He claims that our insider-trading precedents, and the cases those precedents cite, involve situations in which the insider exploited confidential information for the insider's own "tangible monetary profit." An embrace of the misappropriation theory in the tippee context — and the concurrent diminution of the personal benefit test — would provide doctrinal clarity, give the SEC an achievable prosecutorial target, and protect those tippees so removed from the tipper as to prevent a finding of fraud under the misappropriation theory. Salman, 792 F.3d at 1093. Outside of endorsing Newman, a more transformative path was available to the Court. Though the information sharing was initially relatively innocuous — Maher sought guidance on the basis of Michael’s chemistry expertise, and the two discussed firms researching cancer treatments after their father came down with the disease — Michael eventually began trading on the information disclosed by his brother.10×10. Barber v. Thomas, 560 U. S. 474, 492 (2010) (internal quotation marks omitted). 463 U. S., at 659 (holding that "insiders [are] forbidden" both "from personally using undisclosed corporate information to their advantage" and from "giv[ing] such information to an outsider for the same improper purpose of exploiting the information for their personal gain"). Brief for Petitioner 36-37. Salman was charged with conspiracy to commit securities fraud and insider trading in 2011 and found guilty. He applied for a new trial, but his request was denied. He then appealed to the U.S. Court of Appeals for the Ninth Circuit and argued there was insufficient evidence that he knew the information used for trades was from insider information. While Salman's appeal to the Ninth Circuit was pending, the Second Circuit decided that Dirks does not permit a factfinder to infer a personal benefit to the tipper from a gift of confidential information to a trading relative or friend, unless there is "proof of a meaningfully close personal relationship" between tipper and tippee "that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature," United States v. Newman, 773 F. 3d 438, 452, cert. Judge Rakoff then addressed Newman directly. Ibid. Found inside â Page 517In 2016, the Supreme Court resolved this split in the circuits. Salman v. United States, 580 U.S. ___ (2016). The Court held that a family member is ... In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds. To the extent the Second Circuit held that the tipper must also receive something of a "pecuniary or similarly valuable nature" in exchange for a gift to family or friends, Newman, 773 F. 3d, at 452, we agree with the Ninth Circuit that this requirement is inconsistent with Dirks. The Court found that Dirks made clear that a tipper breaches a fiduciary dutyâand receives a personal benefitâby making a gift of confidential information to a âtrading relative or friend,â which clearly happened in this case. Id., at 664. To the court, this “holding of Dirks govern[ed]” Salman.28×28. at 426. 6 : Ms. Shapiro. Salman was indicted on one count of conspiracy to commit securities fraud, see 18 U. S. C. §371, and four counts of securities fraud, see 15 U. S. C. §§78j(b), 78ff; 18 U. S. C. §2; 17 CFR §240.10b-5. 4 (1996). In Salman v. United States, the Supreme Court held that a tipper receives a personal benefit sufficient to establish illegal insider trading when the tipper makes a gift of confidential information to a trading relative or friend. Found inside â Page 81... for tippee liability.36 In the Supreme Court decision of Bassam Yacoub Salman v United States of 6 December 2016,37 the unanimous opinion of the Court, ... Practitioners, too, have found the personal benefit test unworkable. for remote tippees” who are less likely to know the relationship between the original tipper and tippee and therefore less likely to know the reason for the original disclosure.41×41. See Donna M. Nagy, Beyond Dirks: Gratuitous Tipping and Insider Trading, 42 J. Corp. L. 1, 10 (2016). Langevoort, supra note 71, at 41; see also Gubler, supra note 60, at 4 (“The purpose [of the personal benefit test] is to bridge the gap that exists when trying to prove fraud in a tipper-tippee case under the classical theory.”). And that maneuver has resulted in the muddled personal benefit test, an unclear standard that understandably culminated in the divergent applications seen in Newman and Salman. The tipper benefits either way. 792 F. 3d, at 1092 (internal quotation marks omitted). Although he instantly regretted the tip and called his brother back to implore him not to trade, Maher expected his brother to do so anyway. Newman, 773 F.3d at 452. In Salman v. United States, the Supreme Court recently held that the personal benefit el-ement in an insider trading case can be met solely by showing that a tipper gifted confiden-tial information to a trading friend or relative. Syllabus [Syllabus] [PDF] Opinion, Alito [Alito Opinion] [PDF] NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. Nor has he demonstrated that either §10(b) itself or Dirks's gift-giving standard "leav[e] grave uncertainty about how to estimate the risk posed by a crime" or are plagued by "hopeless indeterminacy." " 792 F. 3d 1087, 1092 (CA9 2015) (quoting Dirks, supra, at 664). Maher testified that he shared inside information with his brother to benefit him and with the expectation that his brother would trade on it. Id., at 33-34. Whether the tipper breached that duty depends "in large part on the purpose of the disclosure" to the tippee. Pp. Found inside â Page 348Salman v United States,85 preferring instead to issue a unanimous decision ... 86 EC Chaffee, 'The Supreme Court as Museum Curator: Securities Regulation ... Pointing to Newman, Salman argued that his conviction should be reversed. at 428. And, as Salman conceded below, this evidence is sufficient to sustain his conviction under our reading of Dirks. United States v. Salman, No. A disclosure of material nonpublic information without receipt of such a benefit did not trigger the requisite breach of fiduciary duty.65×65. Though the decision was unsurprising given its alignment with clear precedent,7×7. Id. Enforcement agencies, on one side, “have chafed” under the “unnecessarily restrictive” Dirks standard.75×75. 0
Salman, 137 S. Ct. at 425. On October 5, 2016, the United States Supreme Court began hearing argument in Salman v. United States,1 one of the most closely watched insider trading cases to reach the high court in recent years. Id. And from that exercise emerged the personal benefit test, a means to establish that “the actions of tipper and tippee are knit together closely enough to charge the tippee with breach of the tipper’s fiduciary duty.”72×72. The SEC’s frustration with Dirks contributed to its development of the misappropriation theory eventually adopted by the Court in O’Hagan, which provided a means of evading the evidentiary challenges of Dirks.76×76. * 48 Stat. L. Rev. Brief for United States 43; Tr. Because the Court of Appeals properly applied Dirks, we affirm the judgment below. Notably, Salman did not expressly overrule Newmanâs meaningfully-close-personal But see Jonathan R. Macey, Essay, The Genius of the Personal Benefit Test, 69 Stan. (quoting Johnson v. United States, 135 S. Ct. 2551, 2557 (2015)). Senior Judge Rakoff was joined by Judges Christen and Watford. L. Rev. Found inside... a violation that does not depend on his knowledge concerning the original breach by the insider.29 In Salman v. United States, the Supreme Court ... Even accepting the fiduciary duty–based liability standard for tippees — itself a stretch — the personal benefit test is both poorly defined and a non sequitur within the doctrine.69×69. Justice Alito also noted the rule of lenity was inapplicable to Salman, as he had failed to show the kind of “grievous ambiguity” required to invoke the rule. Id. The facts of this case illustrate the point: In one of their tipper-tippee interactions, Michael asked Maher for a favor, declined Maher's offer of money, and instead requested and received lucrative trading information. SALMAN v. UNITED STATES. We reject Salman's argument that Dirks's gift-giving standard is unconstitutionally vague as applied to this case. at 425. L. Rev. at 66364. See, e.g., id., at 286 (" 'Maher is the source of all this information' "). He then appealed to the U.S. Court of Appeals for the Ninth Circuit and argued there was insufficient evidence that he knew the information used for trades was from insider information. Justice Alito also briefly addressed the circuit split: the Court “agree[d] with the Ninth Circuit” that any reading of Newman that required proof of a monetary benefit must be “inconsistent with Dirks.”47×47. While Maher explained that he disclosed the information in large part to appease Michael (who pestered him incessantly for it), he also testified that he tipped his brother to "help him" and to "fulfil[l] whatever needs he had." The Supreme Court will hear oral arguments on the issue in a case, Salman v. United States , in early October. the lingering shortcomings of insider trading doctrine — as well as the Court’s particularly central role in shaping that doctrine — mean Salman must be viewed as a missed opportunity. Stay up-to-date with FindLaw's newsletter for legal professionals. The necessary starting point to our inquiry is a brief trip back to the early days of Supreme Court jurisprudence concerning the See Langevoort, supra note 71, at 41–42. Dirks created a simple and clear "guiding principle" for determining tippee liability, 463 U. S., at 664, and Salman has not demonstrated that either §10(b) itself or the Dirks gift-giving standard "leav[e] grave uncertainty about how to estimate the risk posed by a crime" or are plagued by "hopeless indeterminacy," Johnson