Bassam Salman, a Chicago grocery wholesaler, received stock tips from a friend, who had in turn received inside information from Salman’s brother-in-law, an investment banker at Citigroup. Salman made hundreds of thousands of dollars from the tips, but he was also charged with insider trading and sentenced to three years in prison. Today the Supreme Court upheld Salman’s conviction, rejecting his argument that he could not be held liable because his brother-in-law had not received any financial benefits in exchange for the inside information that he disclosed. The unanimous ruling – which came just over two months after the oral argument – was a big victory for the federal government, which had warned the justices that a ruling for Salman would lead to even more disclosures of confidential information by corporate insiders.

In a 1983 case, Dirks v. SEC, the Supreme Court ruled that a “tippee” – someone who receives confidential information from an insider and then uses the information to trade – can be held liable under insider trading laws when the insider violates his duty to shareholders by disclosing the information, which in turn depends on whether the insider receives “a direct or indirect personal benefit from the disclosure.” The court in that case noted that jurors could infer a “personal benefit” when the insider either receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.”

In Salman’s case, the U.S. Court of Appeals for the 9th Circuit ruled that, following Dirks, the jury that convicted Salman could infer that Salman’s brother-in-law, Maher Kara, had breached his duty when he passed confidential information to his brother Michael, who then relayed it to Salman. In fact, the lower court ruled, Maher’s disclosures to Michael were “precisely the gift of confidential information to a trading relative that Dirks envisioned.”

The 9th Circuit’s application of Dirks to Salman’s case, the justices held today, was proper, although the justices took care to make clear that the issue presented by this specific case was a “narrow” one. Dirks, the court explained in an opinion by Justice Samuel Alito, “makes clear that a tipper breaches a fiduciary duty by making a gift of confidential information to ‘a trading relative.’” This is so, the court continued, because “giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.” Here, the court reasoned, Maher Kara breached his duty of trust and confidence to Citigroup when he gave information to his brother, Michael, knowing that Michael would trade on it; Salman then inherited that duty and breached it when he traded on the confidential information.

The court rebuffed Salman’s contention, based on a recent decision by the U.S. Court of Appeals for the 2nd Circuit, that the insider must “also receive something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift” of confidential information to family or friends. Such a requirement, the court emphasized, is “inconsistent with Dirks.” The court acknowledged that “many insider-trading cases” “involved insiders who personally profited through the misuse of trading information.” But the court seemed to attribute that fact to happenstance; it does not, the court stressed, change the test that the court “articulated and applied” in Dirks.

The court also agreed with Salman that, at least in some cases, it may be hard to determine whether an insider received a “personal benefit” from disclosing confidential information. But those hypothetical difficulties, the court emphasized, do not necessarily make the insider-trading laws so ambiguous that they violate the Constitution and require the court to overturn Salman’s conviction. Although the court left open the possibility that it might need to address that “difficult” scenario in a future case, it saw no need to do so here, because Salman’s conduct falls within the “heartland” of the conduct envisioned by Dirks.

Today’s ruling means that Salman’s conviction will stand. To a certain extent, the unanimous opinion’s relative brevity – just 12 pages – and the speed with which the eight-member court issued its decision belie the significance of the ruling. By rejecting the 2nd Circuit’s “pecuniary gain” requirement and making clear that conduct like Salman’s falls squarely within the insider-trading laws, the court took an important step in its first ruling in an insider-trading case in two decades.

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Recommended Citation: Amy Howe, Opinion analysis: Court upholds “friends and family” insider-trading conviction, SCOTUSblog (Dec. 6, 2016, 12:01 PM), https://www.scotusblog.com/2016/12/opinion-analysis-court-upholds-friends-and-family-insider-trading-conviction/</s>The justices, in an 8-0 decision, upheld the 2013 conviction of Bassam Salman, a Chicago man who made nearly $1.2 million trading on non-public information that came from his brother-in-law at Citigroup Inc. It was the court's first ruling in an insider trading case in two decades.

The justices held that someone who trades on non-public information provided by a friend or family member who got no tangible benefit in exchange still could be held liable for insider trading. They rejected Salman's view that he could be convicted only if his brother-in-law had received something like cash in return for any tips.

