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SCOTUS considers reach of insider trading law; what if tipster derives no financial benefit?

The U.S. Supreme Court on Wednesday considered whether insider trading includes tips on material, nonpublic information passed between relatives and friends, without any financial benefit to the insider providing the tip.

Prosecutors argued that an insider who provides confidential information as a gift has received a personal benefit that can sustain an insider trading conviction, the New York Timesreports. The issue arose in the case of Chicago grocery wholesaler Bassam Salman, accused of making hundreds of thousands of dollars trading on tips from an investment banker now married to Salman’s sister.

The investment banker had given the information to his brother, who passed it along to Salman, who is appealing his insider trading conviction. The two brothers pleaded guilty to securities fraud charges, according to a 2014 press release.

A lawyer for Salman asked the justices to hold that insider trading occurs only when the insider receives a monetary benefit.

Several justices appeared to disagree with Salman’s argument, according to the New York Times,SCOTUSblog, Bloomberg Big Law Business, Law.com, the Wall Street Journal and USA Today. “To help a close family member is like helping yourself,” Justice Stephen G. Breyer said.

But justices also appeared skeptical when questioning the government’s lawyer, Deputy Solicitor General Michael Dreeben, who argued the law extends beyond tips provided to relatives and close friends, according to SCOTUSblog. Answering a hypothetical, Dreeben said insider trading laws would be violated if an insider sees someone walking down the street who looked glum, and the insider passed along some inside information to cheer him up.

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