Supreme Court Takes Up Case That Tests Limits on I
Post# of 94141
Posted On: 01/20/2016 7:23:00 AM
Supreme Court Takes Up Case That Tests Limits on Insider-Trading Prosecutions--2d Update
Source: Dow Jones News
By Aruna Viswanatha and Brent Kendall
WASHINGTON--The Supreme Court on Tuesday agreed to consider an issue at the heart of many insider-trading investigations: What kind of proof must the government show to prosecute cases involving confidential tips passed through friends and family members?
The justices, in a case involving trading on tips from a man's brother-in-law who worked as an investment banker at Citigroup Inc., could determine whether it will be harder for prosecutors to pursue charges stemming from such relationships.
The court, in a brief written order, said it would consider an appeal by Bassam Salman, who was convicted and sentenced to three years in prison for trading on inside information he received from his brother-in-law, who had pleaded guilty in connection with the case. Mr. Salman, who was convicted in 2013, and an associate brought in $1.7 million in trading profits based on the Citigroup employee's tips about coming acquisitions involving Citigroup clients, prosecutors said.
His lawyers, in a case brought in the California federal courts, sought to rely on a major 2014 decision by the New York-based Second U.S. Circuit Court of Appeals that limited insider-trading prosecutions.
In the New York case, U.S. v. Newman, an appeals panel said prosecutors had to prove the insider disclosed the information for a personal benefit that included something valuable being exchanged. The decision upended multiple convictions and top prosecutors complained that the ruling could make it legal for traders to obtain and use confidential information from friends.
Mr. Salman, citing Newman, argued that evidence of a family relationship between the tipper and the tip recipient wasn't enough to demonstrate that the insider received a personal benefit.
The San Francisco-based Ninth U.S. Circuit Court of Appeals rejected that argument in a ruling last July. The Supreme Court will review the decision and could hear oral arguments as soon as April. Mr. Salman has been serving his prison sentence since August 2014.
A lawyer for Mr. Salman and a spokesman for the Justice Department both declined to comment.
The high court's announcement Tuesday came as something of a surprise. That is because the justices in October declined to review the Newman case, despite a plea from the Justice Department.
Experts expect the court to clarify what counts as a personal benefit and how the government could use a close relationship to allege insider trading.
"I presume the Supreme Court wants to address this issue so that everyone, the entire country, is playing with the same understanding of the same law," said Gregory Morvillo, who represented one of the defendants in the Newman decision.
The ruling in the Newman case, which overturned the insider-trading convictions of two hedge-fund portfolio managers, had a marked impact on a yearslong crackdown on alleged insider trading on Wall Street. The U.S. attorney's office in Manhattan had obtained more than 80 convictions, including of a top confidant of hedge-fund billionaire Steven A. Cohen as well as a $1.8 billion penalty from his fund.
But the ruling, which found that the exchange of career advice wasn't enough to constitute a personal benefit, undermined key allegations of the high-profile investigation. It forced that office to drop charges against the lieutenant, Michael Steinberg, and drop plea deals involving six others who cooperated in the government's case.
The Justice Department had urged the Supreme Court to review that ruling. When it declined to do so in October, Manhattan U.S. Attorney Preet Bharara said prosecutors would have to "think long and hard" about pursuing investigations into individuals who tip their friends or family but don't receive an explicit, consequential gift or benefit in exchange for the confidential information.
In December, the Justice Department urged the Supreme Court not to take up Mr. Salman's case, arguing that he "knew full well" his brother-in-law was providing the information and receiving a personal benefit for it. The government cited an emotional toast at the brother-in-law's wedding to back up its claims that the information was meant to be a "gift" to a relative, who was trading on the information, in line with what the Supreme Court previously found to be illegal insider trading.
Such facts, former prosecutors said, could make it challenging for Mr. Salman to have his conviction overturned.
"Is the Supreme Court really going to sanction the tipping of brothers-in-law? I don't see any court saying that is OK," said one former federal prosecutor, who had worked on insider-trading cases and is now in private practice.