The ruling was a major victory for securities regulators and prosecutors, who for two years had been grappling with the ramifications of a ruling by a New York-based federal appeals court that some had interpreted as agreeing with Salman's position.

That ruling adopted a narrow definition of what constituted an illegal benefit to an insider, and resulted in cases being dropped or dismissed against 14 of 107 people charged by the office of Manhattan U.S. Attorney Preet Bharara since 2009.

Bharara, who has aggressively prosecuted insider trading cases, called the ruling "a victory for fair markets and those who believe that the system should not be rigged."

Bharara added that "the court stood up for common sense and affirmed what we have been arguing from the outset - that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public."

The case came on the heels of U.S. government efforts to crack down on insider trading, resulting in Galleon Group founder Raj Rajaratnam's conviction in 2011 and a $1.8 billion settlement and plea deal in 2013 with hedge fund SAC Capital Advisors LP.

Justice Samuel Alito, writing for the court, said a friend or family member could be held liable if insider information was provided as a "gift."

"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," Alito wrote.

Prosecutors said Maher Kara, a Citigroup investment banker and Salman's brother-in-law, provided tips about deals involving Citi clients to Kara's brother, who in turn tipped Salman, who made over $1.5 million that he split with another relative.

A federal jury in San Francisco in 2013 found Salman guilty of conspiracy and securities fraud charges, and he was sentenced to three years in prison.

A lawyer for Salman did not immediately respond to a request for comment.

The Supreme Court heard Salman's appeal on Oct. 5 amid competing rulings by federal appeals courts in San Francisco, where his case was heard, and New York, where a wave of insider trading prosecutions has been pursued recently.

The New York-based 2nd Circuit in 2014 overturned the conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, and narrowed prosecutors' ability to pursue such cases in the process.

Salman had relied on the 2nd Circuit's ruling to argue that he could not be convicted because no proof existed that Kara received anything beneficial in return.

The San Francisco-based 9th U.S. Circuit Court of Appeals rejected that position. And in Thursday's ruling, Alito said that to the extent the 2nd Circuit's ruling could be read that way, the holding was "inconsistent" with Supreme Court precedent.

The case is Salman v. United States, U.S. Supreme Court, No. 15–628.</s>The justices, in an 8-0 decision, ruled against Bassam Salman, who was appealing a 2013 conviction stemming from federal charges that he made nearly $1.2 million trading on non-public information that came from his brother-in-law at Citigroup Inc.

Salman had argued that prosecutors in insider trading cases must prove that an alleged source of corporate secrets like the brother-in-law received a tangible benefit like cash in exchange for any tips, something his brother-in-law did not receive.

Such proof, prosecutors have said, would make it more difficult for authorities to pursue insider trading cases, potentially preventing cases in which executives tip friends or relatives without any getting anything tangible in return.

Writing for the court, though, Justice Samuel Alito said the court rejected Salman's arguments, ruling that friends and family members could be held liable even if a tipper provides inside information as a "gift."

"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," Alito wrote.

A lawyer for Salman did not immediately respond to a request for comment. The U.S. Justice Department declined comment.

Prosecutors said Maher Kara, a Citigroup investment banker and Salman's brother-in-law, provided tips about deals involving Citi clients to Kara's brother, who in turn tipped Salman.

A federal jury in San Francisco in 2013 found Salman guilty of conspiracy and securities fraud charges, and he was sentenced to three years in prison.

The Supreme Court heard Salman's appeal on Oct. 5 amid competing rulings by federal appeals courts in San Francisco, where his case was heard, and New York, where a wave of insider trading prosecutions has been pursued recently.

The New York-based 2nd U.S. Circuit Court of Appeals in 2014 overturned the conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, and narrowed prosecutors' ability to pursue such cases in the process.

That ruling adopted a narrow definition of what constituted an illegal benefit to an insider, and forced prosecutors under Manhattan U.S. Attorney Preet Bharara to drop charges against 12 other defendants, out of 107 people charged since 2009.

Salman had relied on the 2nd Circuit's ruling to argue that he could not be convicted because no proof existed that Kara received anything beneficial in return.

