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Salman v. United States

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Supreme Court of the United States
Salman v. United States
Reference: 15-628
Issue: Securities fraud
Insider trading
Term: 2016
Important Dates
Argued: October 5, 2016
Decided: December 6, 2016
Outcome
Ninth Circuit Court of Appeals affirmed
Vote
8-0 to affirm
Majority
Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Elena Kagan
Concurring
None
Dissenting
None


Salman v. United States is an argued case during the October 2016 term of the U.S. Supreme Court. Argument in the case was held on October 5, 2016. The case came on a writ of certiorari to the United States Court of Appeals for the 9th Circuit. On December 6, 2016, in an opinion by Justice Samuel Alito, the court unanimously affirmed the judgment of the Ninth Circuit.

HIGHLIGHTS
  • The case: Bessam Jacob Salman sought reversal of his convictions for securities fraud and conspiracy to commit securities fraud.
  • The issue: What is the appropriate standard to prove someone obtained a "personal benefit" in an insider trading scheme?
  • The outcome: The judgment of the Ninth Circuit Court of Appeals was affirmed.


    • In brief: In this case, petitioner Bassam Jacob Salman sought to overturn his convictions for securities fraud and conspiracy to commit securities fraud. He argued that his conviction should be overturned in light of a 2014 ruling from the United States Court of Appeals for the 2nd Circuit, United States v. Newman, that was handed down after his conviction but during Salman's timely appeals process. In Newman, the Second Circuit established a modified standard for determining what constitutes a "personal benefit" for the purpose of convicting someone of insider-trading. Salman asked the United States Court of Appeals for the 9th Circuit to adopt the Second Circuit's standard and reverse his convictions because, under the Newman standard, the government had insufficient evidence to prove Salman received any benefits in the insider trading scheme despite having a personal relationship with the individual providing insider information. The Ninth Circuit declined to adopt the Second Circuit's standard and affirmed Salman's convictions. Oral argument before the U.S. Supreme Court was held on October 5, 2016. On December 6, 2016, in an opinion by Justice Samuel Alito, the court unanimously affirmed the judgment of the Ninth Circuit.

    You can review the Ninth Circuit's opinion here.[1]

    Click on the tabs below to learn more about this Supreme Court case.

    Case

    Background

    Starting sometime in 2002, Bessam Jacob Salman's future brother-in-law, Maher Kara, was employed with Citigroup's healthcare investment banking group. During the next few years of his employment, Maher discussed aspects of his job with his brother, Mounir Kara, a/k/a Michael Kara, who had an undergraduate degree in chemistry and would assist Maher "in understanding scientific concepts relevant to his work in the healthcare and biotechnology sectors."[1]

    In 2004, the brothers' discussions about Maher's job shifted to companies who focused in pain management and oncology. Maher suspected that Michael was trading on this information, but Michael denied the allegation. From late 2004 through early 2007, Maher "regularly disclosed" information regarding the merger and acquisitions activities of Citigroup clients. In the fall of 2004, Michael began sharing this information with Bessam Jacob Salman, whose sister Saswan, a/k/a/ Suzie, was engaged to Maher. Michael encouraged Salman to mimic his transactions. Salman did so by arranging to deposit money into a brokerage account that Salman set up with the brother of Salman's wife, Karim Bayyouk. Evidence introduced at Salman's trial showed that, from 2004 to 2007, Bayyouk and Michael Kara "executed nearly identical trades in securities issued by Citigroup clients shortly before the announcement of major transactions. As a result of these trades, Salman and Bayyouk’s account grew from $396,000 to approximately $2.1 million."[1]

    At Salman's trial before Judge Edward Chen of the United States District Court for the Northern District of California, the government introduced evidence that Salman knew Maher was the source of Michael's information. Michael, in testifying as a government witness, said under oath that he told Salman directly that Maher was the source of his information. The government presented further evidence not only of the close, mutually beneficial relationship between Maher and Michael, but also between the Kara and Salman families. This evidence, the government argued, was sufficient to demonstrate that Salman knew, or should have known, that Maher was the source of the information. A jury convicted Salman on four counts of securities fraud and one count of conspiracy to commit securities fraud.[1]

    Salman moved for a new trial, in part, on his belief that there was "no evidence that he knew" that Michael disclosed confidential information in exchange for a personal benefit. The district court denied Salman's motion. Salman appealed in a timely fashion, but did not raise a challenge to the sufficiency of the government's evidence to prove he received a "personal benefit" initially. After the Second Circuit handed down its ruling in United States v. Newman, Salman moved to file a supplemental brief urging the Ninth Circuit to adopt the Second Circuit's Newman rationale in considering Salman's appeal on the merits. The Ninth Circuit agreed to do this and gave the government time to respond to Salman's brief. After briefing, the Ninth Circuit agreed to rule on the merits of Salman's claim.[1]

    Salman's appeal was argued on June 9, 2015, before Ninth Circuit Judges Morgen Christen and Paul Watford. By designation, Judge Jed Rakoff of the United States District Court for the Southern District of New York was the third judge on the panel. Judge Rakoff wrote the opinion for a unanimous panel.

