If the issue sounds narrow, that’s because it is. 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. Distinguishing Carpenter’s records from the information at issue in United States v. Jones in which the Supreme Court established that “longer term GPS monitoring” could infringe on privacy, the Sixth Circuit emphasized the fact that Carpenter’s records were obtained from a third party, which in turn should have diminished his expectations that the records were protected. 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 (CA9 2015) (quoting Dirks, supra, at 664). (quoting United States v. Ullah, 976 F.2d 509, 514 (9th Cir. Yet the Court took none of these paths, affirming the status quo and leaving the doctrine to muddle on. Id. In both instances, the insiders tipped off family members or professional friends who then tipped off others. at 1094. In  determining whether a tipper derived a personal benefit, we instructed courts to “focus on objective criteria, i.e., whether the insider receives a direct or indirect personal benefit from the disclosure, such as a pecuniary gain or a reputational benefit that will translate into future earnings.” Id., at 663. Jan 19 2016: Petition GRANTED limited to Question 1 presented by the petition. 48 Stat. A close family relationship is sufficient to sustain a conviction for insider trading. . at 426. Argument in the case was held on October 5, 2016. 2  Dirks v. SEC, 463 U. S. 646 (1983), established the personal-benefit framework in a case brought under the classical theory of insider-trading liability, which applies “when a corporate insider” or his tippee “trades in the securities of [the tipper’s] corporation on the basis of material, nonpublic information.” United States v. O’Hagan, 521 U. S. 642, 651–652 (1997). 15-628 . 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 acquired and breached by Salman when he traded on the information with full knowledge that it had been improperly disclosed. Id. Michael also testified that he told Salman that the information was coming from Maher. Id. The Dirks Court, as Professor Donald Langevoort notes, had to “fiduciarize” tippees in some way, as a tippee owed no obvious fiduciary duty to other shareholders.71×71. 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. Id. Salman also has shown “no grievous ambiguity or uncertainty that would trigger” the rule of lenity. A jury in the United States District Court for the Northern District of California convicted Salman of securities fraud. Donald C. Langevoort, Essay, Informational Cronyism, 69 Stan. Other times, he shared inside information about deals he was not working on in order to avoid detection. 6× 6. Record Creation Date: 12/16/2016. The personal benefit test will continue to sit awkwardly within the Court’s dual fiduciary duties framework, while both market participants and the SEC will continue to operate under an uncertain liability standard. Accordingly, a gift to a friend, a family member, or anyone else would support the inference that the tipper exploited the trading value of inside information for personal purposes and thus personally benefited from the disclosure. Without his younger brother’s knowledge, Michael fed the information to others—including Salman, Michael’s friend and Maher’s brother-in-law. 2 Dirks v. SEC, 463 U. S. 646 (1983) , established the personal-benefit framework in a case brought under the classical theory of insider-trading liability, which applies “when a corporate insider” or his tippee “trades in the securities of [the tipper’s] corporation on the basis of material, nonpublic information.”United States v.O’Hagan, 521 U. S. 642 –652 (1997). The Supreme Court’s much-watched ruling on the insider trading case, Salman v. United States, shores up the insider trading law. Maher testified that he shared inside information with his brother to benefit him and with the expectation that his brother would trade on it. Accordingly, the Court might have approved Newman while still finding the Salman relationship sufficiently close to accrue liability under Dirks. 773 F. 3d, at 452. 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 persons bound by a duty of trust and confidence not to exploit that information for their personal advantage. Id. Getting your Government publications was never easier... or cheaper! 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. After the tipped-off investors sold their shares of the fraudulent company and the share price collapsed, an SEC investigation of Dirks led to a guilty verdict.62×62. Id. United States Court of Appeals,Ninth Circuit. . United States v. Salman, 189 F. Supp. The Ninth Circuit declined to follow Newman so far, holding that Dirks allowed Salman’s jury to infer that the tipper breached a duty because he made “ ‘a gift of confidential information to a trading relative.’ ” 792 F. 3d 1087, 1092 (quoting Dirks, 463 U. S., at 664). Newman involved the prosecution of two hedge fund investors who were at the ends of two long chains of tippers: insiders at technology firms had passed along confidential information to market analysts, who had in turn shared the information with their portfolio managers, including the defendants. This conflict set the stage for the issue presented in the Salman case. Instead, Salman argues, a tipper does not personally benefit unless the tipper’s goal in disclosing inside information is to obtain money, property, or something of tangible value. Salman had raised three challenges to the Ninth Circuit’s personal benefit formulation: First, he argued that the Dirks personal benefit test requires evidence that the tipper sought “to obtain money, property, or something of tangible value.”39×39. To the extent that the Second Circuit in Newman held that the tipper must also receive something of a “pecuniary or similarly valuable nature” in exchange for a gift to a trading relative, that rule is inconsistent with Dirks. Meanwhile, Congress, in one of its rare forays into insider trading theory, expressed concern over the potential impact of Dirks on the SEC. Id. Respondent United States . Brief for United States 43; Tr. Writing for the panel, Judge Rakoff25×25. Finally, Part V argues that Newman set bad precedent for many reasons and praises the Supreme Court’s decision in United States v. at 660.  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. Id. See Salman v. United States, 136 S. Ct. 899 (2016) (granting certiorari on the personal benefit question). See id. denied, 577 U. S. ___. 463 U.S. 646 (1983). III studies United States v. Newmanin great detail. ----- ----- On Petition For Writ Of Certiorari To The United States Court ... ignorance" to describe the instruction at issue. The Government claims to find support for  this reading in Dirks and the precedents on which Dirks relied. Moreover, the increasingly common prosecution of remote tippees, as in Newman, raises concerns regarding notice and the requisite scienter for traders far downstream from the original insider.79×79. Justice Alito held that Dirks’s “simple and clear” test for tippee liability fell short of unconstitutional vagueness in Salman’s case.50×50. Whether the tipper breached that duty depends “in large part on the purpose of the disclosure” to the tippee. Even accepting the fiduciary duty–based liability standard for tippees — itself a stretch — the personal benefit test is both poorly defined and a non sequitur within the doctrine.69×69. No. Second, he raised a more general concern that if the personal benefit test is satisfied by a broadly defined “gift,” the crime of insider trading becomes unconstitutionally vague.40×40. Making a gift of inside information to a relative like Michael is little different from trading on the information, obtaining the profits, and doling them out to the trading relative. 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. Question: Write A Short Memorandum 1. A disclosure of material nonpublic information without receipt of such a benefit did not trigger the requisite breach of fiduciary duty.65×65. with the expectation that [Michael] would trade on it.” Salman, 137 S. Ct. at 424.  The Government also argues that Salman’s concerns about unlimited and indeterminate liability for remote tippees are significantly alleviated by other statutory elements that prosecutors must satisfy to convict a tippee for insider trading. The United States Supreme Court recently rendered a decision in Salman 1 resolving a circuit split over whether the government prosecuting an insider trading case must show that the person giving an insider tip received something of pecuniary value in return. (quoting Dirks v. SEC, 463 U.S. 646, 664 (1983)). Id. Salman knew that Michael, who also traded on the information, was getting tips from Maher, a Citigroup banker working on various health care deals. § 78j(b) (2012). 792 F. 3d 1087. 38. 4 (1996). * And several options were available to provide greater clarity than did the Court’s narrow opinion. Cf. See Macey, supra note 69, at 66. Dirks, decided three years later, further narrowed the category of defendants subject to the relevant fiduciary duty. at 425. Salman, 137 S. Ct. at 429. Setting Forth Your View On Whether: • This Decision Should Remain The Law On Criminal Liability For Insider Trading And Your Reasoning Therefor; Or • Congress Should Pass Legislation Changing The Law On Insider Trading And Your … SALMAN v. UNITED STATES792 F. 3d 1087, affirmed. Langevoort, supra note 71, at 41. The Court’s reluctance to tackle these doctrinal issues directly may, however, produce an unintended benefit: If the incoherence of the doctrine leads to increasingly untenable prosecutions — or, as the SEC would surely suggest, increasingly untenable nonprosecutions — pressure may well mount on Congress to intervene and finally provide a proper definition for the offense of insider trading. The Court’s trilogy of insider trading cases has left a muddled doctrine in its wake, with Dirks fitting particularly awkwardly into the fiduciary framework. 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.
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