WASHINGTON (CN) - The Supreme Court struggled Wednesday with how to compare monetary benefits and less tangible, interpersonal benefits in a case that could disrupt the way the government prosecutes insider trading.
At the heart of the case before the nation's highest court is Bassam Salman, a grocery wholesaler from Chicago who made nearly $2 million from trading tips he received secondhand from an investment banker.
Salman received the nonpublic trading tips from Michael Kara, who in turn got them from his brother Maher, an investment banker at Citigroup's healthcare division. Maher originally just talked to Michael about his job to get his brother's opinion on health matters, but over the course of time Michael pressed Maher for more and more details and became more forceful in his requests.
Michael and Salman became close after Maher proposed to Salman's sister. Shortly after, Michael began passing the information he got from his conversations with Maher to Salman, who then traded based off of these tips.
The Justice Department eventually cracked down on Salman for insider trading when his accounts - which actually belong to his wife's sister - boomed.
Salman was found guilty on four counts of securities fraud and one count of conspiracy.
He claimed the charge of insider trading was unfounded because Maher received no monetary benefit from the tips passed on to Salman, and appealed his conviction to the Ninth Circuit.
The Ninth Circuit held, however, that dolling out information can benefit an insider's relationship with his family or friends, and that the insider doesn't necessary have to benefit financially for his actions to be considered insider trading.
But Salman argued before the Supreme Court Wednesday that the charge of "insider trading" is made up entirely by judges, and goes well beyond what Congress intended in the Securities Exchange Act. He warned against adding to the law without legislative action.
"The Ninth Circuit's indeterminate psychological-benefit 'standard' provides so much flexibility that it would effectively allow the government to usurp Congress' role to define the crime," Salman wrote in a brief to the court.
For its part, the government argued in briefs that restricting the benefit necessary to prove insider trading to monetary gain would be damaging to laws meant to preserve faith in the financial markets.
"Petitioner's 'pecuniary gain' limitation would seriously harm investors and damage confidence in the fairness of the nation's securities markets," the government said in its brief. "Favored tippees could reap instant, no-risk profits at the expense of stockholders free from securities-law liability."
The Supreme Court Wednesday struggled with balancing these two competing concerns during oral arguments that saw the justices question both sides extensively.
The arguments revolved around the Supreme Court's 1983 decision in Dirks v. SEC, which established the standard by which future courts should assess insider trading liability. Salman's attorney advocated for a more narrow reading of the Dirks decision, while the government said the case is important for protecting faith in the markets.
Both the liberal and conservative justices on the court pressed each side to explain its position, making it difficult to determine which way the court leans.
When Salman's attorney Alexandra Shapiro was at the podium, the justices pressed her to explain why doing something for personal benefit cannot be just as valuable as doing it for monetary gain.