Ninth Circuit Upholds Insider Trader Conviction Despite Absence of Personal Relationship Between Tipper and Tippee

By its holding in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), the Ninth Circuit rejected the Second Circuit’s requirement of a meaningful close personal relationship between the insider (tipper) and the tippee that represents at least a potential pecuniary gain or something similarly valuable.  United States v. Newman, 773 F.3d 438, 452 (2d. Cir. 2014).   In rejecting Mr. Salman’s argument that he lacked knowledge of the tipper’s personal gain, the Ninth Circuit relied on Dirks v. S.E.C.’s holding that the test is whether the insider personally will benefit, directly or indirectly, from his disclosure, and the tippee (Mr. Salman) knows or should know of this personal benefit, which can include the gift of confidential information to a relative who trades on it.   See 443 U.S. 646, 660 (1983).