Supreme Court Ruling Makes Insider Trading Cases Easier to Prosecute

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The Supreme Court made it easier to prosecute some insider trading cases Tuesday, upholding the conviction of a man who traded information based on a tip.

It had been two decades since the court weighed in on insider trading, and lawyers for Bassam Salman argued he could not be prosecuted because the man who provided the original tip had not benefited financially when he provided the information.

But a unanimous Supreme Court upheld Salman’s conviction and ruled in favor of the government by affirming the 9th Circuit Court of Appeals.

The Supreme Court’s ruling resolves an apparent conflict between two lower courts — the 2nd Circuit and the 9th Circuit — on the issue of gift giving. It also gives a victory to US Attorney Preet Bharara of the Southern District of New York, who was on the losing end of the 2nd circuit decision in 2014.

Justice Samuel Alito, writing for the Court, said that precedent 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.

“In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds,” he said.

Bharara was quick to praise the decision.

“In its swiftly decided opinion, the Court stood up for common sense and affirmed what we have been arguing from the outset — that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public,” he said in a statement.

“Today’s decision is a victory for fair markets and those who believe that the system should not be rigged,” he said.

The facts in Tuesday’s case concerned Maher Kara who was an investment banker at Citigroup and dealt with highly confidential information. He discussed aspects of his job with his brother Michael. Ultimately it was Michael who shared information with Salman. Salman was indicted on one count of conspiracy to commit securities fraud. Both Maher and Michael pleaded guilty and testified at Salman’s trial.

“The Supreme Court’s decision Tuesday reverses the government’s loss in 2014 when it comes to gifts of confidential information to friends and relatives,” said Eric Rieder of Bryan Cave.

“It was a narrow opinion in the sense that the Court believed this case was clearly covered by court precedent,” he said.


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