Christopher Cooke Comments on Ninth Circuit Insider Trading Ruling
Ninth Circuit Insider Trading Ruling
On Monday, the Ninth Circuit came down with an important decision on insider trading and tippee liability in U.S. v. Salman, limiting the impact of the Second Circuit’s landmark U.S. v. Newman holding, at least in California and other Western states within the Ninth Circuit’s jurisdiction. In a key ruling, the Ninth Circuit expressly declined to follow Newman’s requirement that the person providing the tip—i.e., material nonpublic information– must receive a personal, “tangible” benefit to be liable for breach of fiduciary duty and thus guilty of insider trading. Instead, the Ninth Circuit holds that, under SEC v. Dirks, the seminal Supreme Court decision on tipper-tippee liability, one brother’s love for another brother, and desire to make a gift of insider information to him, suffices to establish the tipping brother/insider’s breach of fiduciary duty and therefore the illegality of his conduct.