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SUPREME COURT OF THE UNITED STATES
_________________
No. 15–628
_________________
BASSAM YACOUB SALMAN, PETITIONER
v.
UNITED STATES
on writ of certiorari to the united states
court of appeals for the ninth circuit
[December 6, 2016]
Justice Alito delivered the opinion of the
Court.
Section 10(b) of the Securities Exchange Act of
1934 and the Securities and Exchange Commission’s Rule 10b–5
prohibit undisclosed trading on inside corporate information by
individuals who are under a duty of trust and confidence that
prohibits them from secretly using such information for their
personal advantage. 48Stat. 891, as amended, 15 U. S. C.
§78j(b) (prohibiting the use, “in connection with the purchase or
sale of any security,” of “any manipulative or deceptive device or
contrivance in contravention of such rules as the [Securities and
Exchange Commission] may prescribe”); 17 CFR §240.10b–5 (2016)
(forbidding the use, “in connection with the sale or purchase of
any security,” of “any device, scheme or artifice to defraud,” or
any “act, practice, or course of business which operates
. . . as a fraud or deceit”); see
United States v.
O’Hagan, 521 U. S. 642 –652 (1997). Individuals under
this duty may face criminal and civil liability for trading on
inside information (unless they make appropriate disclosures ahead
of time).
These persons also may not tip inside
information to others for trading. The tippee acquires the tipper’s
duty to disclose or abstain from trading if the tippee knows the
information was disclosed in breach of the tipper’s duty, and the
tippee may commit securities fraud by trading in disregard of that
knowledge. In
Dirks v.
SEC, 463 U. S. 646 (1983)
, this Court explained that a tippee’s liability for trading on
inside information hinges on whether the tipper breached a
fiduciary duty by disclosing the information. A tipper breaches
such a fiduciary duty, we held, when the tipper discloses the
inside information for a personal benefit. And, we went on to say,
a jury can infer a personal benefit—and thus a breach of the
tipper’s duty—where the tipper receives something of value in
exchange for the tip or “makes a gift of confidential information
to a trading relative or friend.”
Id., at 664.
Petitioner Bassam Salman challenges his
convictions for conspiracy and insider trading. Salman received
lucrative trading tips from an extended family member, who had
received the information from Salman’s brother-in-law. Salman then
traded on the information. He argues that he cannot be held liable
as a tippee because the tipper (his brother-in-law) did not
personally receive money or property in exchange for the tips and
thus did not personally benefit from them. The Court of Appeals
disagreed, holding that
Dirks allowed the jury to infer that
the tipper here breached a duty because he made a “ ‘gift of
confidential information to a trading relative.’ ” 792
F. 3d 1087, 1092 (CA9 2015) (quoting
Dirks,
supra, at 664). Because the Court of Appeals properly
applied
Dirks, we affirm the judgment below.
I
Maher Kara was an investment banker in
Citigroup’s healthcare investment banking group. He dealt with
highly confidential information about mergers and acquisitions
involving Citigroup’s clients. Maher enjoyed a close relationship
with his older brother, Mounir Kara (known as Michael). After Maher
started at Citigroup, he began discussing aspects of his job with
Michael. At first he relied on Michael’s chemistry background to
help him grasp scientific concepts relevant to his new job. Then,
while their father was battling cancer, the brothers discussed
companies that dealt with innovative cancer treatment and pain
management techniques. Michael began to trade on the information
Maher shared with him. At first, Maher was unaware of his brother’s
trading activity, but eventually he began to suspect that it was
taking place.
Ultimately, Maher began to assist Michael’s
trading by sharing inside information with his brother about
pending mergers and acquisitions. Maher sometimes used code words
to communicate corporate information to his brother. Other times,
he shared inside information about dealshe was not working on in
order to avoid detection. See,
e.g., App. 118, 124–125.
Without his younger brother’s knowledge, Michael fed the
information to others—including Salman, Michael’s friend and
Maher’s brother-in-law. By the time the authorities caught on,
Salman had made over $1.5 million in profits that he split with
another relative who executed trades via a brokerage account on
Salman’s behalf.
Salman was indicted on one count of conspiracy
to commit securities fraud, see 18 U. S. C. §371, and
four counts of securities fraud, see 15 U. S. C.
§§78j(b), 78ff; 18 U. S. C. §2; 17 CFR §240.10b–5. Facing
charges of their own, both Maher and Michael pleaded guilty and
testified at Salman’s trial.
The evidence at trial established that Maher and
Michael enjoyed a “very close relationship.” App. 215. Maher
“love[d] [his] brother very much,” Michael was like “a second
father to Maher,” and Michael was the best man at Maher’s wedding
to Salman’s sister.
