The US Court of Appeals for the Second Circuit Tuesday reversed insider trading convictions against four defendants over leaks from a US healthcare agency. In the 2-1 decision, the court dismissed various fraud and theft charges against former hedge-fund partners Theodore Huber and Robert Olan, political intelligence consultant David Blaszczak and former US Centers for Medicare and Medicaid Services (CMS) employee Christopher Worrall.

The 2018 convictions were called for reconsideration following the 2020 US Supreme Court decision in Kelly v. United States, which clarified federal fraud laws for the misuse of property. The court cited the US Supreme Court, stating that confidential information held by the agency was not considered “property” or a “thing of value” in support of the charges.

Judge Richard Sullivan dissented from the majority’s conclusion. Sullivan claimed that the ruling “effectively permits sophisticated insiders to leverage their access to confidential government information and sell it to the highest bidders – in this case, hedge funds that used the confidential information to make millions shorting the stocks of public companies affected by CMS’s regulations.”

The court also set aside further charges for conspiracy against Blaszczak, Huber and Olan. The court ordered further proceedings to determine whether the convictions are founded on conduct that is no longer considered criminal.

Prosecutors said that in a scheme running from 2012 to 2014, Worrall informed Blaszczak of proposed changes to CMS’s rates of reimbursement for certain types of medical care. Blaszczak passed this information to a partner at Deerfield, which was then used to engage in sales for stocks in companies that would be affected by these changes. The Securities and Exchange Commission (SEC) estimated that the hedge-fund made $3.9 million in profits from this scheme.