Insider trading gets tighter in US
Suppose your friend works in a listed company and he mentions casually that his company is probably selling stake as he is seeing a bevy of activity in the Board. You also take this news casually and mention this at some of your relatives, one amongst who buys the stock and makes a killing. In India, this is OK but if you had been in the USA, even this casual talk is considered to be gossip or insider trading and you could be behind bars!
On 6th December, the US Supreme Court ruled in Salman V/s US case that a tipper who shares confidential information and gets nothing material in exchange, nonetheless benefits. In other words, even if there’s nothing given in return for the secret information, the act of sharing is itself sufficient to meet the definition of “benefits” required to prove insider trading.
This ruling comes on the case of Bassam Salman. He apparently got insider tips from his future brother-in-law via his brother who worked in Citigroup’s health care investment group) and traded on them, earning $1.3 million. Salman was convicted of conspiracy and insider trading in 2011 in California. Salman’s stand was that this cannot be construed as insider trading as his relative, received no money or property in exchange for the tips and did not personally benefit. His argument was rejected by the Ninth Circuit Court of Appeals in San Francisco in 2015, a decision affirmed by the Supreme Court on 6th Dec’16.
Salman is sentenced to 36 months in prison, plus probation and $730,000 in restitution.