Salman v. United States was decided by the United States Supreme Court on December 6, 2016. The case revolves around the actions of Bassam Yacoub Salman, an individual who obtained insider information from his brother-in-law, Maher Kara. The Supreme Court, in the case of Salman, embraced the Ninth Circuit's interpretation, which states that an individual who provides insider information to a trading relative or friend obtains a personal benefit as an insider-tipper. The Court dismissed the additional conditions set forth by the Second Circuit in United States v. Newman. arrow_forward Step 2: Salman v. United States, Clarifying Insider Trading Law in the United States. Salman v. United States, decided by the Supreme Court in 2016, is an important case that clarified the law regarding insider trading in the United States. To understand the significance of Salman, it is essential to review the legal theories of insider dealing that preceded it, namely the Classical Theory, the Misappropriation Theory, and the Deceptive Device or Affirmative Misrepresentation Theory. 1. Classical Theory: According to the Classical Theory, insider trading liability occurs when individuals with privileged access to information, such as corporate officers or directors, engage in trading activities involving securities using material, non-public information. Such actions are considered a breach of their fiduciary duty towards the shareholders of the company. The Classical Theory places significant emphasis on the duty of loyalty that corporate insiders owe to their shareholders. 2. Misappropriation Theory: The Misappropriation Theory broadens the range of insider trading accountability beyond the classical theory by acknowledging that liability can be incurred when an individual wrongfully acquires confidential information from its origin, violating a duty owed to that origin, and subsequently engaging in trading based on that information. This theory specifically focuses on individuals who gain access to insider information through external relationships with the company, such as lawyers, accountants, or other professionals. 3. Deceptive Device or Affirmative Misrepresentation Theory: This theory focuses on situations where an individual engages in fraudulent or deceptive conduct to manipulate the securities market. It encompasses situations where someone misrepresents or withholds material information in connection with securities transactions. Before Salman, the law regarding insider trading was not entirely clear, especially concerning tippee liability. The tipping issue refers to situations where an insider discloses material, non-public information to an outsider (the tippee), who then trade on that information. The question was whether the tipper must receive a tangible benefit in exchange for the tippee's trading. Salman v. United States clarified the law by adopting the Ninth Circuit's interpretation of insider tipping. The Supreme Court held that an insider-tipper receives a personal benefit when they make a gift of inside information to a trading relative or friend. The requirement imposed by the Second Circuit in United States v. Newman, which insisted on the tipper receiving something of pecuniary or similarly valuable nature in exchange for the tip, was dismissed. By adopting the Ninth Circuit's interpretation, Salman reinforced the Misappropriation Theory and expanded liability for insider trading. It clarified that the personal benefit to the tipper can be inferred when a gift of confidential information is made to a trading relative or friend, without the need for direct pecuniary gain. In this sense, Salman did not establish a new precedent in terms of the legal theories of insider dealing. Rather, it provided clarification on the requirement of a personal benefit for tipper liability. Salman's importance lies in its departure from the stricter precedent set by the Second Circuit in United States v. Newman, which had caused ambiguity and limited the extent of insider trading accountability. arrow_forward Solution Hence, Salman v. United States clarified the law on insider trading by rejecting the stricter standard set by the Second Circuit. It established that an insider tipper receives a personal benefit when providing confidential information to a trading relative or friend, expanding liability for insider trading. This decision reaffirmed the Misappropriation Theory and provided a more consistent standard for tippee liability in the United States
Salman v. United States was decided by the United States Supreme Court on December 6, 2016. The case revolves around the actions of Bassam Yacoub Salman, an individual who obtained insider information from his brother-in-law, Maher Kara. The Supreme Court, in the case of Salman, embraced the Ninth Circuit's interpretation, which states that an individual who provides insider information to a trading relative or friend obtains a personal benefit as an insider-tipper. The Court dismissed the additional conditions set forth by the Second Circuit in United States v. Newman.
Salman v. United States, decided by the Supreme Court in 2016, is an important case that clarified the law regarding insider trading in the United States. To understand the significance of Salman, it is essential to review the legal theories of insider dealing that preceded it, namely the Classical Theory, the Misappropriation Theory, and the Deceptive Device or Affirmative Misrepresentation Theory.
1. Classical Theory:
According to the Classical Theory, insider trading liability occurs when individuals with privileged access to information, such as corporate officers or directors, engage in trading activities involving securities using material, non-public information. Such actions are considered a breach of their fiduciary duty towards the shareholders of the company. The Classical Theory places significant emphasis on the duty of loyalty that corporate insiders owe to their shareholders.
2. Misappropriation Theory:
The Misappropriation Theory broadens the range of insider trading accountability beyond the classical theory by acknowledging that liability can be incurred when an individual wrongfully acquires confidential information from its origin, violating a duty owed to that origin, and subsequently engaging in trading based on that information. This theory specifically focuses on individuals who gain access to insider information through external relationships with the company, such as lawyers, accountants, or other professionals.
3. Deceptive Device or Affirmative Misrepresentation Theory:
This theory focuses on situations where an individual engages in fraudulent or deceptive conduct to manipulate the securities market. It encompasses situations where someone misrepresents or withholds material information in connection with securities transactions.
Before Salman, the law regarding insider trading was not entirely clear, especially concerning tippee liability. The tipping issue refers to situations where an insider discloses material, non-public information to an outsider (the tippee), who then trade on that information. The question was whether the tipper must receive a tangible benefit in exchange for the tippee's trading.
Salman v. United States clarified the law by adopting the Ninth Circuit's interpretation of insider tipping. The Supreme Court held that an insider-tipper receives a personal benefit when they make a gift of inside information to a trading relative or friend. The requirement imposed by the Second Circuit in United States v. Newman, which insisted on the tipper receiving something of pecuniary or similarly valuable nature in exchange for the tip, was dismissed.
By adopting the Ninth Circuit's interpretation, Salman reinforced the Misappropriation Theory and expanded liability for insider trading. It clarified that the personal benefit to the tipper can be inferred when a gift of confidential information is made to a trading relative or friend, without the need for direct pecuniary gain.
In this sense, Salman did not establish a new precedent in terms of the legal theories of insider dealing. Rather, it provided clarification on the requirement of a personal benefit for tipper liability. Salman's importance lies in its departure from the stricter precedent set by the Second Circuit in United States v. Newman, which had caused ambiguity and limited the extent of insider trading accountability.
Hence, Salman v. United States clarified the law on insider trading by rejecting the stricter standard set by the Second Circuit. It established that an insider tipper receives a personal benefit when providing confidential information to a trading relative or friend, expanding liability for insider trading. This decision reaffirmed the Misappropriation Theory and provided a more consistent standard for tippee liability in the United States.
Step by step
Solved in 3 steps