The San Francisco-based 9th U.S. Circuit Court of Appeals rejected that position. And in Thursday's ruling, Alito said that to the extent the 2nd Circuit's ruling could be read that way, the holding was "inconsistent" with Supreme Court precedent.

The case is Salman v. United States, U.S. Supreme Court, No. 15-628. (Reporting by Nate Raymond in New York; Editing by Will Dunham)</s>WASHINGTON (AP) — A unanimous Supreme Court on Tuesday sided with the government in a legal clash over the nation’s insider trading laws, a victory for prosecutors seeking to curb corruption on Wall Street.

The justices ruled that sharing corporate secrets with friends or relatives is illegal even if the insider providing the tip doesn’t receive anything of value in return.

The ruling upheld the conviction of Bassam Yacoub Salman, an Illinois man convicted of making investments based on inside information he received from a member of his extended family. It also limited the impact of a 2014 ruling from the federal appeals court in Manhattan that had raised doubts about the scope of insider trading laws.

Prosecutors have relied on a broad reading of the law to support aggressive anti-corruption efforts that have netted more than 80 arrests and 70 convictions for insider trading over several years.

Writing for the court, Justice Samuel Alito rejected arguments that insider trading prosecutions should be limited to those who make secret profits from revealing confidential data. Government officials had argued that sharing corporate secrets with friends or family is just as damaging to the integrity of financial markets.

Salman was prosecuted for earning more than $1.5 million in profits from trading on nonpublic information he received about future health care deals. The tip originated with Salman’s brother-in-law, Maher Kara, an investment banker at Citigroup Global Markets in New York. Kara passed the tip on to his own brother, Michael Kara, who then gave it to Salman.

Salman was aware that Maher Kara was the source. Kara pleaded guilty to conspiracy and securities fraud charges.

“Salman’s jury was properly instructed that a personal benefit includes the benefit one would obtain from simply making a gift of confidential information to a trading relative,” Alito said.

Alito said that Maher Kara disclosed confidential information as a gift to his brother with the expectation that his brother would trade on it. That was a breach of his duty of trust to Citigroup, Alito said, and that breach of duty continued when Salman received the information and traded on it.

Prosecutors had suffered a blow two years ago when the federal appeals court in Manhattan overturned the conviction of hedge fund managers Todd Newman and Anthony Chiasson after finding they were too far removed from inside information to be prosecuted.

The Manhattan court said Newman and Chiasson got their information through a chain of traders who didn’t have a close personal relationship with them. The ruling forced Manhattan U.S. Attorney Preet Bharara to drop some cases and put others on hold.

Alito specifically noted the Manhattan ruling and rejected any notion that an insider doesn’t violate the law unless he receives something of value when giving confidential information to a friend or relative.

Bharara said in a statement that the Supreme Court “easily” rejected the Manhattan court’s “novel interpretation of insider trading laws.”

“The Court stood up for common sense and affirmed what we have been arguing from the outset — that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public,” Bharara said. “Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.”

