Approximately two years ago, I posted an article on the TBL website entitled “Securities Insider Trading: The Benevolent Tipper.” This article discussed a Second United States Circuit Court of Appeals decision, United States v. Newman. The Newman Court held that an insider “Tipper” needed to receive something of tangible value from the recipient “Tippee” in order for the Tippee to be liable for insider trading.
In early December of this year, the United States Supreme Court spoke on this issue in a unanimous decision in an insider trading case, Salman v. United States. The Salman Court holding is directly contrary to the Newman case. In Salman, the Court held that a Tippee recipient of insider information can be held criminally liable even when the Tipper does not receive any economic benefit.
Justice Alito wrote the Salman opinion for the United States Supreme Court, and his analysis is straightforward and pragmatic. Notably, Justice Alioto wrote “[Tipper] would have breached his duty had he personally traded on the information here himself then given the proceeds as a gift to his brother [Tippee] … but [Tipper] effectively achieved the same result by disclosing the information to [Tippee] and allowing him to trade on it.”
As a result, expect the Securities and Exchange Commission and federal prosecutors to become more active in pursuing insider trading cases.
Jon Titus may be reached at 480-483-9600 or firstname.lastname@example.org for questions concerning insider trading or other securities or real estate matters.