United States: The Supreme Court's Limited Insider Trading Ruling: Salman Decision Narrowly Affirms Dirks And Leaves Portions Of Newman Intact

On December 6, 2016, the United States Supreme Court issued a unanimous decision in Salman v. United States,1 affirming what it had set out in dicta in its 1983 decision in Dirks v. SEC2 by finding that a factfinder may infer that a tipper receives a "personal benefit" where the tipper "makes a gift of confidential information to a trading relative or friend."3 While this decision is undoubtedly a huge victory for prosecutors and securities regulators, it is in fact a narrow one. The Court's holding is consistent with and relied upon the Court's seminal decision in Dirks, which reasoned that for a tippee to be liable for insider trading, the tipper must receive a personal benefit. The Court in turn rejected the Second Circuit's broader conclusion in U.S. v. Newman4 that, when dealing specifically with trading relatives and friends, a tipper must receive "something of a pecuniary or similarly valuable nature in order for there to be insider trading liability."5 The Supreme Court's decision was both legally sound and reached the correct result under Dirks and the remainder of Newman, with the Court unanimously agreeing that gifting and then trading on inside material nonpublic information between relatives should be prohibited.

While some may find this to be a complete repudiation of Newman, it is, in point of fact, not. The two sets of first-level tippers and tippees in Newman were not relatives, but were respectively "casual acquaintances" and friends who were not "close." The defendants in Newman also were three or four degrees removed from the tippers. The Second Circuit, citing Dirks, found that a tippee can be found liable only where a tipper breaches his or her fiduciary duty, and that in order for the tippee to acquire this duty the tippee must have known or should have known of the tipper's breach, i.e., that the tippee knew that the information was confidential and that it was divulged for a personal benefit. The Second Circuit, at least partially, reversed the defendants' convictions because the government did not introduce evidence that the defendants knew the information they traded on came from insiders or that the insiders received a personal benefit in exchange for the tips.6 The Supreme Court in Salman acknowledged that these issues remain untouched by its new decision.7 Thus, the decision implicates a very narrow portion of Newman, and it is likely the Court would have affirmed the Second Circuit's decision based upon the facts and evidence in that case. In sum, from our perspective, the results by both the Supreme Court in Salman and the Second Circuit in Newman were proper. 


Maher Kara, the tipper, was an investment banking analyst for Citigroup. Maher gave his older brother, Mounir Kara (known as Michael), the tippee, confidential information about anticipated mergers and acquisitions involving Citigroup clients. Michael traded on this information. While Maher was initially unaware that his brother was trading on the information he was providing him, he eventually suspected that his brother was doing so and soon began to more actively provide information to his brother to assist his trading. Without his brother's knowledge, Michael also passed the information on to his brother-in-law, Bassam Salman, the remote tippee in the case. Salman traded on the information and eventually made over $1.5 million in profits. Salman was indicted on one count of conspiracy to commit securities fraud and four counts of securities fraud, and the case eventually went to trial.

Maher and Michael, who were both confronted with charges of their own, pleaded guilty and testified at Salman's trial. Their testimony revealed their "very close relationship." Maher testified that he provided the information to his brother to "help him" and fulfill "whatever needs he had." Maher also testified about a specific instance where Michael called his brother asking for a "favor." Michael rejected Maher's offer of money and specifically requested information, which Maher provided. Michael testified that he told Salman that Maher was the source of all the information Michael provided to him.

At trial, Salman's jury was instructed that a "personal benefit" under Dirks includes "the benefit one would obtain from simply making a gift of confidential information to a trading relative."8 The jury ultimately convicted Salman on all counts. Salman appealed to the Ninth Circuit, arguing that, under Newman, a factfinder can infer a personal benefit to the tipper from a gift of confidential information to a trading relative or friend only where there is a 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 nature," which was absent in the case.9 The Ninth Circuit, however, affirmed Salman's conviction, finding that Maher's gift to Michael was "precisely the gift of confidential information to a trading relative that Dirks envisioned."10 The Supreme Court granted Salman's petition for a writ of certiorari to determine whether a tipper personally benefits merely by gifting confidential information to those with whom the tipper shares a relationship as a relative or friend, as in Salman, or whether this requires proof of a pecuniary gain by the tipper, as in Newman.

