United States: United States v. Salman: Supreme Court Reaffirms "Friends With Benefits" Test In Insider Trading Cases

On December 6, 2016, in an opinion written by Justice Alito, the Supreme Court unanimously affirmed the Ninth Circuit's decision in Salman v. United States, a closely-watched insider trading tipping case. Salman builds upon Dirks v. SEC, 463 U.S. 646 (1983), a landmark decision in insider trading law decided more than thirty years ago. In Dirks, the Supreme Court established the basic template for tipper-tippee liability, holding that: (a) a tipper is liable if he or she discloses material nonpublic information to someone else in breach of a fiduciary duty and in order to receive a personal benefit; and (b) a tippee is liable if he or she knows that the tipper has disclosed inside information in breach of a duty and for a personal benefit, but trades on the basis of the information anyway. 463 U.S. at 659-60.

In Salman, the Court clarified the nature of the "personal benefit" that must be established in tipper-tippee insider trading cases. Under Salman, the government is not necessarily required to prove that tippers receive a concrete, pecuniary benefit in exchange for their tips; rather, liability can be established if a tipper provides inside information as a gift to a trading relative or friend. Though Salman pares back one aspect of the Second Circuit's landmark 2014 decision United States v. Newman, 773 F.3d 438 (2014), key questions remain undecided, including: (1) how close the relationship between the tipper and tippee must be under the "gift" theory of personal benefit, and (2) what happens in the absence of clear evidence that the tipper intended to provide a gift to the tippee. The Salman decision also appears to resolve a longstanding ambiguity in Dirks by making clear that in order to incur liability, the tippee must have actually known of the tipper's breach of duty and consequent personal benefit.

As previously reported, Petitioner Bassam Salman (the trading tippee) was convicted of conspiracy and insider trading following a jury trial, based on trades that he made using material, nonpublic information he obtained from his brother-in-law (the intermediary tippee), who, in turn, had obtained the information from his brother, a former investment banker at Citigroup (the tipper). The tipper was aware that his brother, the intermediary tippee, traded on the information that he had provided, but was unaware that his brother also passed the inside information to others, including Salman. The evidence established that Salman, by contrast, knew that the tipper had made a gift of trading information to his brother, the intermediary tippee.

Before the Ninth Circuit considered Salman's case, the Second Circuit issued its Newman decision (as previously reported), which required the government in tipper/tippee insider trading cases to present "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." Newman, 773 F.3d 438, 452 (2d Cir. 2014). Relying on Newman, Salman argued before the Ninth Circuit that his conviction should be thrown out because there was no evidence that the tipper received a "pecuniary or similarly valuable" benefit from his brother in exchange for providing the inside information. The Ninth Circuit disagreed, holding that under Dirks, a tippee can be held liable as part of an insider trading prosecution "when an insider makes a gift of confidential information to a trading relative or friend." U.S. v. Salman, 792 F.3d 1087, 1092 (9th Cir. 2015) (quoting Dirks, 463 U.S. at 664). The Ninth Circuit therefore held that "[p]roof that the insider disclosed material nonpublic information with the intent to benefit a trading relative or friend is sufficient to establish the breach of fiduciary element of insider trading," with no proof of something resembling a "pecuniary" benefit necessary. Id. at 1094.

In Salman, the Supreme Court endorsed the Ninth Circuit's approach, holding that Dirks "easily resolve[d]" the case. Slip Op. at 8. As the Court held, under Dirks, a tipper is liable for disclosures of inside information that will allow the tipper to "personally benefit, directly or indirectly, from his disclosure." Id. at 8-9 (quoting Dirks, 463 U.S. at 662-63). Dirks identified two clear-cut examples of a personal benefit for the tipper: "pecuniary gain" (e.g. a cash kickback from the tippee) and a "reputational benefit that would translate into future earnings" (e.g. the tipper cultivates a relationship with an influential tippee, who helps him get a more lucrative job). See id. at 9 (quoting Dirks, 463 U.S. at 663). However, under Dirks these are not the only ways that a personal benefit can be established: "[t]he 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." Id. at 9 (quoting Dirks, 463 U.S. at 664) (emphasis added by Court in Salman). "In such cases, [t]he tip and trade resemble trading by the insider followed by a gift of the profits to the recipient." Id. (quoting Dirks, 463 U.S. at 664).

The Court concluded that the gift theory of personal benefit from Dirks squarely applied to the case against Salman. In Salman, the tipper provided information to a "close relative" – his brother, the intermediary tippee. It is perfectly clear that the tipper would have incurred liability had he personally traded on the information and given the proceeds to his brother as a gift. Instead, the tipper achieved the "same result" by giving the material, nonpublic information to his brother, the intermediary tippee, and allowing him to trade on it. As the Salman court reasoned, "Dirks specifies that when a tipper gives inside information to 'a trading relative or friend,' the jury can infer that the tipper meant to provide the equivalent of a cash gift." Id. at 10. In Salman this inference was especially powerful because in one instance, the intermediary tippee had asked his brother for a favor; the brother offered money but the intermediary tippee asked for information instead. See id. at 11. This shows the essential equivalence, on the facts of the Salman case, of inside information and money.

