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Supreme Court Leans Toward Making Insider Trading Prosecutions Easier

Image: Supreme Court Leans Toward Making Insider Trading Prosecutions Easier

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Wednesday, 05 Oct 2016 11:32 AM

 

U.S. Supreme Court justices hearing a closely watched insider trading case indicated on Wednesday they could issue a ruling that would make it easier for prosecutors to pursue such charges against hedge fund managers and other traders.

Several justices, during arguments in the case of Illinois man Bassam Salman, appeared critical of his position that he could not be convicted for trading on tips that came from his brother-in-law about deals involving clients of Citigroup Inc (C.N), 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.

Justice Elena Kagan urged caution, suggesting that adopting Salman's position would overturn decades of legal principle that had helped protect the interiority of the stock markets.

"You're asking us essentially to change the rules," Kagan said.

Prosecutors have said requiring such proof would make pursuing insider trading cases tougher, potentially preventing charges against executives who tip friends or relatives without receiving a tangible benefit in return.

Despite appearing likely to reject Salman's appeal, several justices indicated an interest in drawing some line to clearly establish what types of disclosures of corporate information could be prosecuted.

Salman is asking the Supreme Court to throw out his 2013 conviction on conspiracy and securities fraud charges arising from insider trading. He was sentenced to three years in prison.

The Supreme Court in January agreed to hear Salman's appeal amid seemingly conflicting 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 by federal prosecutors recently.

The New York-based 2nd U.S. Circuit Court of Appeals in 2014 overturned the conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, and narrowed prosecutors' ability to pursue such cases in the process.

That court held that to be convicted, a trader must know that the source received a benefit in exchange, and that such a benefit was "at least a potential gain of a pecuniary (money) or similarly valuable nature."

The ruling forced prosecutors under Manhattan U.S. Attorney Preet Bharara to drop charges against 12 other defendants, out of 107 people charged since 2009.

Salman sought to seize upon that ruling to try to overturn his conviction. He argued he could not be convicted because no proof existed that his brother-in-law, in tipping a family member who in turn tipped Salman, received anything beneficial in exchange.

The San Francisco-based 9th U.S. Circuit Court of Appeals rejected that argument, saying that requiring such proof would allow insiders to tip their relatives so long as they got nothing in exchange.

© 2017 Thomson/Reuters. All rights reserved.

   
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U.S. Supreme Court justices hearing a closely watched insider trading case indicated on Wednesday they could issue a ruling that would make it easier for prosecutors to pursue such charges against hedge fund managers and other traders.
insider trading, supreme court, prosecution, justices
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2016-32-05
Wednesday, 05 Oct 2016 11:32 AM
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