Salman v. US: No. 15-628 (Oct. 5, 2016)

The Supreme Corut heard oral argument in Salman v. US today.  The transcript is here.


JUSTICE KAGAN: Ms. Shapiro, let me give you 21 a hypothetical. Let's suppose I would like to give a 22 gift to a friend of mine, but it's just too expensive 23 for me to give it. And then I pass a coworker's desk, 24 and I see a hundred dollar bill sitting there, and I 25 take the hundred dollar bill; and now I can give a gift that I had wanted to give, but I couldn't. 2 Now, have I benefitted from stealing the 3 hundred dollar bill? 4 MS. SHAPIRO: Yes, Your Honor. 5 JUSTICE KAGAN: Yes, you have. And why 6 should the issue be any different if, instead of 7 stealing the hundred dollar bill off my coworker's desk, 8 I instead steal information and give the gift of that 9 information rather than give a gift of cash?


MS. SHAPIRO: I think the issue is that 6 there has to be a clear line. We're dealing with a 7 crime that was never defined by Congress. None of these 8 words are in the statute.

And this Court held that the statute needed 5 to be construed narrowly to ensure that there was a 6 clear line.



But I think it is essential in order for 5 there to be a clear line that the Court hold that the 6 insider must personally benefit in a concrete way unless 7 and until Congress -- if that's an under inclusive test, 8 Congress can act.


MS. SHAPIRO: It doesn't necessarily have to 3 be money. It has to be something concrete.


CHIEF JUSTICE ROBERTS: But not everything 24 is a -- is a gift just because it's disclosed. I mean 25 a -- social acquaintances, you know, that people say 1 we're all going away for the weekend, why don't you join 2 us? I can't, I'm working on this Google thing, or 3 something like that, and it means something to the other 4 people. You wouldn't call that a gift. You'd call it a 5 social interchange. And maybe it's, you know, something 6 he should have been more careful about saying, but it's 7 quite different than a gift. And it seems to me that, 8 however you read Dirks, it certainly doesn't go beyond 9 gifts.

MR. DREEBEN: So I -- I don't disagree with 11 that, Mr. Chief Justice. There is a difference between 12 a breach of a duty of confidentiality with respect to 13 information, and the kind of breach that was defined by 14 the SEC in Cady, Roberts and incorporated into the law 15 of securities fraud in this Court's decisions in 16 Chiarella and Dirks.


24 CHIEF JUSTICE ROBERTS: So then the 25 social -- casual social interchange I -- I hypothesized 1 would not be covered under your interpretation? 2 MR. DREEBEN: It would not be a personal 3 benefit. Now, it might give rise to liability on the 4 part of the tippee if there was an understanding between 5 the parties, the insider and the tippee, that 6 conversations of that kind would remain confidential.


17 JUSTICE BREYER: If you give it to your -- 18 anyone in the world, and -- whom you happen to know, and 19 you believe that that person will trade on it, that is 20 for a personal advantage. 21 MR. DREEBEN: Yes -- 22 JUSTICE BREYER: Yes? 23 MR. DREEBEN: -- because -- 24 JUSTICE BREYER: What is the personal 25 advantage?



20 JUSTICE ALITO: It doesn't seem to me that 21 your argument is much more consistent with Dirks than 22 Ms. Shapiro's. 23 Now suppose someone, the insider is walking 24 down the street and sees someone who has a really 25 unhappy look on his face and says, I want to do 1 something to make this person's day. And so he provides 2 the inside information to that person and says, you can 3 make some money if you trade on this. 4 Is that a violation? 5 MR. DREEBEN: Yes. And I'm trying to 6 explain why that is. I think that Dirks adopted the 7 basic line that sets forth in the duty of loyalty, which 8 is well established, that when you are given something 9 for corporate purposes, you may not use it for personal 10 reasons. And that was exactly what the Court adopted 11 in -- 12 JUSTICE BREYER: If they did that, why did 13 they use the word "advantage"? The -- you keep going 14 back to the -- the part that everybody concedes: This 15 tipper is using information he shouldn't use in a way he 16 shouldn't use it. Okay? Conceded. 17 Now, it's the next step of what -- when is 18 he liable, and what the words are is when he uses it for 19 a personal advantage. And it sounds to me, as you are 20 saying -- and you said this -- whenever the tipper knows 21 that the person, to him, he -- who he gives the 22 information might well use it to trade. 23 MR. DREEBEN: No. I did not say that, 24 Justice Breyer. 25 JUSTICE BREYER: What did you say?



7 CHIEF JUSTICE ROBERTS: Give me the example 8 of something that is not for a corporate purpose but is 9 also not for a personal gain, under your view. 10 MR. DREEBEN: When there's no knowledge that 11 the individual to whom you're going to give the 12 information is trading, there's no breach of the Cady, 13 Roberts duty. So in your hypothetical of the social 14 conversation, the government would not seek to hold 15 liable somebody who was loose in their conversations but 16 had no anticipation that there would be trading.


