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Supreme Court Rejects Newman Requirement of “Pecuniary or Similarly Valuable” Personal Benefit for Insider Trading Liability for Tipping Family and Friends (continued from page 2) The Supreme Court affirmed Salman's conviction, holding that a gift of inside information to family or friends is sufficient to prove a “personal benefit” for insider trading tipping liability. The Court rea- soned that such a gift can be inferred to “provide the equivalent of a cash gift.”® Specifically, the Court reasoned that if the tipper personally traded on inside information himself for a profit, but gave the proceeds to his brother, the tipper received a personal benefit (cash) and is liable for insider trading. So, it reasoned, where a tipper achieves effectively the same result by gifting the informa- tion to his brother with the expectation that the brother will trade on the information to obtain a cash profit, the result should be the same. Importantly, the Supreme Court explicitly stated that it was narrowing the Second Circuit’s land- mark Newman decision. It stated, “[t]o 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,... we agree with the Ninth Circuit that this requirement is inconsistent with Dirks,” a prior Supreme Court ruling.’ This significantly lowers the standard of proof for insider trading tipping liability in cases involving family or friends. The govern- ment often cannot find evidence of money or a sim- ilarly valuable quid pro quo between the tipper and tippee in insider trading cases. So it is much easier to prove a case of insider trading by arguing that the exchange of information was a “gift,” which essentially only requires some evidence (even cir- cumstantial evidence such as phone logs) that the tipper gave information to the tippee. So where does this leave the Newman decision? The Newman decision itself was not overturned by the Supreme Court, because Newman also relied on the lack of proof that the tippees who traded on inside information knew that the tippers provided the s nee er tr tradi ing t 2 tv in coer, tha mone liability in cases inv C. ’ family or friend DN - inside information in exchange for a personal ben- efit—especially since the tippees were several steps removed from the original tippers. In addi- tion, Newman's “pecuniary or similarly valuable” benefit test should still apply to cases that do not involve tipping family or friends. Nevertheless, the Sa/man decision tips the scales back in favor of the government in tipping insider trading cases. The SEC and federal prosecutors have shown in the past that they will bring cases S&G INVESTMENT MANAGER Alert Please send comments to cspratt@sglawyers.com Visit the Sadis & Goldberg LLP website at based on alleged gifts of inside information to mere social acquaintances, fellow employees, or networking contacts—using strained arguments of “friendship.” And they will bring insider trad- ing cases based solely on circumstantial evidence (e.g, a pattern of phone calls) where there is no direct proof of trading based on inside informa- tion. Accordingly, with Sa/man imposing a lower standard of proof, it is imperative that clients contact counsel immediately at the first hint of a government insider trading investigation. | Salman v. U.S., No. 15-628, 580 U.S. 6, 2016). 2773 F.3d 438, 452 (2d Cir. 2014). 3 Salman, Slip Op. at 9-10. "Id. at 10. ., slip op. (Dec. Samuel J. Lieberman is a Partner in the Securities Litigation Group of Sadis & Goldberg LLP. He regu- larly handles high-profile securities litigation, enforcement actions, and government investigations on behalf of companies and individuals. He has handled investi- gations covering a wide-range of securities law issues before the SEC, FINRA, CFTC, CFE/CBOE, and CME. He has also handled precedent-setting cases addressing corporate governance, including in Delaware Chancery Court. His recent representations have been profiled in the Wall Street Journal, the New York Times, the New York Post, Bloomberg, Reuters and Law360. Sam also regularly advises companies and individuals about compliance programs and preparing for SEC compliance examinations. Sam can be reached at 712.573.8164, or slieberman @sglawyers.com. November 8, 2017 The New York Athletic Club 80 Central Park South * New York, New York I sglawyers.com 5:00 to 9:00 pm HOUSE_OVERSIGHT_019858