The ruling is likely to affect high-profile hedge fund manager Leon Cooperman, who earlier this year was accused by federal regulators of illegally trading on confidential information he learned from a company executive. Cooperman had told his investors in a letter that federal prosecutors were holding off on pursuing charges until the Supreme Court ruled in the Salman case.</s>The U.S. Supreme Court upheld a California insider-trading conviction in a ruling that will make it easier for prosecutors to bring cases against some people on Wall Street and in other parts of the country. Ruling in its first insider-trading case in two decades, the justices unanimously said that people can be sent to prison for ...</s>The state plans to ask the U.S. Supreme Court to revisit a landmark case in which justices struck down as unconstitutional Florida's death-penalty sentencing procedure because it gave too much power to judges, instead of juries.Attorney General Pam Bondi's lawyers will appeal a ruling by the Florida Supreme Court in the case of Timothy Lee Hurst, according to a motion asking a judge to put on hold a resentencing hearing for Hurst. That resentencing hearing was ordered by the Florida Supreme Court in October.The state is objecting to the Florida court's interpretation of the U.S. Supreme Court's landmark decision in January in the Hurst case, according to the document filed Friday in Escambia County.The U.S. Supreme Court's decision in Hurst's case found that Florida's system of allowing judges, instead of juries, to find the facts necessary to impose the death penalty was an unconstitutional violation of the Sixth Amendment right to trial by jury. The court sent Hurst's case back to the Florida high court.At the time of the January ruling, Florida's system allowed jurors by a simple majority to recommend the death penalty. Judges would then make findings of fact that "sufficient" aggravating factors, not outweighed by mitigating circumstances, existed for the death sentence to be imposed, a process known as "weighing."Florida lawmakers hurriedly rewrote the law this spring, requiring jurors to unanimously find that at least one aggravating factor exists before a defendant can be eligible for a death sentence and requiring at least 10 jurors to recommend death for the sentence to be imposed.The new law, approved by Gov. Rick Scott, also required juries to weigh whether sufficient mitigating factors exist to outweigh the aggravating circumstances, but the law is silent about whether those decisions must be unanimous.In October, the Florida Supreme Court ruled that the new statute was unconstitutional because it did not require unanimous jury recommendations about imposing the death penalty, something not addressed by the U.S. court decision.The Florida court, in a 5-2 ruling, decided that the lack of unanimity in the state law runs afoul of protections guaranteed by the U.S. and state constitutions.The majority also found that the U.S. Supreme Court decision in Hurst mandated that all findings necessary for imposition of a death sentence are "elements" that must be decided by a jury, and Florida "has a longstanding history of requiring unanimous jury verdicts as the elements of a crime," the majority wrote.But the state disagrees.The Florida court interpreted the U.S. court's earlier ruling in Hurst "to require jury findings of all aggravating circumstances; mitigating circumstances; and weighing rather than only requiring jury findings of one aggravating circumstance," Senior Assistant Attorney General Charmaine Millsaps and Assistant Attorney General John Molchan wrote in the six-page request in Escambia County."The state of Florida believes this expansive reading to be in error and will seek discretionary review in the United States Supreme Court," the lawyers wrote.But defense lawyers said the state's appeal is problematic because the Florida Supreme Court based its Hurst ruling in large part on the state's constitutional guarantee to trial by jury."They're unhappy with the result, and they're unhappy with all of these death sentences being reversed. But they're running into a problem: what's the federal issue and what's the state issue. The U.S. Supreme Court doesn't have jurisdiction to decide what the state statute meant. That's a question of state law," lawyer Martin McClain, who has represented more than 250 defendants in death penalty cases, said in a telephone interview Monday.In its Hurst ruling, the Florida Supreme Court concluded that "under the commandments of Hurst v. Florida, Florida's constitutional right to trial by jury, and our Florida jurisprudence, the penalty phase jury must be unanimous in making the critical findings and recommendation that are necessary" before death can be imposed."I believe the U.S. Supreme Court is unlikely to interfere with a state Supreme Court interpreting state law and that state's Constitution,” said Pete Mills, a 10th Judicial Circuit assistant public defender who is chairman of the Florida Public Defenders Association's Death Penalty Steering Committee.While the U.S. Supreme Court ruling in Hurst did not address unanimity, the state's appeal of the Florida court's decision could be an attempt to get a federal ruling on the issue."I think they're trying to get another bite at the apple," said 5th Judicial Circuit Public Defender Mike Graves. "I don't understand how they expect to get from here to there."</s>WASHINGTON – A unanimous Supreme Court is siding with the government in a legal clash over the nation's insider trading laws. It's a victory for prosecutors seeking to curb corruption on Wall Street.

The justices ruled Tuesday that sharing corporate secrets with friends or relatives is illegal even if the insider providing the tip doesn't receive anything of value in return.

The ruling upheld the conviction of Bassam Yacoub Salman, an Illinois man convicted of making investments based on inside information he received from a member of his extended family.

The court rejected arguments that insider trading prosecutions should be limited to those who make secret profits from revealing confidential data. Government officials say sharing corporate secrets with friends or family is just as damaging to the integrity of financial markets.
The U.S. Supreme Court upholds an appeals court decision in an insider trading case, Salman v. U.S., holding that there is no requirement that a tipper receive any pecuniary consideration for a breach of faith in order to predicate the prosecution of the tippee.