| NEW YORK
NEW YORK Oct 2 The U.S. Supreme Court is set to
consider this week a closely watched insider trading case that
could limit the ability of prosecutors to pursue such charges
against hedge fund managers and other traders.
The eight justices, who open their 2016-17 term on Monday,
will hear arguments on Wednesday in the case of an Illinois man,
Bassam Salman, who prosecutors said made nearly $1.2 million
trading on inside information about mergers involving clients of
Citigroup Inc, where his brother-in-law worked.
It is the first time in two decades that the Supreme Court
has taken up a case involving insider trading, a crime that the
U.S. Congress has never defined and has left the courts and the
Securities and Exchange Commission to shape.
Salman was convicted of conspiracy and securities fraud
charges arising from insider trading and sentenced in 2014 to
three years in prison.
At issue in Salman's appeal is whether the government in
insider trading cases must prove that an alleged source of
corporate secrets like the brother-in-law received a tangible
benefit like cash in exchange for any tips.
Lawyers and prosecutors say that requiring such proof would
make it harder for authorities to pursue insider trading cases,
potentially preventing prosecutions in which corporate
executives tip friends or relatives without any tangible quid
"This will be a court decision that could have significant
ramifications on if tipping cases can continue to be brought
with the fervor they have been brought in the last decade," said
David Miller, a defense lawyer at the law firm Morgan, Lewis &
The appeal follows ramped-up efforts by U.S. authorities to
crack down on insider trading, with the SEC announcing charges
against more than 550 people in the past six years.
A wave of insider trading cases brought by Manhattan federal
prosecutors, meanwhile, resulted in Galleon Group founder Raj
Rajaratnam's conviction in 2011 and a $1.8 billion settlement
and plea deal in 2013 with hedge fund SAC Capital Advisors LP.
But in December 2014, a federal appeals court in New York
dealt prosecutors a major blow by overturning the conviction of
two hedge fund managers, Todd Newman and Anthony Chiasson, and
narrowing authorities' ability to pursue such cases.
The New York-based 2nd U.S. Circuit Court of Appeals held
that to be convicted, a trader must know that the source
received a benefit in exchange, and that such a benefit was "at
least a potential gain of a pecuniary or similarly valuable
The ruling forced prosecutors under Manhattan U.S. Attorney
Preet Bharara to drop charges against 12 other defendants, out
of 107 people charged under his watch since 2009.
While the Supreme Court in October 2015 declined to review
the case, the justices in January agreed to review a similar
one, Salman's case, in which a federal appeals court in
California had issued a potentially conflicting ruling.
Salman argued that his trading was not illegal as no proof
existed that his brother-in-law, in tipping a family member who
in turn tipped Salman, received anything beneficial in exchange.
The San Francisco-based 9th U.S. Circuit Court of Appeals
rejected that argument, saying that requiring a tangible benefit
in such a circumstance would allow insiders to tip their
relatives so long as they got nothing in exchange.
Prosecutors are hoping the Supreme Court adopts the 9th
Circuit's view and rejects the 2nd Circuit's narrow
interpretation, which authorities said could result in some
people avoiding charges and could affect investigations.
For example, hedge fund investor Leon Cooperman, who the SEC
sued last month for insider trading, has said that federal
prosecutors in New Jersey have informed him that they are
holding off on pursuing criminal charges until the Supreme Court
Many defense lawyers say that what Wall Street is looking
for is a ruling clearly defining what conduct violates the law.
"I do think clarity is particularly important in this
context, and right now there is a lack of clarity," said Stephen
Ascher, a lawyer at Jenner & Block who backs a broad definition.
"The Supreme Court has the opportunity now to clean that up."
(Reporting by Nate Raymond in New York; Editing by Will Dunham)