    In his opinion, Judge Rakoff summarized Salman's argument in this way, "Salman urges us to adopt Newman as the law of this Circuit, and contends that, under Newman, the evidence was insufficient to find either that Maher Kara disclosed the information to Michael Kara in exchange for a personal benefit, or, if he did, that Salman knew of such benefit."[1]

    The U.S. Supreme Court held in a 1983 decision, Dirks v. S.E.C., that the "personal benefit" requirement includes, in part, that “[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend.” In this case, according to the Ninth Circuit,[1]

    “

    Maher’s disclosure of confidential information to Michael, knowing that he intended to trade on it, was precisely the "gift of confidential information to a trading relative" that Dirks envisioned ... Given the Kara brothers’ close relationship, Salman could readily have inferred Maher’s intent to benefit Michael.Thus, there can be no question that, under Dirks, the evidence was sufficient for the jury to find that Maher disclosed the information in breach of his fiduciary duties and that Salman knew as much. [2]

    		”

    Salman argued that the Second Circuit's opinion in Newman requires the government to prove "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" and that "evidence of a friendship or familial relationship between tipper and tippee, standing alone, is insufficient to demonstrate that the tipper received a benefit."[1]

    The Ninth Circuit declined to extend the Newman rationale to Salman's case because the panel believed that to do so "would require us to depart from the clear holding of Dirks that the element of breach of fiduciary duty is met where an 'insider makes a gift of confidential information to a trading relative or friend.'” In declining to adopt the Newman rationale, the Ninth Circuit affirmed Salman's convictions.[1]

    Petitioner's challenge

    The U.S. Supreme Court revisited Dirks to see if the necessary elements for proving a "personal benefit" in that case were still valid. Salman argued that a necessary showing of pecuniary gain was required to prove a personal benefit. The government countered that a gift of insider information may provide both tangible and intangible benefits, so to require pecuniary gain as a necessary element of personal benefit was too narrow.

    Certiorari granted

    On November 15, 2015, petitioner Bessam Jacob Salman initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the United States Court of Appeals for the 9th Circuit. The U.S. Supreme Court granted Salman's certiorari request on January 19, 2016, limiting the scope of judicial inquiry to question 1 of the petition. Oral argument before the Supreme Court was held on October 5, 2016.

    Arguments


    Question presented

    Question presented:

    Does the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 646 (1983), 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?[3]


    Audio

    • Audio of oral argument:[4]



    Transcript

    • Transcript of oral argument:[5]

    Outcome

    Decision

    In a unanimous decision, the Supreme Court affirmed the decision of the United States Court of Appeals for the 9th Circuit. Justice Samuel Alito delivered the opinion of the court.[6]

    Opinion

    In his opinion for the court, Justice Alito noted that the court would adhere to the court's prior holding in Dirks v. SEC, which "easily resolves the narrow issue presented here."[6]

    As the justices noted,[6]

    “

    Dirks specifies that when a tipper gives inside information to 'a trading relative or friend,' the jury can infer that the tipper meant to provide the equivalent of a cash gift. In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds. Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients—a duty Salman acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed. [2]

    		”

    In so ruling, the court held that a Second Circuit requirement to prove insider trading — that a tipper also receive something of a "pecuniary of similarly valuable nature" in exchange for gifts to friends or family — was inconsistent with Dirks. The Second Circuit's requirement stemmed from that court's opinion in United States v. Newman.[6]

    The court went on to reject Salman's arguments both that the "gift-giving standard" presented in Dirks was unconstitutionally vague and that his trial jury was improperly instructed prior to deliberations.[6]

    Concurring opinions

    There were no concurring opinions filed.

    Dissenting opinions

    There were no dissenting opinions filed.

    The opinion

    Filings

    The court granted Salman's certiorari request on January 19, 2016, limiting the scope of judicial inquiry to question 1 of the petition.

    Merits filings

    Parties' filings

    • Bessam Jacob Salman, the petitioner, filed his merits brief on May 6, 2016.
    • The United States, the respondent, filed its merits brief on August 1, 2016.
    • Salman filed his reply brief to the United States' merits brief on August 31, 2016.

    Amicus curiae filings

    The following groups filed amicus curiae briefs supporting the petitioner, Bessam Jacob Salman.

    • Brief of the National Association of Criminal Defense Lawyers

    The following groups filed amicus curiae briefs supporting the respondent, the United States of America.

    • Brief of Occupy the SEC (OSEC)
    • Brief of Richard D. Freer

    The following groups filed amicus curiae briefs supporting neither party.

    • Brief of the NYU Center on the Administation of Criminal Law
    • Brief of the Securities Industry and Financial Markets Association


    Certiorari filings

    Parties' filings

    • Bessam Jacob Salman, the petitioner, filed his petition for certiorari on November 10, 2015.
    • The United States of America, the respondent, filed a brief in opposition to certiorari on December 14, 2015.
    • Salman filed a reply brief on December 21, 2015, to the government's brief in opposition.

    See also


    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 U.S. Court of Appeals for the Ninth Circuit, United States of America v. Bassam Yacoub Salman, a/k/a Bessam Jacob Salman, decided July 6, 2015
    2. ↑ 2.0 2.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    3. ↑ Supreme Court of the United States, Salman v. United States, January 19, 2016
    4. ↑ Supreme Court of the United States, Salman v. United States, argued October 5, 2016
    5. ↑ Supreme Court of the United States, Salman v. United States, argued October 5, 2016
    6. ↑ 6.0 6.1 6.2 6.3 6.4 Supreme Court of the United States, Salman v. United States, decided December 6, 2016
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