The U.S. Court of Appeals for the Third Circuit has ordered a new sentence for former Simpson Thacher & Bartlett employee Steven Metro, ruling that his 46-month sentence on insider trading charges wrongly held him responsible for the actions of others.

Metro, who was charged in March 2014 and pleaded guilty in November 2015 to giving out stock tips based on information he obtained at the Am Law 100 firm about pending M&A deals, was wrongly sentenced based on the entire $4.6 million proceeds of the scheme even though others were involved, the appeals court said.

A former managing clerk at Simpson Thacher, Metro admitted to passing merger information to his friend Frank Tamayo in the form of stock tips, sometimes on pieces of napkin. Metro has a law degree from Long Island's Touro Law Center but was not a practicing attorney.

Authorities said that from 2009 to 2014, Metro accessed information from Simpson Thacher's computers to identify clients that were about to participate in a merger or acquisition, sometimes searching using terms such as “merger agreement.”

In 13 instances between 2009 and 2013, Tamayo then relayed that information to his stock broker, Vladimir Eydelman, generally at meetings in New York's Grand Central Station. Tamayo would hand Eydelman a napkin or Post-it marked with the stock symbol, when to buy and what price to pay. Eydelman would then commit the information to memory and Tamayo would chew up and swallow the note to destroy the evidence, federal prosecutors said. Metro claimed that he was not aware that Eydelman was involved until one year after he relayed his last tip to Tamayo, who in mid-2015 cut a deal with the U.S. Securities and Exchange Commission.

After pleading guilty to one count each of insider trading and conspiracy to commit securities fraud, Metro was sentenced by U.S. District Judge Michael Shipp, the brother of former National Football League running back Marcel Shipp. At his sentencing before Shipp, Metro objected to a presentence report's call for an enhancement based on the scheme's entire $5.7 million in illicit gains, including the portion attributed to Eydelman.

When asked by Shipp whether the law requires Metro to know of Eydelman's actions in order to be held responsible for his share of the proceeds, the government said that Metro need only know that another party was receiving the inside information he was passing on. The prosecution said it had met that burden. Shipp then overruled Metro's objections when he imposed the 46-month sentence.

On appeal, Judges Kent Jordan, Thomas Hardiman and Anthony Scirica from the Third Circuit said Shipp was guided by the court's 2013 decision in United States v. Kluger, an insider trading case involving Matthew Kluger, a former associate at Cravath, Swaine & Moore; Fried, Frank, Harris, Shriver & Jacobson; Skadden, Arps, Slate, Meagher & Flom; and Wilson Sonsini Goodrich & Rosati. In that case, the appeals court upheld a district court judge's sentence attributing to the lawyer proceeds of trades made by a stockbroker.

But the Third Circuit said the ruling in Kluger had been based on the defendant's admission that he was acting in concert with the stockbroker and provided inside information with the intent that it reach the stockbroker. Metro, for his part, strenuously disputes acting in concert with or providing inside information to Eydelman.

Jordan, writing for the panel, said that Shipp apparently concluded that, in light of Kluger, Metro's guilty plea to a conspiracy count naming Eydelman was sufficient basis to find the two acted in concert, or that Kluger requires courts to hold tippers accountable at sentencing for all downstream trading.

“Both interpretations take Kluger too far,” Jordan wrote.

Metro's lawyer, Lawrence Lustberg, co-chair of the commercial and criminal litigation department at Gibbons in Newark, New Jersey, said the Third Circuit's ruling “makes clear that, at least for purposes of sentencing guideline computations, an insider trading tipper should not be held responsible for downstream trading of which he was totally unaware, as occurred here. Instead, as the guidelines make clear—and as is only fair—in order for him to be sentenced based upon trading by persons other than those whom he tipped, he must be shown to have been acting 'in concert' with that person,” Lustberg said.

“Because that was not shown here, the Court of Appeals was clearly correct in holding that he must be resentenced,” Lustberg said. “We look forward to advocating for him at that resentencing in an effort to obtain a sentencing that really reflects his conduct and not the unknown conduct of others.”

Assistant U.S. Attorney Glenn Moramarco argued for the prosecution. A representative for the U.S. attorney's office, who asked not to be identified, said the office is studying the ruling and considering its options.