United States: Salman v. United States: Supreme Court Considers Heightened Personal Benefit Standard For Tipper/Tippee Insider Trading Liability

On October 5, 2016, the United States Supreme Court began hearing argument in Salman v. United States,1 one of the most closely watched insider trading cases to reach the high court in recent years. Salman could resolve a circuit split between the Second and Ninth Circuits and clarify generally what constitutes a personal benefit to the insider sufficient to establish insider trading under the longstanding tippertippee framework set forth in Dirks v. SEC, 463 U.S. 646 (1983). The personal benefit requirement is the line defining when a tippee trading on material, nonpublic information commits securities fraud. For that reason, lawyers and securities professionals alike hope that the Court's decision in Salman will clarify the nature and type of personal benefit that must be shown in insider trading cases.

It is well settled that liability for insider trading is not limited only to persons trading for their own benefit. A person may also be subject to liability when an insider or misappropriator in possession of material, nonpublic information (the "tipper") discloses the information to an outsider (the "tippee"), who then trades on the basis of the nonpublic information. However, under these circumstances a tipper is liable for insider trading only if he receives a "personal benefit" for disclosing the information. In Dirks v. SEC, 463 U.S. 646 (1983), the tipper divulged confidential information to a tippee in order to expose corporate fraud. The Supreme Court found that because the tipper did not personally benefit from disclosing the nonpublic information to the tippee, the tipper did not violate insider trading laws. Moreover, Dirks held that in order for liability to extend to a tippee, "the test is whether the insider personally will benefit, directly or indirectly, from his disclosure [to the tippee;] [a]bsent some personal gain, there has been no breach of duty to stockholders . . . [a]nd absent a breach by the insider, there is no derivative breach [by tippees]."2 The Dirks Court also specifically held that "the elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend."3 The Ninth Circuit's decision in Salman relied upon this language as it noted that this "quoted language [from Dirks] governs this case."4

The personal benefit rule established in Dirks became a particular source of controversy when the Second Circuit adopted a strict standard for proving a tipper/tippee theory of liability. In United States v. Newman, 773 F.3d 438 (2d Cir. 2014), the Second Circuit overturned the conviction of two tippee defendants convicted of insider trading, holding that "in order to sustain a conviction for insider trading, the government must prove beyond a reasonable doubt that the tippee knew that the insider disclosed confidential information and that the insider did so in exchange for a personal benefit."5 The Second Circuit invoked Dirks directly, stating that "[t]o the extent Dirks suggests that a personal benefit may be inferred from a personal relationship between the tipper and tippee, where the tippee's trades 'resemble trading by the insider himself followed by a gift of the profits to the recipient,' we hold that such an inference is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature."6 Thus, the Newman decision made it significantly more difficult for the government to win insider trading convictions based on a tipper/tippee theory of liability. Not surprisingly, Newman has been criticized by some, particularly in the law enforcement community, on various grounds including that it misinterpreted the proof of personal benefit needed under the Supreme Court's decision in Dirks. The government petitioned for certiorari in the Newman case and that petition was denied on October 5, 2015.7

On July 6, 2015, the Ninth Circuit decided United States v. Salman.8 This case stemmed from insider trading charges brought against Bassam Yacoub Salman for a scheme involving Salman, his brother-in-law, and several other members of both men's family. In approximately 2002, Maher Kara joined a financial firm's health care investment banking group and later began sharing confidential information about the firm's business dealings with his brother, Michael Kara. During this same time period, Maher became engaged to Salman's sister. The Salman and Kara families developed a close relationship, and Salman and Michael in particular developed a very close friendship. From approximately 2004 to 2007, Michael began sharing the inside information he learned from Maher with Salman.

The brokerage records introduced at trial showed that Salman and Michael executed nearly identical trades in securities issued by the firm's clients just before major transactions took place. The government also presented evidence that Salman was aware that his brother-in-law, Maher, was the source of the information he received from Michael. For instance, Michael testified that he directly told Salman that the information they were trading on came from Maher. The government also put forth evidence of a close fraternal relationship between Maher and Michael Kara. Michael had helped pay for Maher's college tuition and also gave a heartfelt speech at his wedding to Salman's sister. Finally, the government put forth evidence that Salman was aware of the close relationship between Michael and Maher, particularly in light of the fact that the Salman and Kara families interacted on a regular basis. It was undisputed at trial that Michael never paid nor provided anything of pecuniary value in exchange for the confidential information.

Salman was indicted on September 1, 2011, for one count of conspiracy to commit securities fraud and four counts of securities fraud based on a tipper/tippee theory. Salman was convicted on all five counts. Salman ultimately appealed this decision to the Ninth Circuit arguing that the government's evidence presented at trial was insufficient in light of the Second Circuit's decision in United States v. Newman. More specifically, Salman argued that because the government put forth no evidence that Maher received a tangible benefit in exchange for the information, nor did they put forth any evidence that Salman knew of any such benefit, the government failed to carry its burden under Newman. The Ninth Circuit declined to follow the Newman decision and held that because "Maher's disclosure of confidential information to Michael, knowing that he intended to trade on it, was precisely the 'gift of confidential information to a trading relative' that Dirks envisioned."9 As to Salman's knowledge of the personal benefit, the court found that because of the close relationship between Salman and the Kara brothers, Salman could have easily inferred Maher's intent to benefit Michael.10 The Ninth Circuit noted that if Salman's theory were accepted, "a corporate insider or other person in possession of confidential and proprietary information would be free to disclose that information to her relatives, and they would be free to trade on it, provided only that she asked for no tangible compensation in return."11

Salman filed a petition for writ of certiorari, which the Court granted on January 19, 2016, on the question of whether "the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 646 (1983), requires proof of 'an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,' as the Second Circuit held in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015)," or whether it is "enough that the insider and the tippee shared a close family relationship as the Ninth Circuit held" in the Salman case?12 Oral argument is set for October 5, 2016.

