On July 6, 2015, the US Court of Appeals for the Ninth Circuit declined to extend a controversial appellate ruling from the Second Circuit that raised the bar for prosecutors to secure insider trading convictions where inside information is passed among family members. The twist? The Ninth Circuit's opinion is written by Southern District of New York Judge Jed Rakoff, sitting in the Ninth Circuit by designation. (United States v. Salman, No. 14-10204, (9th Cir. July 6, 2015).) Maher Kara (Maher) began working for Citigroup's healthcare investment banking group in 2002. Maher regularly disclosed information about upcoming Citigroup client mergers and acquisitions to his older brother, Mounir "Michael" Kara (Michael), who traded on that information. Over time, Michael shared the inside information with Appellant Bassam Yacoub Salman (Salman), who was Maher's brother-in-law and close friends with Michael. Michael also encouraged Salman to replicate his trading activity. Michael and Salman profited significantly from numerous trades in securities issued by Citigroup clients shortly before the announcement of major transactions. Although Maher did not receive any money or other tangible benefit from Michael in exchange for the inside information that he provided, he testified at trial that he intended to benefit Michael and fulfill whatever needs he had by passing along the information. A jury convicted Salman on five counts of conspiracy and securities fraud arising from an insider trading scheme. Salmon appealed, but did not challenge the sufficiency of the government's evidence in his opening brief. After he filed his reply brief, the Second Circuit vacated insider trading convictions of two defendants based on the government's failure to present sufficient evidence that the defendants, who traded on insider information (tippees), knew the information they received from the insider (tipper) had been disclosed in breach of the tipper's fiduciary duty (see United States v. Newman, 773 F.3d 438 (2d Cir. 2014)). In Newman, the Second Circuit specifically interpreted Dirks v. SEC and others to hold that: Under Dirks, a tippee cannot be liable for insider trading unless the tippee knows or should know that the tipper breached a fiduciary duty to his employer by disclosure of inside information for the tipper's personal benefit (463 U.S. 646 (1983)). To the extent Dirks suggests that a benefit may be inferred from a personal relationship, such an inference is impermissible in the absence of proof of a meaningfully close personal relationship including an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature. (Newman, 773 F.3d at 452.) In 1000 words critically discuss the case of Salman v. United States 1 580 U.S., 137 S. Ct 420 (2016) as it relates to the ruling of the ninth circuit as opposed to the second circuit ruling in a previous case of United States v. Newman. How do the two cases differ and why was the new ruling adopted.
On July 6, 2015, the US Court of Appeals for the Ninth Circuit declined to extend a controversial appellate ruling from the Second Circuit that raised the bar for prosecutors to secure insider trading convictions where inside information is passed among family members. The twist? The Ninth Circuit's opinion is written by Southern District of New York Judge Jed Rakoff, sitting in the Ninth Circuit by designation. (United States v. Salman, No. 14-10204, (9th Cir. July 6, 2015).)
Maher Kara (Maher) began working for Citigroup's healthcare investment banking group in 2002. Maher regularly disclosed information about upcoming Citigroup client mergers and acquisitions to his older brother, Mounir "Michael" Kara (Michael), who traded on that information. Over time, Michael shared the inside information with Appellant Bassam Yacoub Salman (Salman), who was Maher's brother-in-law and close friends with Michael. Michael also encouraged Salman to replicate his trading activity.
Michael and Salman profited significantly from numerous trades in securities issued by Citigroup clients shortly before the announcement of major transactions. Although Maher did not receive any money or other tangible benefit from Michael in exchange for the inside information that he provided, he testified at trial that he intended to benefit Michael and fulfill whatever needs he had by passing along the information.
A jury convicted Salman on five counts of conspiracy and securities fraud arising from an insider trading scheme. Salmon appealed, but did not challenge the sufficiency of the government's evidence in his opening brief. After he filed his reply brief, the Second Circuit vacated insider trading convictions of two defendants based on the government's failure to present sufficient evidence that the defendants, who traded on insider information (tippees), knew the information they received from the insider (tipper) had been disclosed in breach of the tipper's fiduciary duty (see United States v. Newman, 773 F.3d 438 (2d Cir. 2014)). In Newman, the Second Circuit specifically interpreted Dirks v. SEC and others to hold that:
- Under Dirks, a tippee cannot be liable for insider trading unless the tippee knows or should know that the tipper breached a fiduciary duty to his employer by disclosure of inside information for the tipper's personal benefit (463 U.S. 646 (1983)).
- To the extent Dirks suggests that a benefit may be inferred from a personal relationship, such an inference is impermissible in the absence of proof of a meaningfully close personal relationship including an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.
(Newman, 773 F.3d at 452.)
In 1000 words critically discuss the case of Salman v. United States 1 580 U.S., 137 S. Ct 420 (2016) as it relates to the ruling of the ninth circuit as opposed to the second circuit ruling in a previous case of United States v. Newman. How do the two cases differ and why was the new ruling adopted.
Step by step
Solved in 3 steps