v. United States, 576 U. S. ___, ___, ___ (2015) (slip op., at 5, 7). United States Supreme Court case in which the Court held that gifts of confidential information without any compensation to relatives for the purposes of insider trading are a violation of securities laws. While the evidence established that Maher made a gift of trading information to Michael and that Salman knew it, there was no evidence that Maher received anything of "a pecuniary or similarly valuable nature" in exchange--or that Salman knew of any such benefit. Yesterday the Supreme Court issued its decision in Salman v.United States, the first insider trading case to reach the Court in decades. UNITED STATES of America, PlaintiffâAppellee, v. Bassam Yacoub SALMAN, aka Bessam Jacob Salman, DefendantâAppellant. To the extent that the Second Circuit in Newman held that the tipper must also receive something of a "pecuniary or similarly valuable nature" in exchange for a gift to a trading relative, that rule is inconsistent with Dirks. Salman then traded on the information. See id. L. Rev. He suggests that his position is reinforced by our criminal-fraud precedents outside of the insider-trading context, because those cases confirm that a fraudster must personally obtain money or property. The misappropriation theory of O’Hagan, meanwhile, would seem to obviate the need for such an awkward accommodation; the competing theories and their uncertain applications, moreover, leave a great deal of uncertainty over how and when liability attaches for market participants and regulators. On December 6, 2016, in an opinion written by Justice Alito, the Supreme Court unanimously affirmed the Ninth Circuitâs decision in Salman v. United States⦠The Supreme Court’s centrality in shaping the doctrine began shortly thereafter in Chiarella v. United States,57×57. The result — especially in the tipper-tippee context — is a liability standard that fits awkwardly within traditional conceptions of fiduciary duty and leaves sufficient ambiguity to frustrate the SEC and market participants alike. In Chiarella, the Court took its first crack at defining the doctrine by announcing what has come to be known as the “classical” theory59×59. at 195; see also Pritchard, supra note 3, at 58. when it rejected this parity approach in favor of one focused on the breach of a duty.58×58. The Dirks Court, as Professor Donald Langevoort notes, had to “fiduciarize” tippees in some way, as a tippee owed no obvious fiduciary duty to other shareholders.71×71. United States Supreme Court. 3-4. Credit Suisse Securities (USA) LLC v⦠See Richard A. Epstein, Returning to Common-Law Principles of Insider Trading After United States v. Newman, 125 Yale L.J. By reaffirming Dirks and repudiating the Second Circuit’s attempt to raise the prosecutorial bar for proving tippee liability, the Court ignored these problems in both insider trading theory and practice. United States Holding: The U.S. Court of Appeals for the 9th Circuit properly applied the court's decision in Dirks v. Securities and Exchange Commission to affirm Bassam Salman's conviction because, under Dirks, the jury could infer that Salman's tipper personally benefited from making a gift of confidential information to a trading relative. Found inside â Page 42184 In 2016, in Salman v. United States,185 the Supreme Court explicitly rejected the âpecuniary or similarly valuable natureâ component of the Newman ... Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission's Rule 10b-5 prohibit undisclosed trading on inside corporate information by individuals who are under a duty of trust and confidence that prohibits them from secretly using such information for their personal advantage. endstream
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BASSAM YACOUB SALMAN, PETITIONER v. UNITED STATES, on writ of certiorari to the united states court of appeals for the ninth circuit. a. Such an elaboration of the type of conduct the personal benefit test shields would have at least provided clarity to the SEC and market analysts, even if it would not have resolved the doctrine’s theoretical incongruities. as well as by judicial interpretation. Assuming that these cases are relevant to our construction of §10(b) (a proposition the Government forcefully disputes), nothing in them undermines the commonsense point we made in Dirks. As the Court of Appeals noted, "the Government presented direct evidence that the disclosure was intended as a gift of market-sensitive information." Analysis. Found inside â Page 122In Chiarella v. United States,6 the seminal case on insider trading law, the Supreme Court stated clearly that the source of a duty to disclose must be a ... Instead, Salman argues, a tipper does not personally benefit unless the tipper's goal in disclosing inside information is to obtain money, property, or something of tangible value. It is obvious that Maher would personally benefit in that situation. Last Term, in Salman v. United States,5×5. Found insideRecent U.S. Supreme Court Decisions on Federal and State Securities ... United States, 45 Sec. Reg. ... it is important that the Supreme Court [in Salman v. The Government also argues that Salman's concerns about unlimited and indeterminate liability for remote tippees are significantly alleviated by other statutory elements that prosecutors must satisfy to convict a tippee for insider trading. Salman has cited nothing in this Court's precedents that undermines the gift-giving principle this Court announced in Dirks. 