Tangible Benefit
The “conclusion that a benefit had to be tangible is out,” Henning said.
The ruling comes in the case of onetime Chicago grocery wholesaler Bassam Yacoub Salman. Prosecutors in California 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 centered not on Salman’s conduct, but on Kara’s motivations.
“By disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients,” Justice Samuel Alito wrote.
Personal Benefit
Federal securities-fraud statutes don’t specifically mention insider trading, but in 1983 the Supreme Court said prosecutions could be based on an insider’s breach of a duty to the company’s shareholders. The ruling, known as Dirks v. SEC, said the insider had to receive a “personal benefit” from the disclosure.
Alito said the Dirks ruling “easily resolves” the Salman case.
“Dirks specifies that when a tipper gives inside information to ‘a trading relative or friend,’ the jury can infer that the tipper meant to provide the equivalent of a cash gift,” Alito wrote. “In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.”
Although the high court ruling represents a victory for the government, it doesn’t address a key part of the New York court’s 2014 ruling -- and one that still makes it tougher in some ways for prosecutors to prevail. That panel also said that prosecutors must prove the person trading on the information knew that it came from an insider who received a personal benefit.