In the decades since the Dirks decision, the personal benefit requirement has been hotly debated. Many argue that the government has taken an increasingly expansive view of the personal benefit requirement in an effort to prosecute downstream tippers on remote theories of liability. While the Second Circuit's decision in Newman was criticized by some, it signified a welcome clarification in insider trading law, particularly as it applied to more remote tippees. The Court's decision in Salman is significant and marks the first case the Supreme Court has ever heard on a downstream or secondary theory of tipper/tippee liability in an insider trading case. Dirks did not consider remote tippees like Salman and Newman and, as such, there is much at stake here for both the government and private parties.

A potential decision from the Supreme Court on this important issue has attracted the interest of the business community. Mark Cuban, the owner of the Dallas Mavericks and one of the stars of the reality show "Shark Tank," filed an amicus brief in support of Salman. In his brief, he urges the Court to reject what he characterizes as an overly expansive view of insider trading.13 Daryl Payton, a broker from Euro Specific Capital who was convicted of insider trading earlier this year, also filed an amicus brief invoking the facts of his indictment to show that the current state of insider trading laws, particularly as it applies to remote tippees, is "untenable" and needs to be refined.14 Finally, "Occupy the SEC," an outgrowth of the Occupy Wall Street Movement, filed an amicus brief urging the Court to move in the opposite direction and adopt a more expansive concept of insider trading liability.15

The SEC and Department of Justice also have much at stake in the outcome of Salman. Shortly after the Second Circuit's decision in Newman, a district court judge vacated the guilty pleas on insider trading charges by four defendants because the court "was skeptical that the pleas were sufficient in light of Newman's clarification of the personal benefit and tippee knowledge requirements of tipping liability for insider trading."16 In addition, after the Supreme Court denied the government's petition for a writ of certiorari in Newman, federal prosecutors dismissed insider trading charges in similar cases against a portfolio manager from SAC Capital Advisors LP, who was convicted and sentenced to three-and-a-half years in prison, and against six cooperating witnesses who also pleaded guilty. One of those witnesses succeeded in having an SEC administrative bar against him lifted as well.

The Court's consideration of Salman has also affected current insider trading prosecutions. For example, on September 21, 2016, the SEC charged the Chairman and CEO of a registered investment adviser with insider trading. That same day, the defendant wrote a letter to his investors informing them that he was gravely disappointed with the SEC's charges. He also explained that he had been told by the Department of Justice that the US Attorneys Office – which was conducting an investigation parallel to the SEC's – had not completed its investigation and had decided to put any potential charges on hold pending the Supreme Court's decision in Salman.

Ultimately, a decision from the Supreme Court in Salman could fill in some of the gaps left in the wake of the Dirks decision. Given the increasing focus of the SEC and the Department of Justice on prosecuting insider trading cases, the Salman decision promises to have significant impact on the enforcement of insider trading law.


1 No. 15-628; see also United States v. Salman, 792 F.3d 1087 (9th Cir. 2015).

2 Dirks v. SEC, 463 U.S. 646, 662 (1983).

3 Id. at 664.

4 792 F.3d at 1092.

5 United States v. Newman, 773 F.3d 438, 442 (2d Cir. 2014), cert. denied 136 S. Ct. 242 (2015).

6 Id. at 452 (internal citations omitted).

7 United States v. Newman, 136 S. Ct. 242 (2015).

8 This recitation of facts is taken primarily from the Ninth Circuit's decision.

9 Salman, 792 F.3d at 1092 (quoting Dirks v. SEC, 463 U.S. 646, 663 (1983)).

10 Id. at 1092.

11 Id. at 1094.

12 Petition for Writ of Certiorari, Salman v. United States, No. 15- 628, at i (filed Nov. 10, 2015).

13 Brief of Amicus Curiae of Mark Cuban in Support of Petitioner, Salman v. United States, No. 15-628 (filed May 13, 2016).

14 Brief of Amicus Curiae of Daryl Payton in Support of Petitioner at 14, Salman v. United States, No. 15-628 (filed May 13, 2016).

15 Brief of Amicus Curiae of Occupy the SEC in Support of Respondent, Salman v. United States, No. 15-628 (filed Aug. 8, 2016).

16 U.S. v. Conradt, No. 12-cr-00887 (S.D.N.Y. Jan. 22, 2015).

Learn more about our Corporate & Securities, Financial Services Regulatory & Enforcement, Private Investment Funds, Securities Litigation & Enforcement, Supreme Court & Appellate or White Collar Defense & Compliance practices

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.