Supreme Court to weigh insider trading case

January 20 00:52 2016

The U.S. Supreme Court on Tuesday agreed to weigh an appeal in a significant insider-trading case that could affect the Department of Justice crackdown on suspected Wall Street corruption. The nation’s top court will consider the 2013 California federal court conviction of Illinois resident Bassam Yacoub Salman on charges of conspiracy and securities fraud. The charges stemmed from profitable trades Salman executed between 2004 and 2007 based on secret financial information provided by a former Citigroup investment banker whose family Salman was related to by marriage.supremecourt

Salman was sentenced to 36 months in federal prison and ordered to pay more than $738,000 in restitution. He challenged his sentence on grounds that prosecutors failed to prove that the banker who leaked the secret information acted in return for a personal benefit. Salman’s appeal cited a separate insider-trading case in New York in which a different federal appeals court ruled that prosecutors must prove that a defendant must have direct knowledge of the leaker, realize that she or he committed a breach of fiduciary duty and know that the leaker received a personal benefit in exchange for the information. The Supreme Court declined to consider the New York ruling. That decision handed Wall Street a victory over the Department of Justice by overturning convictions in several insider-trading prosecutions by Manhattan U.S. Attorney Preet Bharara’s office.

However, the California-based Court of Appeals for the Ninth Circuit rejected Salman’s appeal after weighing the New York decision. The judges ruled that a Supreme Court precedent held that the “personal benefit”  in insider-trading cases would include cases in which prosecutors show that “an insider makes a gift of confidential information to a trading relative or friend.” The California court ruled prosecutors in Salman’s provided sufficient proof for conviction by showing that the leaker acted to benefit his brother —  who in turn provided the trading details and specifically identified the source of the information to Salman.

Salman petitioned the Supreme Court to review the decision. On behalf of the Department of Justice, the U.S. Solicitor General unsuccessfully argued that the high court should reject the case and allow the California appeals court ruling to stand. By agreeing to consider the case, the Supreme Court could attempt to reconcile a legal difference of opinion between two different appeals court. Regardless of the eventual outcome, the high court’s decision could have far-reaching impact on insider-trading prosecutions.