The U.S. Supreme Court on Tuesday ruled unanimously that Bassam Salman, who was convicted of insider trading in 2013, violated the law by trading on confidential information obtained through his brother-in-law even though he gained no tangible financial benefit.
The case, Salman v. United States, presented the central question of how to define a “personal benefit” garnered from insider information. Justices affirmed a lower court decision that ruled in favor of Salman’s conviction. Salman received insider information from his friend through marriage, who in turn had garnered information his own brother, an employee at Citigroup Inc. Salman then traded on it through another connection.
The high court’s ruling strengthens the government’s hand in insider trading cases by affirming that a user of financial tips breaches fiduciary duty when it comes as inside information from a relative, whether or not the person giving the information receives a tangible financial benefit.
The court opinion undercuts a narrower 2014 ruling saying that the person who provides the tips must receive something of value in exchange for inside information given to family or friends.
The 2014 standard is “inconsistent” with a 1983 ruling, Justice Samuel Alito wrote in Tuesday’s opinion. “In these situations, the tipper personally benefits because giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds,” Alito wrote.
The ruling arms prosecutors with a broader definition of personal benefit. Salman’s attorneys had argued that his brother-in-law did not receive financial benefits in exchange for the information and therefore did not personally benefit. Salman’s attorney, Alexandra Shapiro, told the court that it should toss out his conviction because he was so far down the “tipping” chain that he did not realize that he was trading on insider information.