WASHINGTON/NEW YORK (Reuters) - The U.S. Supreme Court on Tuesday agreed to review what constitutes insider trading, taking up an Illinois businessman’s appeal of his conviction for making $1.2 million trading on tips about mergers from his brother-in-law, a Citigroup Inc banker.
The Supreme Court said it would review a July ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals, which upheld the conviction of Bassam Salman, who was sentenced to three years in prison in 2014.
The decision meant the Supreme Court would weigh in on a key question in multiple legal challenges in insider trading cases: What benefits do corporate insiders need to receive for any information they disclose to traders to be illegal?
Salman argued that prosecutors should be required to prove his brother-in-law received a tangible benefit for his tips.
U.S. District Judge Jed Rakoff, writing for the three-judge panel, said that interpretation would mean corporate insiders would be free to tip their relatives as long as they received no tangible compensation in return.
The Supreme Court in October declined to review a similar case in which the 2nd U.S. Circuit Court of Appeals in New York overturned the convictions of hedge fund managers Todd Newman and Anthony Chiasson.
Prosecutors have said that 2014 ruling limited their ability to pursue some insider trading cases by narrowly defining what constituted a benefit to the tipper by saying it could not be just a friendship but had to be of “some consequence.”
Gregory Morvillo, Chiasson’s lawyer, said the Supreme Court may be seeking to clarify what constitutes insider trading amid continuing uncertainty.
“I would think that would be a goal of court here, to speak with one voice on what the law is for the country,” Morvillo said.
In the Salman case, prosecutors said from 2004 to 2007, Maher Kara, a former Citigroup investment banker who was Salman’s brother-in-law, tipped his brother Michael Kara about mergers involving Citi clients.
Michael Kara passed the tips on to Salman, enabling Salman to make $1.19 million trading ahead of deals including a 2007 merger announcement involving Biosite Inc, prosecutors said.
Salman’s other brother-in-law, Karim Bayyouk, became his secret trading partner, and trades were conducted in Bayyouk’s brokerage account, prosecutors said.
The Kara brothers pleaded guilty in 2011 and were sentenced to probation. Bayyouk was convicted of obstruction of justice and was sentenced in 2014 to 1-1/2 years in prison.
The case is Salman v. United States, U.S. Supreme Court, No. 15-628.
Reporting by Lawrence Hurley; Editing by Will Dunham