Id., at 158, 195, 104–107. Maher
testified that he shared inside information with his brother to
benefit him and with the expectation that his brother would trade
on it. While Maher explained that he disclosed the information in
large part to appease Michael (who pestered him incessantly for
it), he also testified that he tipped his brother to “help him” and
to “fulfil[l] whatever needs he had.”
Id., at 118, 82. For
instance, Michael once called Maher and told him that “he needed a
favor.”
Id., at 124. Maher offered his brother money but
Michael asked for information instead. Maher then disclosed an
upcoming acquisition.
Ibid. Although he instantly regretted
the tip and called his brother back to implore him not to trade,
Maher expected his brother to do so anyway.
Id., at 125.
For his part, Michael told the jury that his
brother’s tips gave him “timely information that the average person
does not have access to” and “access to stocks, options, and what
have you, that I can capitalize on, that the average person would
never have or dream of.”
Id., at 251. Michael testified that
he became friends with Salman when Maher was courting Salman’s
sister and later began sharing Maher’s tips with Salman. As he
explained at trial, “any time a major deal came in, [Salman] was
the first on my phone list.”
Id., at 258. Michael also
testified that he told Salman that the information was coming from
Maher. See,
e.g., id., at 286 (“ ‘Maher is the source
of all thisinformation’ ”).
After a jury trial in the Northern District of
California, Salman was convicted on all counts. He was sentenced to
36 months of imprisonment, three years of supervised release, and
over $730,000 in restitution. After his motion for a new trial was
denied, Salman appealed to the Ninth Circuit. While his appeal was
pending, the Second Circuit issued its opinion in
United
States v.
Newman, 773 F. 3d 438 (2014), cert.
denied, 577 U. S. ___ (2015). There, the Second Circuit
reversed the convictions of two portfolio managers who traded on
inside information. The
Newman defendants were “several
steps removed from the corporate insiders” and the court found that
“there was no evidence that either was aware of the source of the
inside information.” 773 F. 3d, at 443. The court acknowledged
that
Dirks and Second Circuit case law allow a factfinder to
infer a personal benefit to the tipper from a gift of confidential
information to a trading relative or friend. 773 F. 3d, at
452. But the court concluded that, “[t]o the extent”
Dirks
permits “such an inference,” the inference “is impermissible in the
absence of proof of a meaningfully close personal relationship that
generates an exchange that is objective, consequential, and
represents at least a potential gain of a pecuniary or similarly
valuable nature.” 773 F. 3d, at 452.[
1]
Pointing to
Newman, Salman argued that
his conviction should be reversed. While the evidence established
that Maher made a gift of trading information to Michael and that
Salman knew it, there was no evidence that Maher received anything
of “a pecuniary or similarly valuable nature” in exchange—or that
Salman knew of any such benefit. The Ninth Circuit disagreed and
affirmed Salman’s conviction. 792 F. 3d 1087. The court
reasoned that the case was governed by
Dirks’s holding that
a tipper benefits personally by making a gift of confidential
information to a trading relative or friend. Indeed, Maher’s
disclosures to Michael were “precisely the gift of confidential
information to a trading relative that
Dirks envisioned.”
792 F. 3d, at 1092 (internal quotation marks omitted). To the
extent
Newman went further and required additional gain to
the tipper in cases involving gifts of confidential information to
family and friends, the Ninth Circuit “decline[d] to follow it.”
792 F. 3d, at 1093.
We granted certiorari to resolve the tension
between the Second Circuit’s
Newman decision and the Ninth
Circuit’s decision in this case.[
2] 577 U. S. ___ (2016).
II
A
In this case, Salman contends that an
insider’s “gift of confidential information to a trading relative
or friend,”
Dirks, 463 U. S., at 664, is not enough to
establish securities fraud. Instead, Salman argues, a tipper does
not personally benefit unless the tipper’s goal in disclosing
inside information is to obtain money, property, or something of
tangible value. He claims that our insider-trading precedents, and
the cases those precedents cite, involve situations in which the
insider exploited confidential information for the insider’s own
“tangible monetary profit.” Brief for Petitioner 31. He suggests
that his position is reinforced by our criminal-fraud precedents
outside of the insider-trading context, because those cases confirm
that a fraudster must personally obtain money or property.
