Tuesday, December 6, 2016
In Salman v. United States, the Supreme Court revisits the question of tippee liability for insider trading, a topic which the Court has not addressed since Dirks v. SEC, 463 U. S. 646 (1983). Salman was convicted of insider trading based upon receiving material, non-public information as a gift through his brother-in-law who had received the information as a gift from his own brother. Continuing the tradition of the Roberts Court when hearing issues of securities regulation, the unanimous majority in a opinion authored by Justice Alito ruled to maintain the status quo. The Dirks test is noted on page 2 of the slip opinion: "The tippee acquires the tipper’s duty to disclose or abstain from trading if the tippee knows the information was disclosed in breach of the tipper’s duty." To determine the existence of a breach of fiduciary duty, "the disclosure of confidential information without personal benefit is not enough." To establish the existence of a "personal benefit," the Court held that the tipper receives a personal benefit either when the tipper receives a financial benefit or when giving a gift of information to a trading relative or friend because "giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds." As Justice Alito writes on page 11 of the opinion, "Salman’s conduct is in the heartland of Dirks’s rule concerning gifts." As a result, Salman's conviction was affirmed.
Beyond standing as a reaffirmation of Dirks with minor clarification, Salman also stands for the proposition that if securities regulation is to evolve, such evolution will have to come from Congressional action, rather than from the Court. Because the opinion was unanimous, the confirmation of Judge Merrick Garland to the Court would have made little difference in the case, and it is unlikely that Donald Trump will appoint an activist justice in this area. As a result, we will likely be left with stale remakes of previous opinions for the foreseeable future, unless Congress decides to refresh and reinvent the existing regulation.