S. securities regulators, a U.S. judge ruled on Friday, despite a landmark appellate ruling that torpedoed the criminal case against them.
U.S. District Judge Jed Rakoff in Manhattan rejected a bid from former Euro Pacific Capital Inc traders Daryl Payton and Benjamin Durant to throw out U.S. Securities and Exchange Commission charges that they engaged in illegal trading ahead of an IBM Corp (IBM.N) deal.
However, Rakoff postponed the scheduled Sept. 21 trial with the parties' consent while the U.S. Supreme Court weighs whether to review the appellate ruling, which could affect the SEC case's outcome.
Gregory Morvillo, a lawyer for Durant, and Matthew Fishbein, a lawyer for Payton, declined to comment on Rakoff's ruling, as did a spokeswoman for the SEC.
The brokers had argued that the case must be dismissed in light of a December decision by the 2nd U.S. Circuit Court of Appeals in New York that curtailed authorities' ability to pursue insider trading cases.
In reversing the convictions of hedge fund managers Todd Newman and Anthony Chiasson, the appeals court held that prosecutors must prove a trader knew that the source of a tip received a benefit in exchange.
The 2nd Circuit also narrowed the definition of "benefit," saying it had to be more than mere friendship.
The Justice Department has asked the U.S. Supreme Court to review the ruling; the court has not yet decided.
In the current case, authorities said a lawyer representing IBM in 2009 told Trent Martin, an analyst at Royal Bank of Scotland Group Plc (RBS.L), that the company planned to acquire SPSS Inc for $1.2 billion.
Martin bought SPSS stock and told his roommate, Euro Pacific broker Thomas Conradt, who in turn shared the information with co-workers Durant, Payton and another man named David Weishaus, all of whom traded on the tip.
All five men were criminally charged, and all but Durant pleaded guilty. But a federal judge threw out their guilty pleas following the 2nd Circuit's ruling, and prosecutors dropped the case.
The SEC, however, pressed forward against Durant and Payton, citing a different legal standard for civil charges.
The defendants argued they were too far removed from the original source to meet the 2nd Circuit's standard. But the SEC said they willfully ignored red flags, proving they knew the information was illegally obtained.
The case is U.S. Securities and Exchange Commission v. Payton et al, U.S. District Court for the Southern District of New York, No. 14-4644.
(Reporting by Joseph Ax; Editing by Bernard Orr and Chris Reese)