Insider Trading Showdown: "Personal Benefit" to be Tested at the U.S. Supreme Court

March 1, 2016 Published Work
American Bar Association

By granting cert and agreeing to hear an appeal from the Ninth Circuit Court of Appeals' decision in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), the U.S. Supreme Court may clarify the scope of the "personal benefit" prong of insider trading law. Clarity on this aspect of insider trading law could be a welcome development for prosecutors, defendants and their counsel, traders and compliance professionals. The Supreme Court's case also has the potential to upend the most significant insider trading case in recent history, the Second Circuit Court of Appeals' decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014).

It starts with Dirks

A recitation of all the elements and permutations of insider trading law as it might be applied to different factual scenarios is unnecessary for purposes of this article. For present purposes, it is worth briefly stating the pertinent elements of tipper/tippee liability, as it is the tipper/tippee scenario that the Supreme Court is likely to address.

The tipper/tippee scenario applies when an insider – the tipper – shares material nonpublic information with someone – the tippee – who trades on the information. There can be multiple tippers and tippees in a chain of communications, and the elements of insider trading liability must be proven as to each tippee in the chain of communications for that tippee to be liable.

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