The Decision

Before the Supreme Court, Salman again relied on Newman in an attempt to overturn his conviction. He argued that, in the context of an insider's gift of confidential information to a trading relative or friend, a tipper does not personally benefit unless the tipper's goal in disclosing inside information is to obtain "money, property, or something of tangible value."11 Salman also cautioned the Court that defining a gift as a personal benefit would render the offense of insider trading indeterminate, because liability may turn on facts such as the closeness of the tipper and tippee's relationship and the purpose of the disclosure, and overbroad, as the Government can simply argue that the tipper meant to give a gift to the tippee without proving a concrete personal benefit.

The Government, on the other hand, took an expansive position as to the definition of a personal benefit, arguing that, under Dirks, a gift of confidential information to anyone, not just a trading relative or friend, is enough to prove securities fraud. Under this view, the Government reasoned that a tipper personally benefits whenever the tipper discloses nonconfidential information for a noncorporate purpose.

The Court ultimately ruled in the Government's favor and upheld Salman's conviction. The Court relied on Dirks, finding that it "easily resolves the narrow issue presented here," as it provides a "simple and clear guiding principle": that a tipper personally benefits by making a gift of confidential information to a "trading relative" without anything more.12 Under these circumstances, the tipper benefits personally because giving a gift of trading information "is the same as  trading by the tipper followed by a gift of the proceeds."13 Maher sought to provide the confidential inside information to his brother so that Michael could trade on it, and Maher thus benefited personally. The Court found Newman to be inconsistent with Dirks "[t]o the extent the Second Circuit held that a tipper must also receive something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends."14

While the Court rejected Salman's arguments as to his concerns in defining a gift as a personal benefit, the Court expressed that "in some factual circumstances assessing liability for gift-giving will be difficult" and that "determining whether an insider personally benefits from a particular disclosure ... will not always be easy for courts."15 The Court also did not accept the Government's argument that a personal benefit could be found by a gift of confidential information to anyone, not just a trading relative or friend.


In light of the Salman decision, there are certain key takeaways to be considered going forward.

First, prosecutors and securities regulators will likely see Salman as a complete abandonment of Newman and an expansion of the Government's enforcement powers in insider trading actions. For instance, on the day of the decision, Preet Bharara, who was on the losing side in Newman, released a statement that said in part that the Salman decision "'easily' rejected the Second Circuit's novel reinterpretation of insider trading law in U.S. v. Newman."16 As set forth above, this is far from the case.

Second, while Salman is a "narrow" decision, its limits are in fact unclear. The Court acknowledged that it did not have to resolve "difficult" factual circumstances in reaching its decision. It remains to be seen how courts will interpret what a "friend" is or the degree to which two parties are relatives.

Third, it will be important to train securities personnel, particularly at hedge funds, to make inquiries as to the sources of information that is to be used in securities analysis. Portfolio managers, such as in Newman, will want to have some comfort that their colleagues have not obtained improper confidential information from someone they know or could be considered "friends" with at a company for which the fund might trade the company's securities or debt.

Finally, the decision should compel companies to have a renewed focus on their internal policies, procedures, and training. These internal policies and procedures need to make clear that employees who receive material nonpublic information cannot share this information with anyone, because the act of doing so risks triggering insider trading liability exposure.


 1  Salman v. United States, No. 15-628, slip op. (Dec. 6, 2016).

2  Dirks v. SEC, 463 U.S. 646 (1983).

3  Salman, slip op. at 10.

4  United States v. Newman, 773 F.3d 438 (2d Cir. 2014).

5  Salman, slip op. at 10.

6  Id. at 6, n.1.

7  Id.

8  Id. at 12.

9  Salman, 773 F.3d at 452.

10  Salman, slip op. at 12.

11  Id.

12  Id. at 10-11.

13  Id. at 10.

14  Id.

15  Id.

16  Release, Statement of U.S. Attorney Preet Bharara On The Supreme Court's Decision In Salman v. U.S. (Dec. 6, 2016), available at https://www.justice.gov/usao-sdny/pr/statement-us-attorney-preet-bharara-supreme-court-s-decision-salman-v-us.

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.