Salman v. United States

• Decision Date: 06 December 2016
• Docket Number: No. 15–628.,15–628.
• Citation: 196 L.Ed.2d 351,137 S.Ct. 420
• Parties: Bassam Yacoub SALMAN, Petitioner v. UNITED STATES.
• Court: U.S. Supreme Court

137 S.Ct. 420

196 L.Ed.2d 351

Bassam Yacoub SALMAN, Petitioner

v.UNITED STATES.

No. 15–628.

Supreme Court of the United States

Argued Oct. 5, 2016.

Decided Dec. 6, 2016.

Alexandra A.E. Shapiro, New York, NY, for petitioner.

Michael R. Dreeben, Washington, DC, for the respondent.

Alexandra A.E. Shapiro, Daniel J. O'Neill, Shapiro Arato LLP, New York, NY, John D. Cline, Law Office of John D. Cline, San Francisco, CA, for petitioner.

Donald B. Verrilli, Jr., Solicitor General, Leslie R. Caldwell, Assistant Attorney General, Ross C. Goldman, Attorney, Department of Justice, Washington, DC, for the United States in Opposition.

Anne K. Small, General Counsel, Sanket J. Bulsara, Deputy General Counsel, Michael A. Conley, Solicitor, Jacob H. Stillman, Senior Advisor to the Solicitor, David D. Lisitza, Senior Litigation Counsel, Securities and Exchange Commission, Washington, DC, Ian Heath Gershengorn, Acting Solicitor General, Leslie R. Caldwell, Assistant Attorney General, Michael R. Dreeben, Deputy Solicitor General, Elaine J. Goldenberg, Assistant to the Solicitor General, Ross B. Goldman, Attorney, Department of Justice, Washington, DC, for the Respondent.

Justice ALITO

delivered the opinion of the Court.

Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission's Rule 10b–5 prohibit undisclosed trading on inside corporate information by individuals who are under a duty of trust and confidence that prohibits them from secretly using such information for their personal advantage. 48 Stat. 891, as amended, 15 U.S.C. § 78j(b)

(prohibiting the use, “in connection with the purchase or sale of any security,” of “any manipulative or deceptive device or contrivance in contravention of such rules as the [Securities and Exchange Commission] may prescribe”); 17 C.F.R. § 240.10b–5 (2016) (forbidding the use, “in connection with the sale or purchase of any security,” of “any device, scheme or artifice to defraud,” or any “act, practice, or course of business which operates ... as a fraud or deceit”); see United States v. O'Hagan, 521 U.S. 642, 650–652, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997). Individuals under this duty may face criminal and civil liability for trading on inside information (unless they make appropriate disclosures ahead of time).

These persons also may not tip inside information to others for trading. The tippee acquires the tipper's duty to disclose or abstain from trading if the tippee knows the information was disclosed in breach of the tipper's duty, and the tippee may commit securities fraud by trading in disregard of that knowledge. In Dirks v. SEC, 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983)

, this Court explained that a tippee's liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information. A tipper breaches such a fiduciary duty, we held, when the tipper discloses the inside information for a personal benefit. And, we went on to say, a jury can infer a personal benefit—and thus a breach of the tipper's duty—where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.” Id., at 664, 103 S.Ct. 3255.

Petitioner Bassam Salman challenges his convictions for conspiracy and insider trading. Salman received lucrative trading tips from an extended family member, who had received the information from Salman's brother-in-law. Salman then traded on the information. He argues that he cannot be held liable as a tippee because the tipper (his brother-in-law) did not personally receive money or property in exchange for the tips and thus did not personally benefit from them. The Court of Appeals disagreed, holding that Dirks allowed the jury to infer that the tipper here breached a duty because he made a “ ‘gift of confidential information to a trading relative.’ ” 792 F.3d 1087, 1092 (C.A.9 2015)

(quoting Dirks, supra, at 664, 103 S.Ct. 3255 ). Because the Court of Appeals properly applied Dirks, we affirm the judgment below.

I

Maher Kara was an investment banker in Citigroup's healthcare investment banking group. He dealt with highly confidential information about mergers and acquisitions involving Citigroup's clients. Maher enjoyed a close relationship with his older brother, Mounir Kara (known as Michael). After Maher started at Citigroup, he began discussing aspects of his job with Michael. At first he relied on Michael's chemistry background to help him grasp scientific concepts relevant to his new job. Then, while their father was battling cancer

, the brothers discussed companies that dealt with innovative cancer treatment and pain management techniques. Michael began to trade on the information Maher shared with him. At first, Maher was unaware of his brother's trading activity, but eventually he began to suspect that it was taking place.

