A unanimous Supreme Court on Tuesday sided with the government in a legal clash over the nation’s insider trading laws, a victory for prosecutors seeking to curb corruption on Wall Street.
The justices ruled that sharing corporate secrets with friends or relatives is illegal even if the insider providing the tip doesn’t receive anything of value in return.
The ruling upheld 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. It also limited the impact of a 2014 ruling from the federal appeals court in Manhattan that had raised doubts about the scope of insider trading laws.
Prosecutors have relied on a broad reading of the law to support aggressive anti-corruption efforts that have netted more than 80 arrests and 70 convictions for insider trading over several years.
Writing for the court, Justice Samuel Alito rejected arguments that insider trading prosecutions should be limited to those who make secret profits from revealing confidential data. Government officials had argued that sharing corporate secrets with friends or family is just as damaging to the integrity of financial markets.
Salman was prosecuted for earning more than $1.5 million in profits from trading on nonpublic information he received about future health care deals. The tip originated with Salman’s brother-in-law, Maher Kara, an investment banker at Citigroup Global Markets in New York. Maher Kara passed the tip on to his own brother, Michael Kara, who then gave it to Salman.
Salman was aware that Maher Kara was the source. Kara pleaded guilty to conspiracy and securities fraud charges.
Alito said a tipper violates the law by making a gift of confidential information to a trading relative. Kara disclosed confidential information as a gift to his brother with the expectation that his brother would trade on it. That was a breach of his duty of trust to Citigroup, Alito said, and that breach of duty continued when Salman received the information and traded on it.
Republished with permission of The Associated Press.