On December 6, the Supreme Court unanimously affirmed a Ninth Circuit decision involving the scope of “personal benefit” required to find insider trading under the securities laws. Salman involved an investment banker who provided inside information about pending mergers to his brother, intending that the brother would benefit from the information. The brother traded on the tips and (without his brother’s knowledge) tipped additional friends – including Salman – who also traded. The Court determined the facts of this case fell within the language of the 1983 Dirks decision, which found that a tipper breaches a fiduciary duty by making a gift of confidential information to a “trading relative.” The Court did not agree with Salman’s position that only a clear pecuniary benefit to the tipper should trigger liability.
As part of its holding, the Court rejected part of the Second Circuit’s recent decision in Newman that said the tipper must receive something of pecuniary or similar value in exchange for the gift of insider information. The Court stopped short, though, of addressing how substantial a “personal benefit” must be or how the “gift” prong applies in factual scenarios like Newman where the relationship between tipper and tippee is more casual and the potential benefit less direct.
Recent CFTC cases in the commodities context involving the prohibition against trading on material non-public information have followed and, at times, applied a more expansive application of the insider trading principles used in the securities context. We fully expect the Salman decision will embolden the Commission to continue taking an aggressive stance against alleged insider trading violations in the commodities markets.