Court seems wary on in­sider-trade case

Jus­tices ap­pear un­likely to re­verse man’s con­vic­tion

Baltimore Sun - - MARYLAND NATION & WORLD - By Sam Hananel

WASH­ING­TON — The Supreme Court on Wed­nes­day seemed likely to pre­serve the govern­ment’s broad power to crack down on in­sider trad­ing.

Most of the jus­tices sug­gested dur­ing ar­gu­ments in a closely watched case that in­sider trad­ing vi­o­lates the law even if the per­son sup­ply­ing cor­po­rate se­crets to a friend or rel­a­tive doesn’t re­ceive any­thing of value in re­turn.

The high court is ex­pected to re­solve a con­flict among lower courts that has raised doubts about the scope of in­sider trad­ing laws. A 2014 rul­ing from the fed­eral ap­peals court in Man­hat­tan threw out the con­vic­tion of two hedge fund man­agers and forced prose­cu­tors to drop charges The jus­tices are weigh­ing the ex­act scope of U.S. in­sider trad­ing laws. against sev­eral oth­ers.

In the cur­rent case, the high court is de­cid­ing whether to over­turn the con­vic­tion of Bas­sam Ya­coub Sal­man, an Illi­nois man con­victed of mak­ing in­vest­ments based on in­side in­for­ma­tion he re­ceived from a mem­ber of his ex­tended fam­ily.

Of­fi­cials say the free shar­ing of cor­po­rate se­crets with friends or rel­a­tives is just as dam­ag­ing to the na­tion’s se­cu­ri­ties mar­kets as trad­ing in­side in­for­ma­tion for a cash ben­e­fit.

Crit­ics say the govern­ment has been overzeal­ous and that pros­e­cu­tions should be lim­ited to in­sid- ers who make se­cret prof­its from re­veal­ing con­fi­den­tial data. But nearly all the jus­tices ask­ing ques­tions Wed­nes­day ap­peared to agree with the govern­ment that pass­ing in­side in­for­ma­tion as a gift to a fam­ily mem­ber still gives ben­e­fits to the per­son giv­ing the tip.

“You cer­tainly ben­e­fit from giv­ing to your fam­ily,” said Jus­tice An­thony Kennedy. “It en­no­bles you and, in a sense, it helps you fi­nan­cially be­cause you make them more se­cure.”

Sal­man earned more than $1.5 mil­lion in prof­its from trad­ing on non­pub­lic in­for­ma­tion he re­ceived about fu­ture health care deals. The source was Ma­her Kara, Sal­man’s broth­erin-law and an in­vest­ment banker at Cit­i­group Global Mar­kets.

Kara did not share the in­for­ma­tion di­rectly with Sal­man. Rather, he of­fered it to his own brother, Michael, who then gave it to Sal­man. But Sal­man was aware that Kara was the source. Kara pleaded guilty to con­spir­acy and se­cu­ri­ties f raud charges.

At is­sue is how to in­ter­pret a 1983 Supreme Court case that said in­sider trad­ing vi­o­lates the law when the in­sider “per­son­ally will ben­e­fit” from shar­ing the in­for­ma­tion. The ben­e­fit can be fi­nan­cial — such as a cash re­ward — but it also ap­plies when an in­sider of­fers se­crets for free to a rel­a­tive or friend.

That would seem to ap­ply di­rectly to Sal­man’s case. But the land­scape of in­sider trad­ing law changed two years ago, when the fed­eral ap­peals court in Man­hat­tan over­turned the con­vic­tion of hedge fund man­agers Todd New­man and An­thony Chi­as­son af­ter find­ing they were too far re­moved from in­side in­for­ma­tion to be pros­e­cuted.

The Man­hat­tan court said New­man and Chi­as­son got their i nfor­ma­tion through a chain of peo­ple who didn’t have a close per­sonal re­la­tion­ship with them.

The Supreme Court last year de­clined to take up the govern­ment’s ap­peal of the New York case. But Jus­tice Stephen Breyer on Wed­nes­day ex­pressed doubts about the rul­ing, say­ing it “is re­ally more likely to change the law that peo­ple have come to rely upon.”


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