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Insider Trading Liability
In the wake of recent insider trading decisions issued by the U.S. Courts of Appeal for the Second and Ninth Circuits, the Supreme Court has granted certiorari to determine if proof of a close family relationship is enough to satisfy the personal benefit requirement laid out in previous decisions addressing tipper-tippee liability under Section 10 of the Securities Exchange Act of 1934. See Salman v. United States, cert. granted, __U.S.__ (No. 15-628) (Jan. 19, 2015). The forthcoming decision will undoubtedly set the table for all future insider trading actions brought by both the government and private parties, forcing individuals and firms to adjust their practices to the Court's holding in order to guard against exposure to potential insider trading liability.
Supreme Court Precedent
As first set forth in Dirks v. S.E.C., the Supreme Court has long stood by its postulation of the elements necessary for a finding of tippee liability arising out of a corporate insider's breach of fiduciary duty. Specifically, under Dirks, the following elements must be satisfied for there to be a finding of tipper and tippee liability: 1) the corporate insider was entrusted with a fiduciary duty; 2) the corporate insider breached his fiduciary duty by (a) disclosing confidential information to a tippee (b) in exchange for a personal benefit; 3) the tippee knew of the tipper's breach, that is, he knew the information was confidential and divulged for personal benefit; and 4) the tippee still used that information to trade in a security or tip another individual for personal benefit. See Dirks v. S.E.C., 463 U.S. 646 (1983).
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