Tuesday, December 6, 2016
In a relatively brief opinion released this morning, the U.S. Supreme Court affirmed the Ninth Circuit's judgment in Salman v. United States. The decision of the Court was unanimous. The big take-aways include:
- doctrinally, the Court's complete, unquestioning reliance on the language in Dirks v. Sec's Exch. Comm'n, 463 U. S. 646 (1983), as to when the sharing of information through a tip is improper, and therefore a basis for insider trading liability (quoting from the text on page 662 of the Dirks opinion: “'[T]he test,' we explained, 'is whether the insider personally will benefit, directly or indirectly, from his disclosure.'”);
- factually, the emphasis placed by the Court on the value proposition represented by the information-sharing between the close brothers, Maher and Michael--that information passed on with the knowledge that it will be traded on was effectively a substitute for a monetary gift ("In one of their tipper-tippee interactions, Michael asked Maher for a favor, declined Maher’s offer of money, and instead requested and received lucrative trading information."), noting "[a]s Salman’s counsel acknowledged at oral argument, Maher would have breached his duty had he personally traded on the information here himself then given the proceeds as a gift to his brother.";
- constitutionally, the Court finding no vagueness ("Dirks created a simple and clear 'guiding principle' for determining tippee liability") and also rejecting on a similar basis application of the rule of lenity; and
- procedurally, because of the Court's ruling on the merits, the Court finding the jury instructions entirely proper.
The opinion offers some clarity on the application of U.S. insider trading doctrine by unanimously affirming the "gift" language from Dirks in a solid way: "To the extent the Second Circuit held that the tipper must also receive something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends, . . . we agree with the Ninth Circuit that this requirement is inconsistent with Dirks." Having said that, the Court also hints in several places that the facts in these cases do matter. The following quote is particularly relevant in this respect:
Salman’s conduct is in the heartland of Dirks’s rule concerning gifts. It remains the case that “[d]etermining whether an insider personally benefits from a particular disclosure, a question of fact, will not always be easy for courts.” . . . But there is no need for us to address those difficult cases today, because this case involves "precisely the ‘gift of confidential information to a trading relative’ that Dirks envisioned.”
In that context, the Court reminds us that "the disclosure of confidential information without personal benefit is not enough." This, indeed, places continuing pressure on the nature of the relationship between the tipper and the tippee and other facts relevant to the transmission of the information, all of which must be ascertained and then proven at trial. And so, it goes on . . . .