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On October 5, 2016, the Supreme Court heard oral argument in Salman v. United States. Bassam Yacoub Salman was convicted in a jury trial of conspiracy to commit securities fraud, as well as several counts of actual securities fraud. The government’s theory was that Salman, whose brother-in-law Mounir Kara (along with Mounir’s older brother Maher Kara) worked for Citigroup, had coordinated with Mounir in an insider trading scheme that, over the course of just a few years, grew a $396,000 brokerage account controlled by Salman into one worth more than $2 million.

Salman moved for a new trial, arguing that there was no evidence he knew that the tipper had disclosed confidential information in exchange for a personal benefit. The district court denied the motion. Salman made a similar argument to the U.S. Court of Appeals for the Ninth Circuit on appeal, urging the Court to adopt the then-recently established standard set out by the Second Circuit in United States v. Newman. Under Newman, the government must present sufficient evidence that the accused knew the “inside” information he received had been disclosed in breach of a fiduciary duty. Invoking its precedent in Dirks v. SEC, the Ninth Circuit rejected Salman’s challenge, holding that the close familial relationship between Salman and the Karas was sufficient to sustain Salman’s convictions.

The question now before the Supreme Court is whether the personal benefit to the insider that is necessary to establish insider trading under Dirks requires proof of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in Newman, or whether it is enough that the insider and the tippee shared a close familial relationship, as the Ninth Circuit held here.

To discuss the case, we have Thaya Brook Knight, who is associate director of financial regulation studies at the Cato Institute.

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