Law School Case Brief
Salman v. United States - 137 S. Ct. 420 (2016)
In Dirks v. SEC, the United States Supreme Court explained that a tippee’s liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information. A tipper breaches such a fiduciary duty, the Court held, when the tipper discloses the inside information for a personal benefit. And, the Court went on to say, a jury can infer a personal benefit—and thus a breach of the tipper’s duty—where the tipper receives something of value in exchange for the tip or makes a gift of confidential information to a trading relative or friend.
Salman was indicted for federal securities-fraud crimes for trading on inside information he received from a friend and relative-by-marriage, Michael Kara, who, in turn, received the information from his brother, Maher Kara, a former investment banker at Citigroup. Maher testified at Salman's trial that he shared inside information with his brother Michael to benefit him and expected him to trade on it, and Michael testified to sharing that information with Salman, who knew that it was from Maher. Salman was convicted.
While Salman's appeal to the Ninth Circuit Court of Appeals was pending, the Second Circuit applied Dirks v. SEC, in which the United States Supreme Court had explained that tippee liability hinged on whether the tipper's disclosure breaches a fiduciary duty, which occurs when the tipper discloses the information for a personal benefit. The Court also held that a personal benefit may be inferred where the tipper receives something of value in exchange for the tip or ''makes a gift of confidential information to a trading relative or friend.'' The Second Circuit also decided that Dirks v. SEC 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.''
Was Slaman’s conviction proper?
The Supreme Court affirmed the U.S. Court of Appeals for the Ninth Circuit's judgment upholding the convictions. The Court held that evidence that an investment banker who dealt with confidential information about mergers and acquisitions involving his employer gave confidential information to his brother, who gave it to the banker's brother-in-law (Defendant), who used it to make trades, was sufficient to sustain Defendant's convictions for conspiracy to commit securities fraud, in violation of 18 U.S.C.S. § 371, and securities fraud. It noted that the U.S. Supreme Court held in Dirks v. SEC that a tippee's liability for trading on inside information hinged on whether a tipper breached a fiduciary duty in providing the information, and defendant's jury was properly instructed that a "personal benefit" included the benefit one would obtain from simply making a gift of confidential information to a trading relative.
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