(Updates with further comment from lawyers)
By Nate Raymond
NEW YORK, April 3 (Reuters) - A U.S. appeals court on Friday rejected a request by federal prosecutors to reconsider a major ruling that curtailed their ability to pursue insider trading cases and jeopardized several convictions.
The 2nd U.S. Circuit Court of Appeals in New York denied a petition by prosecutors to grant a rehearing in the case of hedge fund managers Todd Newman and Anthony Chiasson, who in December won the reversal of their insider trading convictions.
The court gave no explanation for why a rehearing was rejected by both the original three-judge panel and by the full 2nd Circuit, potentially 16 judges.
It was unclear if the government would within 90 days seek U.S. Supreme Court review. A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment.
"It is now time for the government to move on and allow an innocent man to continue with his life," Stephen Fishbein and John Nathanson, lawyers for Newman, said in a statement.
Friday's ruling marked the latest setback for an insider trading crackdown by Bharara's office that has since 2009 resulted in charges against 93 people.
Bharara's office and the U.S. Securities and Exchange Commission had said the December ruling threatened their ability to pursue insider trading.
The three-judge panel held that prosecutors must prove a trader knew a tip's source received a benefit in exchange for the information.
The court also narrowed what constitutes a benefit, saying it must be of "some consequence" and cannot be only friendship.
The ruling reversed the 2012 convictions of Newman, a former Diamondback Capital Management portfolio manager, and Chiasson, co-founder of Level Global Investors.
Newman and Chiasson had been sentenced to 4-1/2 years and 6-1/2 years in prison, respectively, for engaging in a $72 million scheme involving insider tips about Dell Inc and Nvidia Corp.
Gregory Morvillo, Chiasson's lawyer, said his client hopes the case becomes a "cautionary story" about the consequences of pursuing legally-novel prosecutions.
Already, the December ruling has been seized upon by other defendants, and has prompted Bharara's office to drop charges against five men accused of insider trading ahead of an IBM Corp acquisition.
The ruling could also benefit Michael Steinberg, a SAC Capital Advisors portfolio manager sentenced to 3-1/2 years in prison after his 2013 conviction for engaging in the same conspiracy as Newman and Chiasson.
Barry Berke, Steinberg's lawyer, said Friday's decision "requires his conviction to be thrown out as well."
The case is U.S. v. Newman, 2nd U.S. Circuit Court of Appeals, No. 13-1837. (Reporting by Nate Raymond in New York; Editing by Chizu Nomiyama, Bernard Orr)