Ultimately, Maher began to assist Michael's trading by sharing inside information with his brother about pending mergers and acquisitions. Maher sometimes used code words to communicate corporate information to his brother. Other times, he shared inside information about deals he was not working on in order to avoid detection. See, e.g., App. 118, 124–125. Without his younger brother's knowledge, Michael fed the information to others—including Salman, Michael's friend and Maher's brother-in-law. By the time the authorities caught on, Salman had made over $1.5 million in profits that he split with another relative who executed trades via a brokerage account on Salman's behalf.

Salman was indicted on one count of conspiracy to commit securities fraud, see 18 U.S.C. § 371

, and four counts of securities fraud, see 15 U.S.C. §§ 78j(b), 78ff ; 18 U.S.C. § 2 ; 17 C.F.R. § 240.10b–5. Facing charges of their own, both Maher and Michael pleaded guilty and testified at Salman's trial.

The evidence at trial established that Maher and Michael enjoyed a “very close relationship.” App. 215. Maher “love[d] [his] brother very much,” Michael was like “a second father to Maher,” and Michael was the best man at Maher's wedding to Salman's sister. Id ., at 158, 195, 104–107. Maher testified that he shared inside information with his brother to benefit him and with the expectation that his brother would trade on it. While Maher explained that he disclosed the information in large part to appease Michael (who pestered him incessantly for it), he also testified that he tipped his brother to “help him” and to “fulfil[l] whatever needs he had.” Id ., at 118, 82. For instance, Michael once called Maher and told him that “he needed a favor.” Id., at 124. Maher offered his brother money but Michael asked for information instead. Maher then disclosed an upcoming acquisition. Ibid. Although he instantly regretted the tip and called his brother back to implore him not to trade, Maher expected his brother to do so anyway. Id., at 125.

For his part, Michael told the jury that his brother's tips gave him “timely information that the average person does not have access to” and “access to stocks, options, and what have you, that I can capitalize on, that the average person would never have or dream of.” Id., at 251. Michael testified that he became friends with Salman when Maher was courting Salman's sister and later began sharing Maher's tips with Salman. As he explained at trial, “any time a major deal came in, [Salman] was the first on my phone list.” Id ., at 258. Michael also testified that he told Salman that the information was coming from Maher. See, e.g., id ., at 286 (“ ‘Maher is the source of all this information’ ”).

After a jury trial in the Northern District of California, Salman was convicted on all counts. He was sentenced to 36 months of imprisonment, three years of supervised release, and over $730,000 in restitution. After his motion for a new trial was denied, Salman appealed to the Ninth Circuit. While his appeal was pending, the Second Circuit issued its opinion in United States v. Newman, 773 F.3d 438 (2014)

, cert. denied, 577 U.S. ––––, 136 S.Ct. 242, 193 L.Ed.2d 133 (2015). There, the Second Circuit reversed the convictions of two portfolio managers who traded on inside information. The Newman defendants were “several steps removed from the corporate insiders” and the court found that “there was no evidence that either was aware of the source of the inside information.” 773 F.3d, at 443. The court acknowledged that Dirks and Second Circuit case law allow a factfinder to infer a personal benefit to the tipper from a gift of confidential information to a trading relative or friend. 773 F.3d, at 452. But the court concluded that, “[t]o the extent” Dirks permits “such an inference,” the inference “is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” 773 F.3d, at 452.¹

Pointing to Newman, Salman argued that his conviction should be reversed. While the evidence established that Maher made a gift of trading information to Michael and that Salman knew it, there was no evidence that Maher received anything of “a pecuniary or similarly valuable nature” in exchange—or that Salman knew of any such benefit. The Ninth Circuit disagreed and affirmed Salman's conviction. 792 F.3d 1087

. The court reasoned that the case was governed by Dirks 's holding that a tipper benefits personally by making a gift of confidential information to a trading relative or friend. Indeed, Maher's disclosures to Michael were “precisely the gift of confidential information to a trading relative that Dirks envisioned.” 792 F.3d, at 1092 (internal quotation marks omitted). To the extent Newman went further and required additional gain to the tipper in cases involving gifts of confidential information to family and friends, the Ninth Circuit “decline [d] to follow...