January 28, 2016

SCOTUS Activity May Spell Trouble for SEC's Prosecution of Insider Trading Tippees

The U.S. Supreme Court’s decision to review Salman v. United States, in which an Illinois man was convicted for trading on information acquired from his brother, a former investment banker, may spell trouble for the Securities and Exchange Commission’s (SEC) emphasis on prosecuting “tippees” who reap personal benefits from divulging inside information. Discussing the matter in Bloomberg BNA’s Securities Regulation & Law Report, Faegre Baker Daniels partner Michael MacPhail also cited the Supreme Court’s decision not to review United States v. Newman—in which the court concluded that the government did not provide sufficient proof that the tippee received any personal benefit—as further indication that the SEC’s focus on tippee liability may meet resistance in court.

“[The] apparent willingness of at least four U.S. Supreme Court justices to consider whether the existence of even a close family relationship is insufficient to establish the personal benefit necessary for tippee liability, in the absence of the concrete benefit required in Newman, may signal even greater difficulties ahead for the SEC’s beleaguered insider trading program,” MacPhail, a former SEC lawyer, said.

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