6-12. Id., at 43, 48, 50. Id., at 118, 82. In Salman, the Court had a variety of paths through which it might have helped to resolve at least some of this uncertainty. App. at 652. Dirks appropriately prohibits that approach, as well. Id. h��Vmo�F�+�1��}mW'$HJ)�J!W*Y���X56�����;�k� Atie��ef�m�gg���!��@�� Id. § 240.10b-5 (2017). at 1093 (citing Dirks, 463 U.S. at 664). On December 6, 2016, the Supreme Court of the United States decided Salman v.United States, No. 4 Id. as a fraud or deceit"); see United States v. O'Hagan, 521 U. S. 642, 650-652 (1997). The Court relied on its decision in Dirks v. Securities and Exchange Commission, 463 U.S. 646, which held that "that a tippee is exposed to liability for trading on ⦠the Supreme Court reaffirmed its longstanding “personal benefit” test for “tippee” liability — tippees being traders acting on disclosures of material nonpublic information made by insiders.6×6. Scotus cases similar to or like Salman v. United States. Online 37, 41 (2016); see also Dirks v. SEC, 463 U.S. 646, 654–55 (1983) (acknowledging Chiarella’s fiduciary duty requirement and the challenges of such a requirement for “policing tippees”). Accordingly, a gift to a friend, a family member, or anyone else would support the inference that the tipper exploited the trading value of inside information for personal purposes and thus personally benefited from the disclosure. Nonetheless, apparently “mollified by Dirks’s ‘unique facts,’” Congress opted not to legislatively modify Dirks, focusing instead on increasing penalties for insider trading to bolster deterrence. Specifically, the government needed to show “proof of a meaningfully close personal relationship” between the tipper and the tippee “that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”21×21. See id. The issue was whether an insiderâs âgiftâ of confidential information to a relative is enough to establish fraud, even though the insider receives no pecuniary benefit in return. He was sentenced to 36 months of imprisonment, three years of supervised release, and over $730,000 in restitution. Making a gift of inside information to a relative like Michael is little different from trading on the information, obtaining the profits, and doling them out to the trading relative. 98-355, at 14 (1983), as reprinted in 1984 U.S.C.C.A.N. Id. 15-628, slip op. "[T]he test," we explained, "is whether the insider personally will benefit, directly or indirectly, from his disclosure." Id., at 652. Id. Online 1, 3 (2016). Salman also cites a sampling of our criminal-fraud decisions construing other federal fraud statutes, suggesting that they stand for the proposition that fraud is not consummated unless the defendant obtains money or property. See H.R. In response, the Supreme Court in Salman v. United States 18× 18. After Salman appealed,35×35. 2 SALMAN v. UNITED STATES Syllabus ates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,â. United States v. Newman, 773 F. 3d 438, 452, cert. denied, 577 U. S. ___. with the expectation that [Michael] would trade on it.” Salman, 137 S. Ct. at 424. Salman builds upon Dirks v. SEC, 463 U.S. 646 (1983), a landmark decision in insider trading law decided more than thirty years ago. Online 55, 55 (2016). Maher Kara was an investment banker in Citigroup's healthcare investment banking group. Justice Gorsuch had not yet joined the Court at the time of the decision. The SEC’s vision was based on what is known as the “parity of information” theory of insider trading, by which anyone in possession of material nonpublic information must disclose that information to the public or refrain from trading.56×56. See Brief for United States 27 ("Dirks's personal-benefit test encompasses a gift to any person with the expectation that the information will be used for trading, not just to 'a trading relative or friend' " (quoting 463 U. S., at 664; emphasis in original)). . Justice Alito found that the Ninth Circuit had correctly applied the Dirks test.38×38. Found inside10 United States v O'Hagan, 521 US 642 (1997); SEC v Cuban, ... 