United States: Supreme Court Holds That A Gift Of Confidential Information Supports Insider Trading Conviction

In a highly anticipated decision, the Supreme Court yesterday upheld a man's conviction for insider trading based on a tip provided by his brother-in-law and rejected his contention that, in order to convict him, the government needed to prove that his brother-in-law had received a financial benefit in exchange for disclosing the inside information.1 Instead, the Court held that the government only needed to show that his brother-in-law made a "gift of confidential information to a trading relative or friend." The ruling was a victory for the federal government and affirmed its expansive view of prohibited conduct. The decision provides a measure of clarity for future insider trading prosecutions, as well as for corporate compliance programs.

The unanimous decision, written by Justice Samuel Alito, was released merely two months after oral argument. It is the Court's first insider trading case in almost 20 years. In the interim, however, a substantial body of law has been developed by lower courts.2 The case directly addressed a circuit split between the Ninth Circuit's case below, United States v. Salman,3 and the Second Circuit's 2014 opinion in United States v. Newman.4

Bassam Salman, a grocery wholesaler, received stock tips from an "extended family member" – his brother-in-law's older brother. Salman's brother-in-law was an investment banker at Citigroup and passed inside information to his older brother. The older brother then fed the inside information to others, including Salman. Salman, who knew that his brother-in-law had provided the inside information to the older brother, then traded on the inside information. Salman was indicted and found guilty after a jury trial on one count of conspiracy to commit securities fraud and four counts of securities fraud.5

At issue before the Supreme Court was the Ninth Circuit's application of a seminal 1983 Supreme Court decision, Dirks v. SEC.6 In Dirks, the Court addressed the circumstances under which a "tippee" – a person who receives confidential information from an insider and uses that information to trade – may be held liable for insider trading. The Court held that a tippee can be convicted of insider trading if she knows that the "tipper breached a fiduciary duty by disclosing the information."7 Dirks further held that a breach of a fiduciary duty occurs when a tipper discloses the information "for a personal benefit,"8 and that a jury can infer a personal benefit when the tipper either receives something of value in exchange or, importantly, "makes a gift of confidential information to a trading relative or friend."9

While Salman was appealing his jury verdict to the Ninth Circuit, however, the Second Circuit issued its decision in Newman, another tippee insider trading case. In Newman, the Second Circuit held that even under Dirks, a jury cannot infer a personal benefit to the tipper unless there is proof of a "meaningful close personal relationship that generates an exchange that . . . represents at least a potential gain of a pecuniary or similarly valuable nature."10 Pointing to Newman, Salman argued that his conviction should be reversed, because there was no evidence that the tipper, his brother-in-law, had received anything of a "pecuniary or similarly valuable nature."

The Supreme Court held that the Ninth Circuit had properly applied Dirks, with Justice Alito writing that Dirks "easily resolves the narrow issue presented here."11 The Court explained that "Dirks makes clear that a tipper breaches a fiduciary duty by making a gift of confidential information to 'a trading relative.'"12 The underlying rationale is that giving the "gift" of information to a relative, who then trades on the information, is logically the same as if the tipper himself traded on the information and then gave the proceeds as a gift to the relative.13 In this case, Salman's brother-in-law breached his duty to Citigroup when he passed the inside information to his older brother. Salman knew of the duty and breached it when he traded on the inside information.

Without expressly overturning Newman, the Court held that to the extent that the Newman holding requires a tipper to receive "something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends," this requirement is "inconsistent with Dirks."14 Thus, the Court made clear that the analysis under Dirks squarely covers tips of inside information to family members and friends.

The Salman case resolves the "tension" between the Ninth Circuit's ruling below and the Second Circuit's Newman decision, and removes some of the uncertainty that has surrounded recent prosecutions of insider trading cases. Going forward, in cases where an insider provides material nonpublic information to a family member who trades on the information, prosecutors will only need to show that the tipper made a gift of the confidential information for the personal benefit of the tippee. Salman's "narrow" holding, however, only clarifies the law for a subset of insider trading cases involving family tips. Disputes may still arise over the extent to which tippers receive "personal benefits" from other types of relationships, as well as the extent to which downstream "tippees" may be aware of the tipper's breach of fiduciary duty. In fact, Justice Alito specifically noted that the Salman decision did not address other issues decided by Newman concerning the tippees' knowledge that the information they traded on had come from insiders who had received a personal benefit for the tip.

Prosecutors will certainly use the Court's decision in Salman to expand the scope of conduct subject to prosecution, and as a result, we will likely see an increase in cases. To protect their economic and reputational interests in light of this increased threat, companies should reassess the adequacy of their insider trading compliance programs and employee training.15


[1] See Salman v. United States, 580 U.S. _ (2016), 2016 WL 7078448, slip op. at 1.

[2] See United States v. O'Hagan, 521 U.S. 642 (1997).

[3] 792 F.3d 1087 (9th Cir. 2015).

[4] 773 F.3d 438 (2d Cir. 2014), cert. denied, 136 S. Ct. 242 (Oct. 5, 2015).

[5] See 18 U.S.C. § 371; 15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 2; 17 C.F.R. § 240.10b-5.

[6] 463 U.S. 636 (1983).

[7] Salman, 580 U.S. _ (2016), slip op. at 2.

[8] Id.

[9] Id., quoting Dirks, 463 U.S. at 664.

[10] Id. at 5, quoting Newman, 773 F.3d at 452.

[11] Id. at 8.

[12] Id. at 9.

[13] Id.

[14] Id. at 10.

[15] Id. at 5 n.1.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions