The Thurgood Marshall U.S. courthouse is photographed on May 3,...

The Thurgood Marshall U.S. courthouse is photographed on May 3, 2011 in New York.

A federal appeals court has overturned a jury's finding that a Bay Shore man who is a former Prudential Securities broker was negligent when he rapidly traded mutual funds.

The 2nd U.S. Circuit Court of Appeals in Manhattan said on Monday the evidence did not support a December 2011 verdict against Frederick O'Meally, and that the case should be dismissed.

Circuit Judge Dennis Jacobs wrote for a three-judge panel that the Securities and Exchange Commission "ultimately succumbs to its strategic choice" to have pursued an all-or-nothing strategy seeking to hold O'Meally liable for intentional or reckless conduct, not mere negligence.

O'Meally, who worked for Prudential from 1994 to 2003, had been accused of trying to exploit market inefficiencies by conducting "market timing" trades in 60 mutual funds on behalf of hedge fund clients. The practice is considered improper, but not illegal, and can hurt long-term investors by boosting costs.

Some of the mutual funds, with Prudential's support, discouraged the practice.

An SEC spokesman said the regulator is reviewing the decision.

Jurors found O'Meally not liable for intentional or reckless conduct with respect to all 60 funds, but liable for negligence as to six funds.

However, the 2nd Circuit said no reasonable juror could find O'Meally negligent, and that it was not unreasonable for him to have believed that market timing was OK.

It said this was because some of the mutual funds made exceptions to allow the practice, and that Prudential itself had secured some exceptions.

"Fred O'Meally invested 11 years of his life trying to prove he did nothing wrong, and today he was vindicated," his lawyer Andrew Frisch said.

CORRECTION: An earlier version of the first sentence of this story, and the headline, described the jury's finding incorrectly.

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