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Thursday, July 18, 2024 | Back issues
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Justices Will Weigh Insider-Trading Appeal

(CN) - The Supreme Court agreed on Tuesday to consider what benefits need to be proven to hold someone liable for trading stocks on inside information from a friend or relative.

A jury convicted Bassam Salman of conspiracy and securities fraud related to an insider-trading scheme. He was sentenced in April 2014 to three years in prison and ordered to pay $738,000 in restitution, the Federal Bureau of Investigation announced at the time.

According to evidence at trial, Salman bought about $100,000 in Biosite Inc. stock call options in 2007 based on information he learned from his friend Michael Kara, who first got it from his brother, Maher Kara, a former investment banker at Citigroup.

Two days after Salman's purchase, Biosite announced a merger and Salman sold his options, profiting more than $947,000, the U.S. Department of Justice said.

Salman also made money from a prior 2006 transaction based on inside information from the Karas, prosecutors said. The Kara brothers pleaded guilty in 2011 to conspiracy and securities fraud charges.

The Ninth Circuit upheld Salman's conviction last July, ruling that evidence established that an insider breached his fiduciary duty by disclosing information to a trading relative, and that Salman knew of that breach when he traded on it.

"The jury had more than enough facts, as described above, to infer that when Maher Kara gave inside information to Michael Kara, he knew that there was a potential (indeed, a virtual certainty) that Michael would trade on it," Judge Jed Rakoff wrote for the San Francisco-based appeals court. "And while Salman may not have been aware of all the details of the Kara brothers' relationship, the jury could easily have found that, as a close friend and member (through marriage) of the close-knit Kara clan, Salman must have known that, when Maher gave confidential information to Michael, he did so with the 'intention to benefit' a close relative."

Salman filed a petition with the U.S. Supreme Court in November, asking it to consider whether a lower court incorrectly held that a person is subjected to criminal insider-trading liability by gifting confidential information to a trading relative or friend. Salman also asked the justices to address whether the evidence in his case supported the trial court's decision to give the jury an instruction on deliberate ignorance.

The Supreme Court agreed on Tuesday to address only the question of criminal liability based on information passed by a corporate insider to a relative or friend. Per its custom, the high court did not comment on its decision to hear the case.

Salman was also named as a defendant in an unrelated, $4 million breach of fiduciary duty civil lawsuit filed in 2012.

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