The Supreme Court Limits Newman, But the Government Still Faces Obstacles in Insider Trading Cases

On December 6, 2016, in the first insider trading case the Supreme Court has decided in nearly two decades, the Court, in Salman v. United States, unanimously upheld a conviction for trading based on material non-public information provided by the defendant’s brother-in-law as a gift. The decision was a big win for the Department of Justice and the Securities and Exchange Commission, in that it overruled a key aspect of the Second Circuit’s 2014 decision in United States v. Newman, which had curtailed the government’s ability to bring insider trading cases when the insider did not financially benefit from passing the confidential tip. In so doing, Salman reaffirmed the continuing validity of a central holding in the Supreme Court’s 1983 decision in Dirks v. SEC—that liability can exist when “an insider makes a gift of confidential information to a trading relative or friend.” Nonetheless, because the Court decided Salman narrowly, it left in place legal hurdles that DOJ and the SEC may have trouble clearing if they continue to bring far-reaching insider trading cases, especially those involving multiple tiers of tippees.