Sun Sentinel Palm Beach Edition
Court upholds insider trading prosecutions
Justices rule that sharing tips with kin, friends is illegal
The U.S. Supreme Court upheld a California insidertrading conviction in a ruling that will make it easier for prosecutors to bring cases against some people on Wall Street and in other parts of the country.
The justices unanimously said that people can be sent to prison for making trades even when the insider who provided the tip wasn’t trying to make money. The court said it’s enough if the insider gave the information as a gift to someone likely to trade on it.
The ruling, which came in the case of onetime Chicago grocery wholesaler Bassam Yacoub Salman, resolves a question that had divided federal appeals courts.
It restores some, though not all, of the leverage lost by prosecutors and the Securities and Exchange Commission in 2014 when an appeals court in New York established new requirements for insidertrading cases.
The New York court’s ruling undercut U.S. Attorney Preet Bharara’s eightyear crackdown on Wall Street cheating and led to more than a dozen insidertrading convictions being thrown out.
Justice Samuel Alito, writing for the high court in Monday’s ruling, rejected the New York court’s suggestion that the insider must “receive something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift to family or friend.”
Bharara hailed the decision. “The court stood up for common sense and affirmed what we have been arguing from the outset — that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public,” Bharara said in an email. “Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.”
The ruling could undercut efforts by some Wall Street figures to overturn their insider-trading convictions. Among those watching the case were former Goldman Sachs Group director Rajat Gupta, hedge fund manager Doug Whitman and Galleon Group co-founder Raj Rajaratnam.
Omega Advisors founder Leon Cooperman also could be affected. The SEC accused him in September of buying shares in Atlas Pipeline Partners after obtaining insider information.
Prosecutors in California said Salman and a partner earned more than $1.5 million in profits through trades based on inside information. The government said the tips originated with Maher Kara, then a Citigroup investment banker, who gave the information to his brother, who in turn passed it on to his brother-in-law, Salman.
The Supreme Court case centered not on Salman’s conduct, but on Kara’s motivations.
“By disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients,” Alito wrote.