The Supreme Court yesterday granted certiorari in the case United States v. Salman, an insider trading case decided by the Ninth Circuit Court of Appeals. This is significant because in Salman the critical issue is whether and to what extent the government must prove, in order for either the “tipper” or the “tippee” to be guilty, that the tipper received a personal benefit in exchange for providing inside information. The Ninth Circuit held that the personal satisfaction that an insider received from conveying “the gift of inside information” to his brother – when the insider did not receive any tangible financial benefit – was sufficient to satisfy the benefit requirement announced in the 1983 Supreme Court case Dirks v. SEC.
The Supreme Court’s decision to review the Salman case suggests that it will clarify what it meant in Dirks,and hence what the government must prove in virtually all insider trading cases. This issue has been the subject of a good deal of commentary since the Second Circuit Court of Appeals, which often sets the boundaries of insider trading law given that Wall Street is within its jurisdiction, decided United States v. Newman in late 2014. In that case the Second Circuit ruled against the government and significantly raised the bar on what the government must prove to show a benefit to the tipper. When, in late 2015, the Supreme Court denied the government’s request to review Newman, many observers commented thatNewman would now become settled law and that only Congress could change it. Indeed, several bills to do so were introduced in Washington, although it was unclear whether any would pass.
The Supreme Court’s decision to review Salman suggests that the high court will have the ultimate word on the personal benefit requirement. While the decision to review Salman was something of a surprise given its earlier refusal to review Newman, the Supreme Court may have selected Salman simply because it does not present some of the factual complications that made Newman unattractive for review.
Regardless of which side prevails in Salman, the granting of certiorari provides at least some prospect that the law of insider trading, which can be difficult for financial professionals to navigate, will be clarified.