White-Collar Crime

Salman, Snitches, And The Curiously Virtuous World Of Insider Trading

Snitches get landmark Supreme Court wins.

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stock market stocks bonds trade tradingLet me take you back a minute to a halcyon day of yore. June 27, 2016, was a beautiful day in Washington, DC. High of 87, low of 68. The kind of early summer day that can make a man forget how godawful the heat and humidity are going to get in just a few weeks.

It was also, for white-collar lawyers around the country, a day ripe with the scent of possibility. Because, you see, the Supreme Court had decided — unanimously, no less — that the government had actually overreached in a white-collar crime case. Governor Bob McDonnell had won his case. The Supreme Court rejected what it called “the Government’s boundless interpretation of the federal bribery statute.”

Verily, the swooning was heard in law firms ’round the land. Could it be that the Supreme Court might actually start paring back the government’s power in other areas of white-collar crime? And wait, if it did that, would we all have to start doing telecom work? Minds reeled.

And now, alas, they are reeled back in. As readers of this column likely know, the Supreme Court on Tuesday issued another unanimous opinion in a white-collar case. This time, it did not go so well for my people.

Justice Alito, writing for the court, affirmed a less well-known insider trading case from the Ninth Circuit case (Salman) that had the effect of overturning a much more well-known Second Circuit case (Newman).

The facts are fairly straightforward. The original tipper (Maher) tipped to his brother (Michael), who then traded on the information and got rich. Michael, without telling Maher, also passed along some tips to Salman, who also traded on them and got rich. There was no evidence that Maher received any financial benefit from either Michael or Salman, other than probably getting the best seat at Thanksgiving dinner. The question was whether that was enough to violate the law, which requires that the tipper receive something of value in exchange for the information.

How, you might ask, was the government planning to prove that, given that they had no evidence that Maher ever got anything in return for his fraternal generosity — and never even knew that Salman got tipped, too? That’s easy — snitches!

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In an absolute symphony of snitchery, both Maher and Michael testified against Salman. Yes, despite the fact that Maher and Michael were by far the most culpable parties, the government was happy to flip “down” and have them testify against Salman. This is akin to flipping the Godfather against Clemenza. But hey, it lets the prosecutor leave the office a little earlier, so there’s that.

Speaking of the prosecutor: Whoever prepped Maher and Michael to testify deserves a gold medal in Snitch Prep, which is just as likely an Olympic sport as are cheerleading and Muay Thai.

Again, the whole issue in the case was whether Maher received a personal benefit from the tip, despite the fact that Salman didn’t pay him and Maher never even knew Salman had the information. Here is what the opinion says about how Maher and Michael testified about the benefit:

  • While Maher explained that he disclosed the information in large part to appease Michael (who pestered him incessantly for it), he also testified that he tipped his brother to “help him” and to “fulfil[l] whatever needs he had.”
  • For his part, Michael told the jury that his brother’s tips gave him “timely information that the average person does not have access to” and “access to stocks, options, and what have you, that I can capitalize on, that the average person would never have or dream of.”

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Access that “the average person would never have or dream of.” That is some genius-level witness prep right there, folks. (If you think Michael himself came up with that language, I have a bridge to sell you.) In one fell swoop, you both hit the legal requirement (personal benefit) and a beautiful class-warfare note that the jury probably loved. Prosecutors, take note: this is good stuff.

Maher and Michael’s testimony, said the Court, was enough to establish that Maher received a benefit under the Court’s 1983 Dirks decision. Giving a gift, said the Court, benefits the giver, and that is enough.

For those of you who are new to insider trading law, that’s a pretty interesting idea to think about. The Court is essentially saying (and has been saying since Dirks) that virtue is its own reward — that an act of generosity inherently inures to the benefit of the giver. It’s the kind of thing you’d expect to hear from the pulpit, not from a Supreme Court opinion on insider trading.  That doesn’t necessarily make it wrong, just interesting.

Now that the Supreme Court has unanimously affirmed Dirks, white-collar lawyers can rest easy. There still remain, it turns out, many limits to the Court’s suspicion of too much government authority. So we will still have plenty to do, our kids will still be able to eat, and we won’t have to learn the difference between an ILEC and a CLEC.

Justin Dillon is a partner at KaiserDillon PLLC in Washington, DC, where he focuses on white-collar criminal defense and campus disciplinary matters. Before joining the firm, he worked as an Assistant United States Attorney in Washington, DC, and at the Civil Rights Division of the Justice Department. His email is jdillon@kaiserdillon.com.

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