While Salman’s appeal to the Ninth Circuit was pending, the Second Circuit decided that Dirks does not permit a fact finder to infer a personal benefit to the tipper from a gift of confidential information to a trading relative or friend, unless there is “proof of a meaningfully close personal relationship” between tipper and tippee “that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” The Ninth Circuit declined to follow Newman so far, holding that Dirks allowed Salman’s jury to infer that the tipper breached a duty because he made “a gift of confidential information to a trading relative.”
The Ninth Circuit properly applied Dirks to affirm Salman’s conviction. Under Dirks, the jury could infer that the tipper here personally benefited from making a gift of confidential information to a trading relative.
Salman contends that a gift of confidential information to a friend or family member alone is insufficient to establish the personal benefit required for tippee liability, claiming that a tipper does not personally benefit unless the tipper’s goal in disclosing information is to obtain money, property, or something of tangible value. The Government counters that a gift of confidential information to anyone, not just a “trading relative or friend,” is enough to prove securities fraud because a tipper personally benefits through any disclosure of confidential trading information for a personal (non-corporate) purpose. The Government argues that any concerns raised by permitting such an inference are significantly alleviated by other statutory elements prosecutors must satisfy.
This Court adheres to the holding in Dirks, which easily resolves the case at hand: “when an insider makes a gift of confidential information to a trading relative or friend . . . the tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.” In these situations, the tipper personally benefits because giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds. Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients—a duty acquired and breached by Salman when he traded on the information with full knowledge that it had been improperly disclosed. To the extent that the Second Circuit in Newman held that the tipper must also receive something of a “pecuniary or similarly valuable nature” in exchange for a gift to a trading relative, that rule is inconsistent with Dirks.
Salman’s arguments to the contrary are rejected. Salman has cited nothing in this Court’s precedents that undermines the gift-giving principle this Court announced in Dirks. Nor has he demonstrated that either §10(b) itself or Dirks‘s gift-giving standard “leave grave uncertainty about how to estimate the risk posed by a crime” or are plagued by “hopeless indeterminacy.” Salman also has shown “no grievous ambiguity or uncertainty that would trigger” the rule of lenity. To the contrary, his conduct is in the heartland of Dirks‘s rule concerning gifts of confidential information to trading relatives.
It is difficult to deny the logic of the Court’s holding that “In these situations, the tipper personally benefits because giving a gift of trading information to a trading relative is the same thing as trading by the tipper followed by a gift of the proceeds.” Any other holding would encourage willful blindness and/or the use of “buffers” outside of the inside trader’s close circle of friends and family as a means to avoid liability under the statute.
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