Business Organizations law; insider trading; Dirks; Salmon; Supreme Court


In Salman v. United States, the U.S. Supreme Court reaffirmed Dirks v. SEC, holding that a personal benefit may be inferred where an insider discloses material nonpublic information to a “trading relative or friend.” While the decision was viewed as a win for prosecutors, the Court’s limited holding did little to address issues pertaining to more complex tipping chains, such as those raised by the Second Circuit’s decision in United States v. Newman two years prior. Particularly, a remote tippee cannot always determine whether material nonpublic information was improperly disclosed at the time of receipt. Such a remote tippee could not know whether trading on the tip is lawful without further investigation, and in the fast-paced securities industry, time is money. These scenarios also raise issues in the courtroom, where prosecutors must prove that the remote tippee knew, or should have known, the information was improperly disclosed at time of the trade, and the Supreme Court has rejected the notion that a remote tippee presumptively knows that material nonpublic information was improperly disclosed. In response to these lingering uncertainties, this Note proposes that the SEC adopt Rule 10b5-D, a safe harbor rule that would encourage disclosure and promote timely decision making without condoning insider trading.