SIFMA Argues Against Basing Insider Trading Liability on "Notions of Friendship or Family Alone"

In its Amicus Curiae brief, SIFMA asserted that insider trading liability should not rely "solely on notions of friendship or family alone, but should instead focus on proof that the tipper obtained, directly or indirectly, something of a 'pecuniary or similarly valuable nature,' consistent with the Second Circuit's conclusion in United States v. Newman," 773 F.3d at 452 (2d Cir. 2014). SIFMA argued that such a test of proof would maintain consistency with the "core rule" announced in Dirks v. SEC 463 U.S. 646 (1983), that "insider trading liability for a tippee must rest on evidence of 'objective facts and circumstances' that would support a reasonable inference that the tippee's trading profits are, in practical effect, the tipper's own." Dirks, 463 U.S. at 664.

Additionally, SIFMA elaborated that Dirks held that a "tippee" may not knowingly exploit the decision of an insider to disclose company information for the "personal gain" of said insider, which it noted may also occur "when an insider makes a gift of confidential information to a trading relative or a friend."

SIFMA cautioned that the government's "broad understanding" of what constitutes a "gift" actionable under Dirks would result in "significant uncertainty" for SIFMA members and their employees, who "receive vast quantities of information about companies from many sources, some known, some unknown, some of uncertain reliability." SIFMA further emphasized that this information can be obtained from sources in addition to company SEC filings and other formal communications, including: the financial press, presentations at investor conferences, blogs, chat rooms, unsolicited tips, rumors, informal analyst networks or social-media platforms such as Facebook and Twitter. Due to the potential of such interactions to "take on some of the characteristics of social and personal relationship," SIFMA stressed that any rule that hinges insider trading liability on "whether two people may be described as friends in a casual sense" would be "unworkable."