On January 19, 2016, the U.S. Supreme Court agreed to hear an appeal from the Ninth Circuit, Salman v. U.S., which should provide guidance on a crucial area of insider trading law. In particular, the issue before the Court is what constitutes a “personal benefit” to a tipper—an element that must be proven by prosecutors and the U.S. Securities and Exchange Commission (SEC) under the Supreme Court’s landmark ruling in Dirks v. SEC. It is a question that has created divisions among federal appeals courts.
Fenwick partner Mike Dicke, co-chair of the firm’s securities enforcement practice and a former senior SEC official, spoke with Law360 about the significance of the Supreme Court’s decision to hear the case.
In Salman, investment banker Maher Kara tipped his brother about impending deals, and his brother in turn provided that information to Bassam Salman, who would soon be the Karas’ brother-in-law, Law360 reported in an earlier article. The Ninth Circuit found that the “personal benefit” test was satisfied by evidence that Maher Kara intended to provide for the needs of his brother, and thus upheld Salman’s insider trading conviction.
Arguably, the Ninth Circuit’s Salman decision conflicts with the Second Circuit’s landmark 2014 Newman decision in which the court found that the personal benefit to the tipper had to be “objective and consequential” and akin to a pecuniary gain.
Mike Dicke told Law360 the Supreme Court may have chosen to review Salman v. U.S. in order to create a distinction between trading involving family situations, such as that found in Salman, and business relationships.
“The Newman court correctly reasoned that in a business setting where people have all sorts of motives for their actions, there needs to be a limiting principle that the tipper receive something akin to a monetary return,” Dicke said. “But that monetary quid pro quo test makes less sense in a family setting, where it makes sense to infer that a tipper benefits from passing information to a close relative.”
The full article is available through the Law360 website (subscription required).