Id., at 33–34. More broadly, Salman urges that defining a
gift as a personal benefit renders the insider-trading offense
indeterminate and overbroad: indeterminate, because liability may
turn on facts such as the closeness of the relationship between
tipper and tippee and the tipper’s purpose for disclosure; and
overbroad, because the Government may avoid having to prove a
concrete per-sonal benefit by simply arguing that the tipper meant
to give a gift to the tippee. He also argues that we should
interpret
Dirks’s standard narrowly so as to avoid
constitutional concerns. Brief for Petitioner 36–37. Finally,
Salman contends that gift situations create especially troubling
problems for remote tippees—that is, tippees who receive inside
information from another tippee, rather than the tipper—who may
have no knowledge of the relationship between the original tipper
and tippee and thus may not know why the tipper made the
disclosure.
Id., at 43, 48, 50.
The Government disagrees and argues that a gift
of confidential information to anyone, not just a “trading relative
or friend,” is enough to prove securities fraud. See Brief for
United States 27 (“
Dirks’s personal-benefit test encompasses
a gift to
any person with the expectation that the
information will be used for trading, not just to ‘a trading
relative or friend’ ” (quoting 463 U. S., at 664;
emphasis in original)). Under the Government’s view, a tipper
personally benefits whenever the tipper discloses confidential
trading information for a noncorporate purpose. Accordingly, a gift
to a friend, a family member, or anyone else would support the
inference that the tipper exploited the trading value of inside
information for personal purposes and thus personally benefited
from the disclosure. The Government claims to find support for this
reading in
Dirks and the precedents on which
Dirks
relied. See,
e.g., id., at 654 (“fraud” in an
insider-trading case “derives ‘from the inherent unfairness
involved where one takes advantage’ of ‘information intended to be
available only for a corporate purpose and not for the personal
benefit of anyone’ ” (quoting
In re Merrill Lynch,
Pierce, Fenner & Smith, Inc., 43 S. E. C. 933, 936
(1968))).
The Government also argues that Salman’s
concerns about unlimited and indeterminate liability for remote
tippees are significantly alleviated by other statutory elements
that prosecutors must satisfy to convict a tippee for insider
trading. The Government observes that, in order to establish a
defendant’s criminal liability as a tippee, it must prove beyond a
reasonable doubt that the tipper expected that the information
being disclosed would be used in securities trading. Brief for
United States 23–24; Tr. of Oral Arg. 38. The Government also notes
that, to establish a defendant’s criminal liability as a tippee, it
must prove that the tippee knew that the tipper breached a
duty
—in other words, that the tippee knew that the tipper
disclosed the information for a personal benefit and that the
tipper expected trading to ensue. Brief for United States 43; Tr.
of Oral Arg. 36–37, 39.
B
We adhere to
Dirks, which easily
resolves the narrow issue presented here.
In
Dirks, we explained that a tippee is
exposed to liability for trading on inside information only if the
tippee participates in a breach of the tipper’s fiduciary duty.
Whether the tipper breached that duty depends “in large part on the
purpose of the disclosure” to the tippee. 463 U. S., at 662.
“[T]he test,” we explained, “is whether the insider personally will
benefit, directly or indirectly, from his disclosure.”
Ibid.
Thus, the disclosure of confidential information without personal
benefit is not enough. In determining whether a tipper derived a
personal benefit, we instructed courts to “focus on objective
criteria,
i.e., whether the insider receives a direct or
indirect personal benefit from the disclosure, such as a pecuniary
gain or a reputational benefit that will translate into future
earnings.”
Id., at 663. This personal benefit can “often” be
inferred “from objective facts and circumstances,” we explained,
such as “a relationship between the insider and the recipient that
suggests a
quid pro quo from the latter, or an intention to
benefit the particular recipient.”
Id., at 664. In
particular, we held that “[t]he elements of fiduciary duty and
exploitation of nonpublic information also exist
when an insider
makes a gift of confidential information to a trading relative or
friend.”
Ibid. (emphasis added). In such cases, “[t]he
tip and trade resemble trading by the insider followed by a gift of
the profits to the recipient.”
Ibid. We then applied this
gift-giving principle to resolve
Dirks itself, finding it
dispositive that the tippers “received no monetary or personal
benefit” from their tips to Dirks, “
nor was their purpose to
make a gift of valuable information to Dirks.”
Id., at
667 (emphasis added).
Our discussion of gift giving resolves this
case. Maher, the tipper, provided inside information to a close
relative, his brother Michael.
Dirks makes clear that a
tipper breaches a fiduciary duty by making a gift of confidential
information to “a trading relative,” and that rule is sufficient to
resolve the case at hand. As Salman’s counsel acknowledged at oral
argument, Maher would have breached his duty had he personally
traded on the information here himself then given the proceeds as a
gift to his brother. Tr. of Oral Arg. 3–4. It is obvious that Maher
would personally benefit in that situation. But Maher effectively
achieved the same result by disclosing the information to Michael,
and allowing him to trade on it.