The Court concluded that because the tipper disclosed confidential information as a gift to his brother "with the expectation that he would trade on it," the tipper breached his duty of trust and confidence to Citigroup and its clients. Id. at 10. Salman, the tippee, acquired this duty and breached it "by trading on the information with full knowledge that it had been improperly disclosed." Id. Alluding to Newman, the Court noted that "[t]o the extent the Second Circuit held that the tipper must also receive something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends, . . . we agree with the Ninth Circuit that this requirement is inconsistent with Dirks." Id. at 10.

Requirement that The Tippee Must Know that the Tipper Received a Personal Benefit

As previously reported, the Second Circuit in Newman separately held that, in order for a tippee to be liable for insider trading, the government must prove that he or she knew of the tipper's breach of duty and the associated personal benefit. This knowledge requirement was not at issue in the Salman appeal, see Slip Op. at 5 n.1., but language in Salman indicates that the Court agreed with the Second Circuit's knowledge requirement. Near the beginning of the opinion the Court stated that "[t]he tippee acquires the tipper's duty to disclose or abstain from trading if the tippee knows the information was disclosed in breach of the tipper's duty," id. at 2 (emphasis added), and the Court made clear that Salman, the trading tippee, had "full knowledge" that the inside information had been improperly disclosed (i.e. for a personal benefit). See id. at 10.

The Salman Court's clear and straightforward statement of the tippee's knowledge requirement would seem to clarify what has long seemed to be a bit of loose language in Dirks, where the Court stated that the tippee can be liable if he or she "knows or should know that there has been a breach." 463 U.S. at 660. The "knows or should know" formulation, which suggests a negligence theory that is incompatible with any recognized understanding of securities fraud under Section 10(b) of the Securities Exchange Act, has caused confusion in the lower courts as exemplified in the Second Circuit's difficult-to-follow decision in SEC v. Obus. See 693 F.3d 276 (2d Cir. 2012). One hopes that Salman will now put to rest any lingering questions about the nature of the knowledge requirement for tippee liability.

Salman's Narrow Ruling Leaves Open Several Difficult Questions

Though Salman makes clear that providing inside information as a gift to a close friend or family member is sufficient to satisfy the "personal benefit" element of tipper/tippee insider trading, the Court resolved only the "narrow issue" presented in the case—namely, whether a fact-finder may infer "personal benefit" when the tipper "mak[es] a gift of confidential information to a trading relative" or friend. The Court did not address several more "difficult" questions, and acknowledged that "[d]etermining whether an insider personally benefits from a particular disclosure, a question of fact, will not always be easy for courts." Slip Op. at 11 (quoting Dirks, 463 U.S. at 664).

The Court did not resolve whether its analysis in Salman would apply to situations where the tipping is not between close friends or family members. In more ambiguous situations – e.g. an alleged tip to a casual acquaintance – the Second Circuit's analysis in Newman will be helpful in determining whether the relationship between the tipper and tippee is close enough to fall under the Dirks/Salman analysis. In Newman, the Second Circuit noted that if the government could "meet its burden by proving that two individuals were alumni of the same school or attended the same church, the personal benefit requirement would be a nullity." Newman, 773 F.3d at 452. We can expect further push and pull between the government and defense counsel on this issue. The government's brief in Salman suggests that its position would be that "a gift of confidential information to anyone, not just a 'trading relative or friend,' is enough to prove securities fraud." Slip Op. at 7 (quoting government's brief) (emphasis added).

Second, Salman does not resolve what will happen when the source of the material nonpublic information—the would-be "tipper"—is simply boasting or engaging in loose talk about work, and there is no direct evidence that they intended to provide a gift to the would-be "tippee." The Supreme Court's analysis in Salman suggests that in these circumstances the government may have difficulty proving that the "personal benefit" requirement has been met. The Court noted that in Dirks, the Court had found "it dispositive that the tippers 'received no monetary or personal benefit' from their tips to Dirks, 'nor was their purpose to make a gift of valuable information to Dirks.'" Id. at 9 (quoting Dirks, 463 U.S. at 667) (emphasis added by Salman Court). Such analysis suggests that when the tipper does not intend a "gift" of information to the tippee, liability cannot attach. However, we may expect the government will attempt to rely on circumstantial evidence to fill this gap, or, if possible under the facts of the case, change gears and rely on SEC Rule 10b5-2 to transform the tipper/tippee case to one of misappropriation by arguing that the source (a/ka/ the tipper) had an expectation of confidentiality, and the trader (a/k/a the tippee) breached their own duty of trust or confidence.

Ultimately, it is clear that though Salman pared back the Newman decision, the Supreme Court did not address many of the vexing and fact-specific questions that attend questions of personal benefit and breach of duty. Courts will likely continue to grapple with these issues for some time, especially within the Second Circuit, where many insider trading cases have been litigated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.