Salman v. United States
137 S. Ct. 420
| SCOTUS | 2016Background
- Maher Kara, a Citigroup investment banker, disclosed confidential M&A information to his brother Michael (a close relationship) expecting Michael to trade on it.
- Michael shared those tips with Bassam Salman (his friend and Maher’s brother‑in‑law); Salman traded and profited over $1.5 million.
- Maher and Michael pleaded guilty and testified against Salman at trial.
- Salman was convicted of conspiracy and securities‑fraud counts under §10(b)/Rule 10b‑5; Ninth Circuit affirmed.
- While Salman’s appeal was pending, the Second Circuit decided Newman, which imposed a stricter "meaningfully close relationship"/pecuniary‑benefit requirement for gift cases.
- Supreme Court granted certiorari to resolve whether Dirks allows an inference of tipper personal benefit from a gift of confidential information to a trading relative or friend.
Issues
| Issue | Plaintiff's Argument (Salman) | Defendant's Argument (United States) | Held |
|---|---|---|---|
| Whether a tipper's gift of confidential information to a trading relative or friend can establish the "personal benefit" required for tippee liability | Gift alone is insufficient; tipper must intend to obtain money, property, or tangible value | Gift to anyone for trading (not just relatives/friends) suffices because disclosure for a non‑corporate purpose shows personal benefit | Dirks controls: a gift to a trading relative/friend permits an inference of personal benefit; Salman affirmed |
| Whether Dirks requires the tipper to receive a pecuniary or similarly valuable return when gifting tips to relatives/friends (Newman rule) | Insist on Newman: need proof of pecuniary/similar benefit or a meaningfully close relationship generating objective exchange | Newman’s additional pecuniary‑benefit requirement is inconsistent with Dirks | Newman’s pecuniary requirement is rejected as inconsistent with Dirks |
| Whether Dirks’ gift‑giving standard is unconstitutionally vague or triggers the rule of lenity | Standard is indeterminate and overbroad; raises due‑process and lenity concerns | Statutory elements and mens rea requirements limit overbreadth; Dirks gives an objective guiding principle | Rejected: Dirks provides an adequate, objective rule; no grievous ambiguity or basis for lenity |
Key Cases Cited
- Dirks v. SEC, 463 U.S. 646 (1983) (establishes that tipper liability depends on a personal benefit to the insider; a gift of confidential information to a trading relative or friend permits inference of benefit)
- United States v. Newman, 773 F.3d 438 (2d Cir. 2014) (held that a gift inference requires a meaningfully close relationship generating an objective, consequential, pecuniary or similar benefit — rejected by the Supreme Court here)
- United States v. O'Hagan, 521 U.S. 642 (1997) (discusses classical and misappropriation theories of insider trading and scope of §10(b))
- Barber v. Thomas, 560 U.S. 474 (2010) (explains the standard for invoking the rule of lenity: grievous ambiguity required)
- Skilling v. United States, 561 U.S. 358 (2010) (context on construction of federal fraud statutes and limits on vague prosecutions)
- Cleveland v. United States, 531 U.S. 12 (2000) (construes federal fraud statutes; relevant to arguments about obtaining money or property)
- McNally v. United States, 483 U.S. 350 (1987) (addresses limits of federal mail fraud statute and definitions of the object of the fraud)