Dirks appropriately
prohibits that approach, as well. Cf. 463 U. S., at 659
(holding that “insiders [are] forbidden” both “from personally
using undisclosed corporate information to their advantage” and
from “giv[ing] such information to an outsider for the same
improper purpose of exploiting the information for their personal
gain”).
Dirks specifies that when a tipper gives inside
information to “a trading relative or friend,” the jury can infer
that the tipper meant to provide the equivalent of a cash gift. In
such situations, the tipper benefits personally because giving a
gift of trading information is the same thing as trading by the
tipper followed by a gift of the proceeds. Here, by disclosing
confidential information as a gift to his brother with the
expectation that he would trade on it, Maher breached his duty of
trust and confidence to Citigroup and its clients—a duty Salman
acquired, and breached himself, by trading on the information with
full knowledge that it had been improperly disclosed.
To the extent the Second Circuit held that the
tipper must also receive something of a “pecuniary or similarly
valuable nature” in exchange for a gift to family or friends,
Newman, 773 F. 3d, at 452, we agree with the Ninth
Circuit that this requirement is inconsistent with
Dirks.
C
Salman points out that many insider-trading
cases—including several that
Dirks cited—involved insiders
who personally profited through the misuse of trading information.
But this observation does not undermine the test
Dirks
articulated and applied. Salman also cites a sampling of our
criminal-fraud decisions construing other federal fraud statutes,
suggesting that they stand for the proposition that fraud is not
consummated unless the defendant obtains money or property.
Sekhar v.
United States, 570 U. S. ___ (2013)
(Hobbs Act);
Skilling v.
United States, 561
U. S. 358 (2010) (honest-services mail and wire fraud);
Cleveland v.
United States, 531 U. S. 12 (2000)
(wire fraud);
McNally v.
United States, 483
U. S. 350 (1987) (mail fraud). Assuming that these cases are
relevant to our construction of §10(b) (a proposition the
Government forcefully disputes), nothing in them undermines the
commonsense point we made in
Dirks. Making a gift of inside
information to a relative like Michael is little different from
trading on the information, obtaining the profits, and doling them
out to the trading relative. The tipper benefits either way. The
facts of this case illustrate the point: In one of their
tipper-tippee interactions, Michael asked Maher for a favor,
declined Maher’s offer of money, and instead requested and received
lucrative trading information.
We reject Salman’s argument that
Dirks’s
gift-giving standard is unconstitutionally vague as applied to this
case.
Dirks created a simple and clear “guiding principle”
for determining tippee liability, 463 U. S., at 664, and
Salman has not demonstrated that either §10(b) itself or the
Dirks gift-giving standard “leav[e] grave uncertainty about
how to estimate the risk posed by a crime” or are plagued by
“hopeless indeterminacy,”
Johnson v.
United States,
576 U. S. ___, ___, ___ (2015) (slip op., at 5, 7). At most,
Salman shows that in some factual circumstances assessing liability
for gift-giving will be difficult. That alone cannot render
“shapeless” a federal criminal prohibition, for even clear rules
“produce close cases.”
Id., at ___, ___ (slip op., at 9,
10). We also reject Salman’s appeal to the rule of lenity, as he
has shown “no grievous ambiguity or uncertainty that would trigger
the rule’s application.”
Barber v.
Thomas, 560
U. S. 474, 492 (2010) (internal quotation marks omitted). To
the contrary, Salman’s conduct is in the heartland of
Dirks’s rule concerning gifts. It remains the case that
“[d]etermining whether an insider personally benefits from a
particular disclosure, a question of fact, will not always be easy
for courts.” 463 U. S., at 664. But there is no need for us to
address those difficult cases today, because this case involves
“precisely the ‘gift of confidential information to a trading
relative’ that
Dirks envisioned.” 792 F. 3d, at 1092
(quoting 463 U. S., at 664).
III
Salman’s jury was properly instructed that a
personal benefit includes “the benefit one would obtain from simply
making a gift of confidential information to a trading relative.”
App. 398–399. As the Court of Appeals noted, “the Government
presented direct evidence that the disclosure was intended as a
gift of market-sensitive information.” 792 F. 3d, at 1094.
And, as Salman conceded below, this evidence is sufficient to
sustain his conviction under our reading of
Dirks.
Appellant’s Supplemental Brief in No. 14–10204 (CA9), p. 6
(“Maher made a gift of confidential information to a trading
relative [Michael] . . . and, if [Michael’s] testimony is
accepted as true (as it must be for purposes of sufficiency
review), Salman knew that Maher had made such a gift” (internal
quotation marks, brackets, and citation omitted)). Accordingly, the
Ninth Circuit’s judgment is affirmed.
It is so ordered.
