The Supreme Court heard arguments Wednesday over what kind of benefit the government has to prove to convict someone providing insider information that is traded on by others.
The petitioner, Bassam Salman, asked the court to reconsider three decades of legal precedent in light of an overturned conviction against hedge fund managers Todd Newman and Anthony Chiasson in December 2014
In Mr. Newman's case, the 2nd U.S. Circuit Court of Appeals in New York departed from legal precedent by saying that prosecutors need to show a tangible benefit beyond mere friendship between the people giving and receiving information.
In Salman vs. U.S., the 9th U.S. Circuit Court of Appeals in San Francisco upheld the conviction, saying that inside information provided to a family member is a benefit.
The Salman case presents the Supreme Court its first insider trading case in two decades, after having declined to revisit Newman and others.
“Virtually every court, I think, but (the 2nd Circuit) has held that this does extend to a tipper giving inside information to a close relative,” Justice Stephen Breyer said during arguments. Agreeing with the 2nd Circuit “is really more likely to change the law that people have come to rely upon than it is to keep to it.”
Justice Elena Kagan suggested “that it's a reason for caution in changing a 30-year-old rule that everybody has understood and lived by, and that Congress has shown no indication it's unhappy with.”
In its amicus brief, the Securities Industry and Financial Markets Association called on the Supreme Court to reaffirm “that insider trading liability should not turn solely on notions of friendship or family relationship alone, but should instead focus on proof that the tipper obtained, directly or indirectly, something of a 'pecuniary or similarly valuable nature,' consistent with” the Newman decision. Financial institutions, SIFMA said, “need insider trading rules that are clear and predictable.”