5 JUSTICE SOTOMAYOR: No. I'm talking about 6 that there are three examples of breaching 7 confidentiality. 8 The first was to -- for him to become more 9 knowledgeable of the health industry. 10 The second was to help the father with his 11 medical care. 12 And the third, the one you charged, was the 13 giving of information, knowing that his brother was 14 going to trade on it. 15 How do you draw the line among those three? 16 All three were for personal reasons. 17 MR. DREEBEN: No. But the only one that 18 involved knowledge or anticipation of trading were the 19 circumstances in which the brother was basically funding 20 his -- 21 JUSTICE SOTOMAYOR: So you have -- 22 MR. DREEBEN: -- older brother's securities 23 trading.


7 JUSTICE SOTOMAYOR: So why do you want to 8 put knowledge of the -- knowledge that it will be used 9 for trading as part of the breach of fiduciary duty? If 10 you do that, then you have to prove that the tippee knew 11 that the tipper thought it would be traded. 12 MR. DREEBEN: Yes, and I don't think that's 13 a very difficult burden because in most of these 14 situations, it's obvious why it's being done. 15 JUSTICE SOTOMAYOR: Why can't you put it in 16 the intent to defraud? 17 MR. DREEBEN: It goes to intent to 18 defraud -- 19 JUSTICE SOTOMAYOR: So why -- why make it 20 part of the breach -- 21 MR. DREEBEN: Because Dirks did. Dirks did. 22 Dirks adopted the Cady, Roberts formulation of the 23 breach of duty, which to go back to it again, it is of 24 the transmission of information that was made available 25 only for a corporate purpose, for personal benefit, with 1 the intent and knowledge that the individual is going to 2 trade. Now, it doesn't -- 3 JUSTICE BREYER: It doesn't say it -- it has 4 a sentence here which is exactly what's hanging me up 5 and exactly what I thought you were going to answer 6 before you got cut off. 7 The sentence is: "The elements exist also 8 when an insider makes a gift of confidential information 9 to a trading relative or friend." 10 MR. DREEBEN: Yes. 11 JUSTICE BREYER: That doesn't sound as if 12 the writer of those words had in mind any person in the 13 world. Now, in each instance you have to know that that 14 person would, in fact, use the information to trade, but 15 it doesn't say any person in the world. It says a 16 trading relative or friend. 17 MR. DREEBEN: Yes, but -- 18 JUSTICE BREYER: So I want -- 19 MR. DREEBEN: -- this isn't a portion of the 20 opinion, Justice Breyer. 21 JUSTICE BREYER: No. 22 All right. So I should read the whole 23 opinion, and -- 24 MR. DREEBEN: No, I'm -- it's a portion of 25 the opinion in which Justice Powell is giving examples 



16 JUSTICE BREYER: I'm not worried about that. 17 I'm not worried so much about this case. I a.m. worried 18 about line drawing, and you want to draw a line so that 19 friend, relative, doesn't matter, and -- and before I 20 write those words, I'd like to know what circuit courts 21 have followed that approach? 22 MR. DREEBEN: So I think that there aren't a 23 lot of cases that don't involve friends or family 24 members. I think the -- the case that most closely 25 tracks the analysis that I think best explains Dirks is 1 the Seventh Circuit in SEC v. Maio. It's cited in our 2 brief. It does involve two people who were close 3 friends, because ordinarily those are the circumstances 4 in which people decide to risk criminal liability to 5 give out inside information so that somebody else can 6 profit. 7 But the Court makes the statement in it that 8 there was no corporate reason, there's no legitimate 9 reason why one friend who's an insider at the 10 corporation is giving information to a third person, he 11 didn't have to give information at all. So why did he 12 do it except for what the Court concluded fits within 13 the Dirks language? 14 CHIEF JUSTICE ROBERTS: What if you have a 15 situation where close friends or whatever and one says, 16 I want to tell you what I've been working on, it's 17 pretty interesting, but tells him, says, but whatever 18 you do, don't go buy stock. You can't do that. That's 19 against the law. 20 MR. DREEBEN: Right. And that is a 21 situation -- 22 CHIEF JUSTICE ROBERTS: So you're not going 23 to prosecute that situation when the tippee goes and 24 makes $100,000 on it? 25 MR. DREEBEN: The tipper in that situation  


9 MR. DREEBEN: My submission is that the best 10 way to understand Dirks is that it goes to a breach of 11 fiduciary duty, which would not be limited to two 12 categories like that. And I don't think that Justice 13 Powell, in articulating this species of personal 14 benefit, was attempting to rely on it. I was trying to 15 explain this before to Justice Breyer. 16 At the end of the opinion where the Court 17 precisely says that Secrist is not liable because he 18 didn't make any financial advantage, it goes on to say, 19 nor did he make a gift of valuable information to Dirks. 20 Now the Court didn't say, well, Dirks wasn't 21 a close friend. Dirks wasn't a relative. Therefore 22 he's out of the picture.

J Robert Brown Jr.