Michael Buffer has been a ring announcer at boxing and wrestling matches for over 30 years. During the early part of this century, he made a certain phrase very, very popular with sports enthusiasts. Before any major boxing or wrestling event he stood in the center of the ring, wearing a tuxedo and bow tie, and bellowed his catch-phrase to the delight of the crowd. Because I doubt very much Chief Justice Roberts will start the October 5, 2016 argument in a similar fashion, even though it would be most fitting, I will borrow Mr. Buffer’s saying for this blog post. What constitutes personal benefit in insider trading cases is the title fight on Wednesday’s slate of SCOTUS bouts. Ladies and gentlemen … “Let’s get ready to rumble!”
Introduction:
Fighting out of the Petitioner’s corner, hoping to avoid wearing an orange jumpsuit, convicted insider trader, Bassam Salman. Fighting out of the Respondent’s corner, draped in a red, white and blue, and representing the United States of America, the Solicitor General’s office.
The Facts:
Salman received and traded on information that he apparently learned third-hand from a member of his extended family, Mounir Kara. Kara received it from his brother, a Citigroup banker. No person along the tipping chain paid money to anyone else along the tipping chain or in exchange for the inside information.
A jury convicted Salman. He appealed to the Ninth Circuit, and in what can only be considered coincidental timing in the wake of U.S. v. Newman (PDF: 357), SDNY District Court Judge Jed S. Rakoff, sitting by designation out west, appeared on this panel and wrote the opinion (PDF: 97 KB). The Ninth Circuit affirmed the jury verdict, deemed that a gift from a relative provided sufficient personal benefit and declined to agree with Salman that Newman required proof of a pecuniary gain from the tippee to the tipper.
This backstory brings us to the main event, the title fight over what constitutes personal benefit. The question before the Supremes is: “Does the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 646 (1983) (PDF: 16.3 MB), require 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 United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015), or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case?” Salman Merits Brief (PDF: 405 KB). The SG’s brief (PDF: 180 KB) says it slightly differently, but gets to the same point.
Salman:
Salman came charging out of his corner and fired a salvo of blows at the government. He argued, in sum and substance, (1) that the Court needs to impose limits on the government where the crime “rests on indeterminate statutory language”, (2) that personal benefit “require[s] a showing of pecuniary gain”; and (3) the Ninth Circuit’s interpretation of the law writes personal benefit out of the elements of insider trading.
Government:
The government counter-punched Salman in its merits brief. The thrust of its blows were: (1) Dirks held that pecuniary gain was one way to get to personal benefit but it also permitted the inference where “an insider makes a gift of confidential information to a trading relative or friend.” Dirks at 664; (2) when the facts demonstrate that the tipper provided the information as a gift it means no corporate purpose exists for the disclosure and personal benefit is satisfied; and (3) Salman is seeking to create new law by mischaracterizing “gift liability” as vague or overbroad.
Amici:
It should be noted that were this tortured metaphor about wrestling, instead of boxing, there would be a whole paragraph about people coming out of the stands and hitting Salman and government with folding chairs and other heavy objects … WrestleMania-style. Suffice it to say that non-parties filed a total of eight amicus briefs weighing in on one side or the other. While it has less dramatic flair than Rowdy Roddy Piper leaping over the ropes and smashing an opponent with a ladder, there can be no doubt that this issue has attracted significant attention.
The Skinny:
Both parties’ briefs are well done. The arguments are clear; the lines that divide the combatants drawn sharply in the sand. Through all of the more than 150 pages of briefing, this pugilistic contest boils down to whether a gift of information from one family member to another is, in and of itself, enough to demonstrate personal benefit. Should the law premise criminal or civil liability on something that is completely unquantifiable – the good feelings one gets by being the gift giver? Dirks certainly uses the words “gift to a trading relative or friend” when discussing personal benefit. But just how much benefit did the Supremes feel was necessary to meet the standard for personal benefit? The Second Circuit held that it had to be a substantial benefit, something with real value, otherwise the personal benefit standard would become a nullity.
The fight is not over, although they are in the late rounds. There certainly is still time for one side or the other to throw a haymaker and land a knockout blow. Although, it is unclear how much oral argument will sway the scorekeepers. Late round knockouts are difficult, thus, the likely result is not a knockout, but a split decision. The fact that there are only eight sitting justices might have a large impact on the make-up of the decision. The big difference between this and a boxing match is not that Michael Buffer won’t be there to kick it off, it is that in a boxing we can always count on a rematch … U.S. v. Salman is winner take all.
Gregory Morvillo is a partner in the New York office of Morvillo LLP. He specializes in insider trading and securities fraud cases.
Disclaimer
The views, opinions and positions expressed within all posts are those of the author alone and do not represent those of the Program on Corporate Compliance and Enforcement or of New York University School of Law. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
The briefs filed in Salman v. United States, can be found on SCOTUS blog.