2016-09-21wsj.com

The Supreme Court case, scheduled for arguments next month, could have wide-ranging implications for many insider-trading cases moving forward. The pivotal issue: Whether the government must prove the person who gave the inside tip received a benefit in providing it.

Bassam Salman, who brought the appeal to the Supreme Court, was convicted and sentenced to three years in prison for trading on inside information he received from his brother-in-law, a Citigroup Inc. investment banker. Mr. Salman and an associate brought in $1.7 million in trading profits based on tips from his brother-in-law about forthcoming acquisitions involving Citigroup clients, prosecutors said... Mr. Salman's lawyers are relying on a major 2014 decision by the New York-based Second U.S. Circuit Court of Appeals that limited insider-trading prosecutions.

In the New York case, U.S. v. Newman, the court said prosecutors had to prove a recipient of an inside tip knew the confidential information came from an insider and that the insider disclosed the information for a tangible benefit. That decision overturned the convictions of hedge-fund managers Todd Newman and Anthony Chiasson.

...

The Justice Department unsuccessfully appealed the Newman decision and warned it would hamper their ability to pursue insider trading. The ruling also forced prosecutors to move to dismiss charges against former SAC Capital Advisors LP portfolio manager Michael Steinberg and six analysts, dealing a blow to what had been one of the most successful string of insider-trading prosecutions. Prosecutors in New York had won more than 80 convictions in such cases with only one acquittal in recent years.

Despite the uncertainty in the law, the SEC decided to move forward [in Cooperman's case] in a way that largely sidesteps the question at issue in the Salman case.

The SEC's civil case against Mr. Cooperman alleges he essentially stole the information from an executive at Atlas Pipeline Partners before purchasing securities in the company before the 2010 sale of its natural gas processing facility in Elk City, Okla. The SEC didn't allege Mr. Cooperman provided a benefit to the executive, but "breached a duty" he owed to the executive to keep it confidential and not use it to trade.



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