Clifford Chance
U.S. Supreme Court Unanimously Holds that Insider's Gift of Confidential Information to Trading Relative or Friend Is Sufficient To Establish 'Personal Benefit' Under Insider-Trading Law
7 December 2016
In a much anticipated decision announced yesterday that reaffirms traditional boundaries for insider-trading liability, the U.S. Supreme Court unanimously held in United States v. Salman that, consistent with its decision in Dirks v. SEC, 463 U.S. 646 (1983), a gift of confidential information by an insider to a relative or close friend, who then trades on that information, is sufficient to establish the existence of a "personal benefit" (and thus a breach of the tipper's fiduciary duty), which is a key element of insider trading liability under Section 10(b) of the Securities Exchange Act of 1934 and U.S. Securities and Exchange Commission Rule 10b-5. Moreover, in affirming the conviction in the Salman case, the Court clarified that last year's Second Circuit decision in United States v. Newman is inconsistent with Dirks to the extent it required a showing "that the tipper must also receive something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends", 773 F.3d3d 438, 452 (2d Cir. 2014), cert. denied, 577 U. S. ___ (2015).
