Salman v. United States: Supreme Court Addresses Scope of Criminal Insider-Trading Liability for Tippees; An Insider’s Gift of Confidential Information to Friends or Relatives Can Establish Securities Fraud

Sullivan & Cromwell LLP - December 7, 2016
Download

Yesterday, the Supreme Court resolved a split between the Second and Ninth Circuit Courts of Appeals and addressed the scope of criminal insider-trading liability for tippees.  In Salman v. United States, No. 15-628, the Court unanimously held that a tippee can be held liable for trading on material, non-public information received from an insider relative or friend even where the tipper received no direct financial benefit from disclosing such information.  In so holding, the Court rejected the Second Circuit’s holding in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), that, for the tippee to have liability, “the tipper must also receive something of a ‘pecuniary or similarly valuable nature’ in exchange for [providing material, non-public information] to family or friends.”  Affirming the Ninth Circuit’s decision below, the Court held that “a gift of confidential information to a trading relative or friend” satisfies the “personal benefit” requirement for an insider-trading violation.

While Salman helpfully clarifies ambiguity on tippee liability that was introduced by the Newman decision, the decision does not provide meaningful guidance on who is a “relative or friend,” or what constitutes a “personal benefit” sufficient to meet its test.