Salman v. United States

PETITIONER: Bassam Yacoub Salman
RESPONDENT: United States
LOCATION: The United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 15-628
DECIDED BY: Roberts Court (2016- )
LOWER COURT: United States Court of Appeals for the Ninth Circuit

GRANTED: Jan 19, 2016
ARGUED: Oct 05, 2016
DECIDED: Dec 06, 2016

Michael R. Dreeben - for respondent
Alexandra A. E. Shapiro - for petitioner

Facts of the case

Maher Kara joined Citigroup’s healthcare investment banking group in 2002, and began asking his older brother, Michael, who held a degree in chemistry, questions about certain aspects of his job. From 2004 to 2007 the Kara brothers regularly discussed mergers and acquisitions by Citigroup clients, though Maher suspected that Michael was using the information they discussed for insider trading. In the meantime, Michael became engaged to Bassam Yacoub Salman’s sister and began to share some of the insider information he received from his brother with Salman. Salman did not directly trade through his own accounts but went through his brother-in-law, Karim Bayyouk. There were numerous occasions where Bayyouk and Michael Kara executed identical trades issued by Citigroup clients. As a result, Salman’s account reached $2.1 million. Salman was charged with conspiracy to commit securities fraud and insider trading in 2011 and found guilty. He applied for a new trial, but his request was denied. He then appealed to the U.S. Court of Appeals for the Ninth Circuit and argued there was insufficient evidence that he knew the information used for trades was from insider information. The appellate court found that, because of the close family relationship, there was sufficient evidence that Salman knew he was trading on insider information.


Is evidence of a close family relationship sufficient to sustain a conviction for insider trading, or must there be evidence that the individuals knew there would be financial gain through the exchange of information?

Media for Salman v. United States

Audio Transcription for Oral Argument - October 05, 2016 in Salman v. United States

John G. Roberts, Jr.:

We'll hear argument first this morning in Case No. 15-628, Salman v. United States. Ms. Shapiro.

Alexandra A. E. Shapiro:

Mr. Chief Justice, and may it please the Court: In case after case -- McNally, Skilling, and McDonald, to name just a few -- this Court has construed Federal criminal statutes narrowly to avoid serious separation of powers and vagueness problems. This case presents those same constitutional concerns, but to a far greater degree, because no statute defines the elements of the crime.

The Court should limit this crime to its core, as it did in Skilling, and that core is the insider's abuse of confidential corporate information for personal profit. Unless and until Congress enacts a definition, the crime should be limited to trading by the insider or its functional equivalent -- equivalent where the insider tips another person in exchange for a financial benefit.

Ruth Bader Ginsburg:

Suppose in this case the person with the inside -- inside information, the brother with the inside information, had himself traded in the securities, and then gave the proceeds to his -- what was it? His older brother? Would that have violated 10(b)?

Alexandra A. E. Shapiro:

Yes, Your Honor.

Ruth Bader Ginsburg:

So what's the difference, if the insider trades and gives it -- makes the proceeds a gift, or if he just says, you do the trade; here's the gift?

Alexandra A. E. Shapiro:

The difference, Your Honor, is that the transaction -- the securities transaction is complete when the insider trades.

And this is a statute that doesn't even mention insider trading, much less tipping or personal benefit.

And so in that instance, it wouldn't be covered, and he can do whatever he wants with the money.

Anthony M. Kennedy:

Justice Ginsburg was setting up the question, isn't he -- in -- in her instance where the tippee does the trading, the tippee is just an accomplice.

This is standard accomplice stuff.

Alexandra A. E. Shapiro:

No, Your Honor.

This -- the statute -- this is a case where we have to take a step back and look at the fact the statute doesn't define the elements.

It doesn't even mention insider trading, much less tipping, and the -- the -- whereas Dirks and Chiarella before it make clear that not all trading on inside information is unlawful.

And what makes it unlawful is that the insider is doing it for personal gain, whether trading himself and profiting on the information by doing so, or whether it's by circumventing that rule, as discussed in Dirks, and essentially giving the information to someone else so that he can get a financial kickback.

That's --

John G. Roberts, Jr.:

Maybe I'm missing -- maybe one of us is missing the import of the question. Are -- are you suggesting that if two people get together, one of them has inside information and he says to the other person, why don't the two of us -- why don't you trade on that, and then you and I will split the proceeds, that that's not covered?

Alexandra A. E. Shapiro:

That is covered, Your Honor.

John G. Roberts, Jr.:

Oh, okay.

Alexandra A. E. Shapiro:

I'm sorry.

What I meant was that if the insider -- as occurred in this case, and it's undisputed in this case -- did not act for any financial gain, did not make any money at all, that's what's not covered.

Sonia Sotomayor:

Don't you think that his brother's statement -- when he was asked about trading by Maher, the younger brother, he said, I owe somebody money.

Isn't that most naturally read to be either give me the money to pay this person back or give me information that lets me pay him back? Isn't that always the quid pro quo of a gift, that you believe that if you give someone a gift, it's going to cost you one way or another? You're going to give them something of value, or you're going to substitute money for the gift, or you're going to do something that saves you money by giving the tip.

Alexandra A. E. Shapiro:

Well, Your Honor, I think the problem with that is that virtually anything would -- any disclosure would then amount to a gift, and this Court has been crystal clear that -- that not any disclosure leads to a violation --

Sonia Sotomayor:

That's true, but then comes the government's suggestion that the disclosure has to be for a personal benefit or a personal purpose, that there has to be a reason you're doing it, not accidentally, not -- not unknowingly, but something you're doing because you want to receive some benefit from it.

Alexandra A. E. Shapiro:

Well, in this case, it's quite clear that Maher, the -- the insider brother, didn't receive any benefit at all, and indeed the district court and the SEC made that clear.

He did not do this for any kind of self-benefit, and I think the evidence in the record, even construed in the light most favorable to the government, as it must be, demonstrates that at most, the insider got the scant benefit of getting his brother off his back.

This was not a willing transfer of inside information.

Stephen G. Breyer:

Why do you say "scant"?

Alexandra A. E. Shapiro:

Well, Your Honor, I think we have to get back to the fact that this --