U.S. Supreme Court justices suggested they will make it easier to prosecute Wall Street figures for insider trading as the court heard arguments on the subject for the first time in two decades.
Taking up the conviction of onetime Chicago grocery wholesaler Bassam Yacoub Salman, the justices weighed whether someone can be sent to prison for making trades when the insider who provided the tip wasn’t looking to make any money. A majority of the eight justices indicated a willingness to uphold the conviction.
A victory for the government would be a boost for prosecutors and the U.S. Securities and Exchange Commission, restoring some of the legal leverage they lost in 2014 when a federal appeals court in Manhattan imposed new requirements on government lawyers. The New York court’s ruling undercut U.S. Attorney Preet Bharara’s eight-year crackdown on Wall Street cheating and led to more than a dozen insider-trading convictions being thrown out.
Several justices said that ruling had changed decades-old standards for insider trading. Accepting the New York court’s reasoning would probably "change the law that people have come to rely on," Justice Stephen Breyer told Salman’s lawyer, Alexandra Shapiro.
Justice Elena Kagan said Shapiro’s position -- that prosecutors had to show the insider received a concrete benefit -- would threaten the "integrity" of the market.
Among those watching the Supreme Court case are former Goldman Sachs Group Inc. director Rajat Gupta, hedge fund manager Doug Whitman and Galleon Group co-founder Raj Rajaratnam. All are trying to overturn their convictions on related grounds.
Omega Advisors founder Leon Cooperman also could be affected. The SEC accused him last month of buying shares in Atlas Pipeline Partners after obtaining insider information. He told investors in a letter that federal prosecutors in New Jersey were also investigating but advised him they wouldn’t pursue charges for now, pending a ruling in the Supreme Court case.
Prosecutors said Salman and a partner earned more than $1.5 million in profits through trades based on inside information. The government said the tips originated with Maher Kara, then a Citigroup Inc. investment banker, who gave the information to his brother, who in turn passed it on to his brother-in-law, Salman.
The Supreme Court case centers not on Salman’s conduct, but on Kara’s motivations. A San Francisco-based federal appeals court said Salman could be convicted even if Kara gave his brother the information as a gift and didn’t receive any concrete benefit.