Volume 54

Tips with Benefits: Insider Trading at Oral Arguments in Salman

by Raphael Davidian

On Wednesday, October 5th, the Supreme Court heard oral arguments in Salman v. United States, an insider trading case involving an investment banker who provided his brother with information about pending confidential business transactions. The brother, in turn, shared the information with his brother-in-law, defendant Bassam Salman. The case is about when a “remote tippee”—a person who is steps removed from an insider source and trades on inside information—can be held criminally liable for trading on the information. The Ninth Circuit held that because the tippee had a “close familial relationship” with the inside source, he could be held criminally liable. This stands in contrast with the Second Circuit’s 2014 holding in United States v. Newman that the exchange of information must pose potential pecuniary gain for the insider who made the first disclosure, in order for a remote tippee to be found criminally liable. On its face, Salman is a vehicle for the Court to resolve the circuit split on this narrow issue. However, oral arguments indicated that the Court may also use Salman as an opportunity to examine and speak on the fundamental purposes of insider trading law. This article is part of a two-part series about Salman. This piece presents Salman’s background and prior insider trading cases to shed light on the precedential ambiguities the Court confronted during oral arguments. It further discusses the flaws in both Salman’s and the government’s arguments and potential repercussions of the Supreme Court adopting either of the dueling standards. The second piece in this series will explore scholars’ proposals seeking to resolve the present difficulty of determining tippee liability by focusing on whether the confidential information was misappropriated.

Read More

Subscribe to ACLR