U.S. Supreme Court justices hearing a closely watched insider trading case indicated today they could issue a ruling that would make it easier for prosecutors to pursue such charges against hedge fund managers and other traders.
As Reuters reports, the appeal by an Illinois man convicted after making nearly $1.2 million trading on information that came from his brother-in-law was the first insider trading case to come before the justices in two decades.
Several justices during oral arguments appeared critical of Bassam Salman’s position that he could not be convicted for trading on information about deals involving clients of Citigroup Inc., where the brother-in-law worked.
Alexandra Shapiro, Salman’s lawyer, argued that prosecutors in insider trading cases must prove that an alleged source of corporate secrets, like the brother-in-law, received a tangible benefit such as cash in exchange for any tips.
A majority of the justices appeared willing to uphold Salman’s insider trading conviction, questioning why tips would not be illegal if they were essentially stolen information provided by an insider to a family member as a no-charge gift.
Justice Elena Kagan suggested that adopting Salman’s position would overturn decades of legal principle that had helped protect the integrity of the stock markets.
“You’re asking us essentially to change the rules in a way that threatens that integrity,” Kagan said.
Prosecutors said Maher Kara, a Citigroup investment banker who was Salman’s brother-in-law, provided tips about deals involving Citi clients to his brother, who in turn tipped Salman.
Salman is asking the Supreme Court to throw out his 2013 conviction on conspiracy and securities fraud charges. The 57-year-old was sentenced in 2014 to three years in prison.
The Supreme Court in January agreed to hear Salman’s appeal amid competing rulings by federal appeals courts in San Francisco, where his case was heard, and New York, where a wave of insider trading prosecutions has been pursued recently.
