Supreme Court to Consider Test for Insider Trading

The Supreme Court agreed to hear an insider trading case in order to determine whether a plaintiff must prove that a tippee received a personal benefit.

In the underlying case, United States v. Salman, the Ninth Circuit held that it was sufficient to find that the tippee shared a "close family relationship" with the insider. The defendant argued that "evidence of a friendship or familial relationship between tipper and tippee, standing alone, is insufficient to demonstrate that the tipper received a benefit." Any such benefit, he said, must include "at least a potential gain of a pecuniary or similarly valuable nature." Therefore, a family bond alone, without evidence of a transfer of money, would be insufficient as a reward to the tipper to cause a Rule 10b-5 violation.

The court disagreed. It convicted the defendant and found that family ties could be sufficient reward to the tipper to create a violation.

The Supreme Court granted certiorari despite the Solicitor General's argument that it should have been denied (as in Newman) because the Ninth Circuit's decision was "fully consistent with [the Supreme Court's] decision in Dirks v. SEC."