2017)âfollowing the Supreme Court decision in Salman v United States, 137 S Ct 420 ... Appellant's Supplemental Brief in No. Id., at 258. The tippee acquires the tipper's duty to disclose or abstain from trading if the tippee knows the information was disclosed in breach of the tipper's duty, and the tippee may commit securities fraud by trading in disregard of that knowledge. at 1093 (quoting Dirks v. SEC, 463 U.S. 646, 664 (1983)). See id. at 40. Specifically, the Court could have recognized that the line drawing meant to be accomplished by the Dirks test has been largely obviated by the misappropriation theory’s application to those who have breached a duty beyond merely that owed to shareholders.82×82. The SEC’s ruling in that case established a wide-ranging crime, the elements of which were “conspicuously absent” from both the statute and Rule 10b-5.55×55. After a jury trial in the Northern District of California, Salman was convicted on all counts. See Employment of Manipulative and Deceptive Devices, 17 C.F.R. 420 (2016), the Court responded in the affirmative, effectively making it easier to establish insider trading liability. On December 6, 2016, in an opinion written by Justice Alito, the Supreme Court unanimously affirmed the Ninth Circuitâs decision in Salman v. United States, a closely-watched insider trading tipping case. Id. Insider trading doctrine, then, remains murky. of Oral Arg. Decided: July 06, 2015 Before MORGAN CHRISTEN and PAULJ. Online 28, 29–31 (2016) (describing the “legal fictions,” id. denied, 577 U. S. ___. at 1092. h�bbd```b``:"k��t�Z
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The U.S. Supreme Court decision in Salman v. United States determined, among other things, that in order for trading securities to be considered unlawful as âinsider tradingâ, it must involve the payment of money by the tippee to the insider tipper. Found inside â Page 383Salman Ranch Ltd. v . United States , 573 F.3d 1362 , 1372 ( Fed . Cir . 2009 ) . 11 These two Courts of Appeals have now been joined by the Courts of ... 15-628, Salman v. United ; 5 : States. In dissent, Justice Blackmun took issue with the personal benefit test, emphasizing that the duty had nothing to do with the insider’s motives (to personally gain, for example) and everything to do with the insider’s “actions and their consequences on the shareholder.” Dirks, 463 U.S. at 674 (Blackmun, J., dissenting). The Second Circuit found that the government had proffered insufficient evidence to support a finding either that the tippers had received any personal benefit from the provision of information, or that the tippers and defendants had the “meaningfully close personal relationship” needed to infer a personal benefit. For his part, Michael told the jury that his brother's tips gave him "timely information that the average person does not have access to" and "access to stocks, options, and what have you, that I can capitalize on, that the average person would never have or dream of." By contrast, the misappropriation theory holds that a person commits securities fraud "when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information" such as an employer or client. Salman v.United States: Supreme Court Addresses Scope of Criminal Insider-Trading Liability for Tippees; An Insiderâs Gift of Confidential Information to Friends or Relatives Can Establish Securities Fraud Sullivan & Cromwell LLP - December 7, 2016 at 428. Instead, liability could turn on the tippee’s own set of duties contemplated in O’Hagan. Michael began to trade on the information Maher shared with him. All parties involved, including the Court, seem to As he explained at trial, "any time a major deal came in, [Salman] was the first on my phone list." Salman had raised three challenges to the Ninth Circuit’s personal benefit formulation: First, he argued that the Dirks personal benefit test requires evidence that the tipper sought “to obtain money, property, or something of tangible value.”39×39. There, the Second Circuit reversed the convictions of two portfolio managers who traded on inside information. Chiarella, 445 U.S. at 230, 235. A tipper breaches such a fiduciary duty, we held, when the tipper discloses the inside information for a personal benefit. The Court’s holding was unsurprising, as Salman’s trades do seem to fall squarely within Dirks’s “heartland”;53×53. See generally Nagy, supra note 56, at 10−13. Id. While his appeal was pending, the Second Circuit decided United States v. Newman.17×17. Id., at 125. Online 46, 47 (2016) (contending that the government has utilized Dirks “aggressively to bring insider trading charges against tippees in a variety of circumstances”). App. , 2557 ( 2015 ) ( quoting Johnson v. United States 18× 18 `` in large part on issue! A fiduciary duty, we affirm the judgment below that his conviction under our reading of Dirks govern ed. In Salman, DefendantâAppellant the time of the United States of America,,..., at 286 ( `` 'Maher is the source of all this information' )... 730,000 in restitution '' ) ; see United States, 580 U.S. ___ ( 2016 ) e.g., id. at. 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