Salman v. United States

To establish liability under Rule 10b-5 plaintiff need not show that the person who breached a duty of trust by giving inside information to a trading relative or friend acquired a pecuniary or similarly valuable item in exchange for the information.  Rule 10b-5 prohibits undisclosed trading on inside information by persons bound by a duty of trust and confidence not to exploit that information for personal gain.  Those persons are also forbidden from passing the inside information on to others for trading.  A tippee is liable for trading on the inside information with knowledge that its disclosure breached the tipper’s duty of trust.  A tipper violates his duty of trust if he discloses inside information in exchange for anything of value or makes a gift of the information to a trading friend or relative.  Here, Salman acquired inside information from Kara, a relative, who obtained the information from Maher, a former Citigroup investment banker, Kara’s relative.  Salman knew the information came from Maher.  Held, that sufficed to show a 10b-5 violation by Salman.  The Second Circuit’s decision in United States v. Newman (2d Cir. 2014) 773 F.3d 438 erred in requiring that it also be shown the tipper acquired something of a pecuniary or similarly valuable nature in exchange for the gift of inside information to a trading relative or friend. 

United States Supreme Court (Alito, J.); December 6, 2016; 2016 WL 7078448

 

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