Compliance » Family Chat Counts As Insider Trading, SCOTUS Rules

Family Chat Counts As Insider Trading, SCOTUS Rules

man whispers with reproached hand and another listens to him

December 8, 2016

In a unanimous decision, the Supreme Court ruled that gifts of confidential information from business executives to their family members violates securities laws. Federal appeals courts had disagreed on whether disclosing information to a relative, without receiving tangible benefit, counted as insider trading. In the Court’s decision, Justice Samuel Alito wrote that giving a friend or relative such information counted as a gift, and benefited the insider. The case, Salman v. United States, centered on trades that Bassam Salman made based on information he received from his future brother-in-law, who was at that time a member of Citigroup’s health care investment banking group. Salman’s attorneys leaned on a 2014 decision from the U.S. Court of Appeals for the Second Circuit, United States v. Newsman, which made it harder to prosecute insider trading cases. But the Court turned to a 1983 decision, in Dirks v. Securities and Exchange Commission, which requires evidence that the insider “directly or indirectly” gained something from the initial disclosure. “By disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients,” Alito wrote, “a duty Salman acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed.”

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