United States v. Salman

A breach of a fiduciary duty occurs when an insider makes a gift of confidential information to a trading relative or friend; the personal benefit the individual receives does not have to be pecuniary, but may also include the benefit the person obtains from making the gift of information to the friend or relative.

Bassam Yacoub Salman was part of an insider-trader scheme involving his relatives. Salman and his brother-in-law shared financial information, which his brother-in-law had gained from his own brother, a Citigroup investment banker. Salman then created a brokerage account in the name of his sister, Karim Bayyouk, which he and Bayyouk split the profit on. Between 2004 and 2007 Salman’s relatives made nearly identical trades in securities issued by Citigroup, shortly before large public transactions. The government presented evidence that Salman was aware that the information was coming from a Citigroup insider. The jury found Salman guilty. Salman appealed his conviction for conspiracy and insider trading. Salman moved for a new trial on the grounds that there was not any evidence that he knew the tipper disclosed confidential information in exchange for a personal benefit. The district court denied Salman’s motion. On appeal, the Ninth Circuit held that the test to determine if an individual is guilty of insider trading is whether the insider personally benefited from his disclosure. The panel stated the tippee is equally liable if the tippee knows or should have known that there was such a breach. The panel held that the element of breach of fiduciary duty is met when an insider makes a gift of confidential information to a trading relative or friend. Personal benefit includes not only a pecuniary gain, but also the benefit a person would obtain from making a gift of confidential trading information to a friend or relative. The panel affirmed Salman’s conviction, holding the evidence was sufficient because it showed that an insider breached his fiduciary duty by disclosing information to a trading relative, and Salman knew of the breach when he traded on it. Affirmed.