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Business Litigation Alert: "U.S. Supreme Court Upholds Broader Reach of Insider Trading Laws – What Does this Mean for Businesses?"

In December 2016, the U. S. Supreme Court announced its decision in the closely watched insider trading case Salman v. US, ruling that if someone leaks confidential information to a friend or family member with the goal of financial gain in the stock market, it is a crime – even if there is no resulting financial benefit. (See the Los Angeles Times report here)

The Salman case centered on Bassam Salman and trading he conducted based on information received from a member of Citigroup’s healthcare investment banking group who was also his future brother-in-law.  The court was tasked with deciding whether the information was disclosed in exchange for personal benefit.

Federal appeals courts have debated this issue and come to differing opinions about whether there must be a tangible benefit in return for unauthorized disclosures of material and nonpublic information to qualify as a violation of insider trading laws. The Supreme Court has finally provided clarity, stating in its ruling that a gift to a friend or relative, whether in the form of cash or in the form of a tip, benefits the insider.

So, what are the takeaways for businesses and their employees the Supreme Court’s ruling?

  1. If there is any doubt as to whether or not information you are sharing would constitute disclosure of material, nonpublic information, err on the side of caution. 
  2. When it comes to the definition of friends and family, there are no concrete limits.  In this case, the tipster was a future brother-in-law of Mr. Salman, so they were not yet actually related.
  3. The key take-away from this case is that there does not have to be a financial benefit, just the sharing of the information which provides the possibility for financial gain, for there to be a potential violation of insider trading laws.

The bottom line is you simply cannot be too careful.  It is natural to believe that friends and family will keep confidential information to themselves.  This case highlights the fact that this is not always the case, and the Supreme Court’s decision gives prosecutors further ability to bring insider trading cases to the courtroom.

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