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Sept. 9 — Does a person who leaks inside information have to receive a tangible personal benefit for someone who trades on the tip to be liable for insider trading?
The U.S. Supreme Court is poised to hear debate on the topic Oct. 5, two days after it returns for its 2016-2017 session.
The occasion marks the first time the justices will tackle an insider-trading dispute in almost two decades. However they resolve the issue, their decision will have a major impact on insider-trading enforcement for years to come.
The personal benefit controversy arose in late 2014 when the U.S. Court of Appeals for the Second Circuit in United States v. Newman vacated the insider trading convictions of two former hedge fund managers. It said the government didn't prove that the two men—both downstream tippees—knew the information was disclosed by an insider in exchange for a personal benefit, i.e., “at least a potential gain of a pecuniary or similarly valuable nature.”
In a setback for federal enforcers, the Supreme Court refused to review the ruling (193 SLD, 10/6/15).
In January, however, the justices agreed to take up a Ninth Circuit ruling affirming the insider conviction of Bassam Yacoub Salman, who traded on tips from the brother of a former Citigroup investment banker ( Salman v. United States, No. 15-628) (130 SLD, 7/8/15). The Ninth Circuit applied a looser personal-benefit standard, saying the banker's tips to his brother were intended “as a gift of market-sensitive information,” and that that was enough to show that the banker received a “personal benefit” for his disclosures.
When the court returns in October, it also will face certiorari petitions by several high-profile defendants. Former Texas tycoon R. Allen Stanford wants the justices to review the Fifth Circuit's decision affirming his conviction for master-minding a decades-long $7 billion Ponzi scheme ( Stanford v. United States, No. 15-1490) (119 SLD, 6/21/16). He claims the government violated his Sixth Amendment right to counsel by seizing all of his assets before trial “without any showing that those assets were tainted.”
Former American International Group Inc. Chairman Maurice “Hank” Greenberg is asking the U.S. Supreme Court to take up the New York Court of Appeals' allegedly erroneous decision allowing the state to proceed with a fraud suit against him ( Greenberg v. People, No. 16-284) (107 SLD, 6/3/16).
The New York Attorney General's lawsuit is preempted by a 1996 federal statute that defines fraudulent practices more narrowly than the broad state law under which he was charged, Greenberg said in an Aug. 30 certiorari petition. Among other differences, he argued, the state law doesn't require a showing of “scienter”—culpable intent.
The AG's response is due Oct. 3.
Other pending certiorari petitions include:
The Stanford, Cyan and Stiefel Labs cases are slated for conference Sept. 26. Responses in Sovereign Wealth Fund Sambruk-Kazyna and DeKalb County Pension Fund are due Sept. 12 and Sept. 14, respectively.
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