Supreme Court prepares to answer question for DOJ: What is insider trading?
If the provider of insider information doesn’t benefit, did an insider trading violation occur?
The question has split federal appeals courts and is now headed to the U.S. Supreme Court, which will hear oral arguments in Salman v. United States on Oct. 5.
At issue is how to use the “personal benefit” test, which has been key to establishing liability in insider trading cases. The test has been hotly debated in lower courts since the Supreme Court established the rule in Dirks v. SEC over 30 years ago.
In the last two years, the U.S. Circuit Court of Appeals for the Second Circuit and the Circuit Court of Appeals for the Ninth Circuit handed down differing opinions on the nature of “personal benefit” in separate, though similar, insider trading cases.
Steven Crimmins, a securities regulation lawyer for Murphy & McGonigle, said the Supreme Court recognized the need to clarify the murky language embedded within the “personal benefit” test, which aims to determine liability between those providing insider tips and those receiving them.
“They see confusion amongst the lower courts,” he said. “They see confusion breaking out over the meaning of federal law and that hurts the orderly administration of justice.”
In Dirks v. SEC, the Supreme Court ruled that for fraudulent insider trading to have occurred, an insider had to have received some sort of personal benefit in exchange for disseminating material, private information.
As part of the test, the court deemed providing non-public information to a close friend or family member as a gift constituting a personal benefit.
Following Dirks, the Securities and Exchange Commission and the U.S. Department of Justice successfully convicted numerous tippers and tippees by establishing that defendants in a given case were friends, regardless of the closeness of their relationship, Crimmins said....MORE