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Keywords

liabilityfiduciarymergers and acquisitionsfiduciary dutybreach of fiduciary dutypiracy
liabilityfiduciarymergers and acquisitionsfiduciary dutybreach of fiduciary dutypiracy

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Salman v. United States

Facts

Maher Kara, an investment banker at Citigroup, shared confidential information about mergers and acquisitions with his brother, Mounir Kara, who then passed the information to his friend, Bassam Salman. Salman traded on this information, making significant profits. Both Maher and Mounir were aware of the insider nature of the information, and Maher testified that he shared it to benefit Mounir, who was trading on it. Salman was indicted and convicted for his actions.

Maher Kara was an investment banker in Citigroups healthcare investment banking group. He dealt with highly confidential information about mergers and acquisitions involving Citigroups 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 Michaels 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 brothers trading activity, but eventually he began to suspect that it was taking place. Ultimately, Maher began to assist Michaels 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 deals he was not working on in order to avoid detection. Without his younger brothers knowledge, Michael fed the information to othersincluding Salman, Michaels friend and Mahers 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 Salmans behalf.

Issue

Did the tipper (Maher Kara) breach a fiduciary duty by disclosing inside information to a trading relative (Mounir Kara), thereby exposing the tippee (Bassam Salman) to liability for insider trading?

Did the tipper (Maher Kara) breach a fiduciary duty by disclosing inside information to a trading relative (Mounir Kara), thereby exposing the tippee (Bassam Salman) to liability for insider trading?

Rule

A tippee's liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information for a personal benefit, which can include making a gift of confidential information to a trading relative.

A tippee's liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information for a personal benefit, which can include making a gift of confidential information to a trading relative.

Analysis

The Court applied the rule from Dirks v. SEC, determining that Maher Kara's disclosure of confidential information to his brother constituted a breach of fiduciary duty because it was made for the personal benefit of facilitating Mounir's trading. The jury was properly instructed that a personal benefit could be inferred from the act of gifting confidential information to a trading relative.

The Court applied the rule from Dirks v. SEC, determining that Maher Kara's disclosure of confidential information to his brother constituted a breach of fiduciary duty because it was made for the personal benefit of facilitating Mounir's trading. The jury was properly instructed that a personal benefit could be inferred from the act of gifting confidential information to a trading relative.

Conclusion

The Supreme Court affirmed the Ninth Circuit's judgment, upholding Salman's convictions for conspiracy and securities fraud.

The Supreme Court affirmed the Ninth Circuit's judgment, upholding Salman's convictions for conspiracy and securities fraud.

Who won?

The United States prevailed in the case, as the Court found that the evidence supported the jury's conclusion that Salman was liable for insider trading based on the personal benefit standard established in Dirks.

The United States prevailed in the case, as the Court found that the evidence supported the jury's conclusion that Salman was liable for insider trading based on the personal benefit standard established in Dirks.

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