Salman v. United States
The Court ruled that a person who trades on secret corporate information passed to him as a favor to a family member can still be guilty of insider trading, even though the original source of the tip never received any money or property in return.
The decision resolves a split between federal appeals courts over how much a tipper must personally gain before someone who trades on the leaked information can be prosecuted, keeping a broad rule in place for gifts of inside information to relatives and friends.
How it got here: A jury convicted Salman; the Ninth Circuit affirmed, declining to follow a Second Circuit ruling requiring more proof of tipper gain, and the Supreme Court agreed to resolve the split.
The Case in Depth
What happened
Maher Kara, a Citigroup investment banker, shared confidential deal information with his brother Michael, expecting him to trade on it. Michael in turn passed the tips to Bassam Salman, his friend and Maher's brother-in-law, who traded on them and made over $1.5 million. Salman was charged with securities fraud after prosecutors argued he knowingly traded on information that had been improperly leaked within the family.
The question before the Court
If someone hands inside stock tips to a family member as a favor, with no money changing hands, is that still illegal insider trading?
The Court's answer
Yes — the Court held that when an insider hands over confidential trading information as a gift to a relative or friend, that alone is enough to show the insider personally benefited, satisfying the legal standard for insider-trading liability. Giving away a valuable tip is treated the same as trading on it yourself and then handing over the profits as a gift.
Because Maher gave his brother inside information expecting him to trade on it, Maher breached his duty to Citigroup, and Salman - who knew the tip came improperly from Maher - inherited and broke that same duty by trading on it. The Court rejected the argument that the tipper must also receive money or property in return for the tip to count.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Federal prosecutors can keep pursuing insider-trading cases built on family and friend tip chains without having to prove the original insider got cash or property back. That makes it easier to charge people who trade on information passed along out of family loyalty or friendship rather than for a cut of the profits, which covers a common real-world pattern of leaks.
What changes now
This is a final merits decision, not a remand for further factual proceedings; the Ninth Circuit's judgment affirming Salman's conviction stands. The ruling settles, for now, the disagreement between federal appeals courts over how much a tipper must personally gain for a downstream trader to be prosecuted, giving prosecutors a clearer basis to pursue similar family-and-friend tipping cases nationwide.
What this does not decide
The Court did not decide whether Salman's case fell under the "classical" insider-trading theory (breaching a duty to shareholders) or the "misappropriation" theory (breaching a duty to an employer or client), since both sides agreed the same personal-benefit test applies either way. It also left open harder cases involving more distant tippees or unclear tipper-tippee relationships.
How the Court got there
The legal reasoning, step by step
- The Court applied the personal-benefit test from its 1983 decision Dirks v. SEC, which asks whether an insider who leaks confidential information does so for some personal benefit, since a leak without personal benefit does not breach the insider's duty of trust and confidence.
- Under Dirks, a personal benefit can be inferred from objective circumstances, including when an insider makes a gift of confidential information to a trading relative or friend - because handing over a valuable tip is treated as equivalent to trading on it yourself and then giving away the profits.
- Applying that gift-giving principle here, the Court found that Maher's disclosure to his brother Michael, made with the expectation that Michael would trade on it, was exactly the kind of gift Dirks described, so Maher personally benefited and breached his duty to Citigroup.
- The Court rejected the Second Circuit's added requirement, from its Newman decision, that a tipper must also receive something of pecuniary value in exchange for a gift to a relative or friend, concluding that requirement was inconsistent with Dirks's own words.
- The Court also rejected Salman's claims that the gift-giving standard was unconstitutionally vague or triggered the rule of lenity (a doctrine resolving genuine ambiguity in criminal statutes in a defendant's favor), finding no such ambiguity because his conduct fit squarely within Dirks's rule.
- Having found that Salman knew the information came improperly from Maher and traded on it anyway, the Court concluded the evidence was sufficient to sustain his conviction under the Dirks framework.
Doctrinal impact
Cases affected by this decision
Reaffirms Dirks v. SEC (463 U. S. 646)
The Court leaned on Dirks's gift-giving rule as still controlling and used it to decide this case.