Write to Brent Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
January 19, 2016 19:32 ET (00:32 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
By Aruna Viswanatha and Brent Kendall
WASHINGTON--The Supreme Court on Tuesday agreed to consider an issue at the heart of many insider-trading investigations: What kind of proof must the government show to prosecute cases involving confidential tips passed through friends and family members?
The justices, in a case involving trading on tips from a man's brother-in-law who worked as an investment banker at Citigroup Inc., could determine whether it will be harder for prosecutors to pursue charges stemming from such relationships.
The court, in a brief written order, said it would consider an appeal by Bassam Salman, who was convicted and sentenced to three years in prison for trading on inside information he received from his brother-in-law, who had pleaded guilty in connection with the case. Mr. Salman, who was convicted in 2013, and an associate brought in $1.7 million in trading profits based on the Citigroup employee's tips about coming acquisitions involving Citigroup clients, prosecutors said.
His lawyers, in a case brought in the California federal courts, sought to rely on a major 2014 decision by the New York-based Second U.S. Circuit Court of Appeals that limited insider-trading prosecutions.
In the New York case, U.S. v. Newman, an appeals panel said prosecutors had to prove the insider disclosed the information for a personal benefit that included something valuable being exchanged. The decision upended multiple convictions and top prosecutors complained that the ruling could make it legal for traders to obtain and use confidential information from friends.
Mr. Salman, citing Newman, argued that evidence of a family relationship between the tipper and the tip recipient wasn't enough to demonstrate that the insider received a personal benefit.
The San Francisco-based Ninth U.S. Circuit Court of Appeals rejected that argument in a ruling last July. The Supreme Court will review the decision and could hear oral arguments as soon as April. Mr. Salman has been serving his prison sentence since August 2014.
A lawyer for Mr. Salman and a spokesman for the Justice Department both declined to comment.
The high court's announcement Tuesday came as something of a surprise. That is because the justices in October declined to review the Newman case, despite a plea from the Justice Department.
Experts expect the court to clarify what counts as a personal benefit and how the government could use a close relationship to allege insider trading.
"I presume the Supreme Court wants to address this issue so that everyone, the entire country, is playing with the same understanding of the same law," said Gregory Morvillo, who represented one of the defendants in the Newman decision.
The ruling in the Newman case, which overturned the insider-trading convictions of two hedge-fund portfolio managers, had a marked impact on a yearslong crackdown on alleged insider trading on Wall Street. The U.S. attorney's office in Manhattan had obtained more than 80 convictions, including of a top confidant of hedge-fund billionaire Steven A. Cohen as well as a $1.8 billion penalty from his fund.
But the ruling, which found that the exchange of career advice wasn't enough to constitute a personal benefit, undermined key allegations of the high-profile investigation. It forced that office to drop charges against the lieutenant, Michael Steinberg, and drop plea deals involving six others who cooperated in the government's case.
The Justice Department had urged the Supreme Court to review that ruling. When it declined to do so in October, Manhattan U.S. Attorney Preet Bharara said prosecutors would have to "think long and hard" about pursuing investigations into individuals who tip their friends or family but don't receive an explicit, consequential gift or benefit in exchange for the confidential information.
In December, the Justice Department urged the Supreme Court not to take up Mr. Salman's case, arguing that he "knew full well" his brother-in-law was providing the information and receiving a personal benefit for it. The government cited an emotional toast at the brother-in-law's wedding to back up its claims that the information was meant to be a "gift" to a relative, who was trading on the information, in line with what the Supreme Court previously found to be illegal insider trading.
Such facts, former prosecutors said, could make it challenging for Mr. Salman to have his conviction overturned.
"Is the Supreme Court really going to sanction the tipping of brothers-in-law? I don't see any court saying that is OK," said one former federal prosecutor, who had worked on insider-trading cases and is now in private practice.
Write to Brent Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
January 19, 2016 19:32 ET (00:32 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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