The U.S. Supreme Court has agreed to hear a significant insider trading case where its decision will clarify an issue upon which two circuits have split: the definition of “personal benefit” in regard to tipsters in insider trading cases.
The case — Salman v. United States — involves a banker who tipped his brother to a deal. The brother then passed that information on to his brother-in-law. Under the law, prosecutors must prove that the tipster received a “personal benefit” for leaking information. However, appellate courts have split on the definition of “personal benefit.”
The U.S. Court of Appeals for the Second Circuit said that it had to be a tangible benefit; the U.S. Court of Appeals for the Ninth Circuit said that a personal relationship is enough and that is the case being heard before the high court.
The issue the high court will decide is:
Does the personal benefit to the insider that is necessary to establish insider trading require proof of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in United States v. Newman, or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in United States v. Salman?
The case is on appeal for the Ninth Circuit and involves Bassam Salman, an Illinois resident convicted of using information given to him by his brother-in-law, who received the information from his brother, an investment banker. The Ninth Circuit ruled last year that the relationship between the banker and his brother was sufficient to constitute insider trading.
Last November, the Supreme Court declined to hear the appeal from the Second Circuit in Newman, a ruling that overturned two insider trading convictions of hedge fund managers and established new guidelines for determining illegal tipping liability.
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