No Money Gain Needed to Find Insider Trading: U.S.

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Phyllis Diamond

Aug. 2 — A corporate insider receives a “personal benefit” by making a gift of confidential information to a trading friend or relative, government lawyers argued ( Salman v. United States, U.S., No. 15-628, 8/1/16 ).

The insider doesn't have to realize a pecuniary gain from sharing the information for insider trading purposes, they told the U.S. Supreme Court in a brief filed late Aug. 1.

Under that test, defendant Bassam Yacoub Salman properly was convicted of insider trading, Justice Department and Securities and Exchange Commission lawyers said: he knowingly traded on information he knew the insider disclosed as a personal gift to his—the insider's—brother and not for any corporate purpose.

Second Circuit

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. In a setback for federal enforcers, the Supreme Court refused to review the ruling (193 SLD, 10/6/15)..

In the Salman case, Maher Fayez Kara, formerly an investment banker at Citigroup Global Markets Inc., tipped his brother Mounir Kara to inside information about transactions involving Citi clients. Mounir Kara, in turn, tipped Salman, and Salman traded on the inside information, prosecutors said.

Salman was convicted after a jury trial and a year ago, the Ninth Circuit affirmed (130 SLD, 7/8/15). It said prosecutors presented direct evidence that Maher Kara's tips to his brother were intended “as a gift of market-sensitive information” and that that was enough to show that Maher Kara received a “personal benefit” for the disclosures. Earlier this year, the justices agreed to review the decision (12 SLD, 1/20/16).

In May, Salman told the high court that for insider trading liability, a corporate insider who conveys confidential information has to do so for a concrete monetary benefit.

The Justice Department and the SEC didn't agree.

Where, as in this case, “when the objective facts show that information was provided as a gift for securities trading, and no corporate purposes exists for the disclosure, the personal-benefit test is satisfied,” the government wrote.

To contact the reporter on this story: Phyllis Diamond in Washington at

To contact the editor responsible for this story: Susan Jenkins at

For More Information

To see the brief, go to

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law