December 2016
A recent Supreme Court decision provides new guidance in the area of insider trading liability without personal benefit, and resolves an existing split between the Ninth Circuit and Second Circuit Court of Appeals. In Salman v. United States, the District Court instructed the jury that the personal benefit requirement under Dirks v. U.S. Securities and Exchange Commission need not be a financial or tangible benefit. The Ninth Circuit affirmed holding that a pecuniary or tangible benefit was unnecessary and that a mere gift of confidential information could satisfy the personal benefit requirement. Recently, the Supreme Court affirmed the conviction. 

The Salman decision represents a U-turn from the Court’s refusal to hear the appeal of United States v. Newman, a Second Circuit Court of Appeals decision addressing whether insider trading liability can arise when a tipper makes a “gift” of confidential information to a trading friend or relative but receives no financial or other tangible benefit in return. In affirming the Ninth Circuit Court of Appeals, the Supreme Court in Salman unanimously reaffirmed the personal benefit requirement for insider trading requirement identified in Dirks v. SEC, and held that a gift of confidential information to a friend or family member may satisfy the personal benefit. At the same time, the Court rejected the Second Circuit Court of Appeals holding in Newman to the extent that it required a more substantial showing in the context of a gift to a friend or relative.

Key takeaways from the decision include:
  • More indictments and prosecutions may be pursued because the relative evidentiary burden for the prosecution has been made easier.
  • The pool of possible defendants and targets of investigations could be expanded.

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