The U.S. Supreme Court is hearing an insider trading case in which a man convicted of the crime is disputing that decision. Bassam Salman claims that he should not have been convicted of insider trading and that the trading he engaged in was not illegal.Salman made nearly $1.2M trading on information provided by his brother-in-law. The information he traded on had to do with deals involving Citigroup Inc. (C) clients. His relative, Maher Kara, was an investment banker there.However, as Salman’s lawyer argues, prosecutors have to prove that the alleged source of insider information in insider trading cases obtained a tangible benefit in return for providing the tip. Salman maintains that his brother-in-law did not make such a gain.
Meantime, prosecutors have argued that requiring this type of proof would make it more difficult to successfully pursue insider trading cases, potentially allowing executives who tip relatives or friends to get away with providing them tips.The Supreme Court decision to hear this appeal comes after rulings from separate federal appeals courts that conflict with one another. The 2nd U.S. Circuit Court of Appeals overturned two hedge fund managers’ convictions for insider trading The court held that for there to be a conviction, a trader has to know that the source of the tip received a benefit representing at least a possible monetary gain or another benefit of similar value.After that ruling, Salman appealed, contending that he could not be convicted since there was no evidence that Kara received such a benefit in return for the information he gave him. In The 9th U.S. Circuit Court of Appeals disagreed, finding that the requirement of such evidence would make it easier for someone to tip their relatives and get away with it on the condition that they didn’t receive a benefit for the information.
The SSEK Partners Group is an institutional investor fraud law firm.
The 9th Circuit Ruling (PDF)