The U.S. Supreme Court in Salman v. United States upheld a lower court insider trading conviction in a case where the “insider” obtained no direct pecuniary benefit from the disclosure. In the case, the tipper provided inside information to a close relative, his brother. The Court stated that Dirks v. SEC, a prior insider trading case decided in 1983, makes clear that a tipper breaches a fiduciary duty by making a gift of confidential information to “a trading relative.” The Court noted that the tipper would have breached his duty had he personally traded on the information here himself then given the proceeds as a gift to his brother. The benefit the tipper/insider received was the intangible benefit of rewarding family and friends with inside information. Even after this case, it remains unclear what kind of “personal benefit” might be sufficient to trigger insider trading liability.
In this case, Bassam Salman, a recipient of insider tips from Michael Kara, his brother in law, who in turn received insider information from his brother, Maher Kara. Salman knew that Michael, who also traded on the information, was getting tips from Maher, a Citigroup banker working on various health care deals. Maher, the “tipper,” never received any financial or other concrete benefit in the exchange, but testified that he suspected Michael was trading on the information he provided and there was evidence the brothers had a close relationship. Salman was convicted of insider trading in a district court and his conviction was upheld by a circuit court.
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