NEW YORK — A federal appeals court Monday threw out the criminal stock manipulation convictions of GAF Corp. and its former vice chairman, James T. Sherwin.
Sherwin and GAF were convicted in December, 1989, of manipulating the price of Union Carbide stock on the New York Stock Exchange. Former Los Angeles-based stock trader Boyd L. Jefferies was the main government witness. The case was tried three times, with the first two trials ending in mistrials.
In its ruling, the U.S. 2nd Circuit Court of Appeals in New York said the trial judge made a mistake when she did not allow into evidence a document showing that the government had abandoned some of the allegations it had made in the first two trials. The appeals court also said the judge made an error in instructing the jury before it began deliberations. A three-judge panel of the appeals court voted 2 to 1 to overturn the convictions.
Federal prosecutors in New York could not immediately be reached for comment on whether they will attempt to try the case a fourth time.
GAF, a chemicals and building products company based in Wayne, N.J., was represented by Arthur L. Liman, the same lawyer who represents former Drexel Burnham Lambert junk bond chief Michael Milken. Liman could not be reached for comment Monday, but a partner, Max Gitter, who also helped defend GAF, called the appellate decision "very gratifying."
Stephen E. Kaufman, the lawyer who represented Sherwin, said in a written statement that "I am very happy for Mr. Sherwin and his family." Sherwin could not be reached for comment.
Sherwin had been sentenced to six months in prison and a year on probation. He left GAF after his conviction but remained free during the appeal. GAF was sentenced to pay $2 million in fines.
The case was part of the series of Wall Street securities fraud and insider-trading cases that grew out of information turned over to the government by admitted inside trader Ivan F. Boesky.
Prosecutors had charged that GAF and Sherwin had arranged with Jefferies to illegally bid up the price of Union Carbide stock in 1986. At the time, GAF was seeking to sell a large block of the stock after it made an unsuccessful tender offer to acquire control of Union Carbide.
In a legal document known as a bill of particulars, the government originally charged that GAF and Sherwin initiated stock manipulations in both late October and early November, 1986. But in the bill of particulars submitted for the third trial, reference to the November trades was deleted. The defense had argued that the jury should have been made aware that the government had retreated from some of its allegations.
In ruling that U.S. District Judge Mary Johnson Lowe should have allowed the defense to introduce the original bill of particulars as evidence, the appeals court held that "if the government chooses to change its strategy at successive trials, and contradict its previous theories of the case and version of the historical facts, the jury is entitled to be aware of what the government has previously claimed, and accord whatever weight it deems appropriate to such information."