A Rule of Construction for the Personal Benefit Requirement in Tipping Cases
An essential element of an insider trading case based on a tipping violation is proof that the insider personally benefited from the disclosure to the tippee. The meaning of the personal benefit requirement has been controversial and led to differing interpretations in the courts of appeals that the Supreme Court partially resolved in Salman v. United States.1 That case dealt with a tip from an insider to his brother, who traded and tipped Salman, who also traded, and the Court decided it by re-affirming passages from the Court’s original tipping decision, Dirks v. SEC.2 Those passages suggested that an insider benefits personally when giving a gift of confidential information to a trading relative.3
This essay began as a proposed interpretive approach to the question about the meaning of the personal benefit requirement raised in Salman. It was made publicly available during the briefing for that case and before the Court issued its decision. The purpose of the essay was not to recommend how the Court should define personal benefit and instead was to suggest that the Court should apply a rule of construction to the personal benefit element that narrows the scope of potential liability. The Court has now decided Salman and held that an insider receives a personal benefit when making a gift of information to a family member, but other questions about the scope of the personal benefit requirement remain. For example, if the gift concept also applies to an insider’s disclosure to a friend, how close a friend must the tippee be? What kind of personal benefit justifies insider trading liability in situations not addressed by gifts to family or friends, such as those raised by the Second Circuit in the Newman case?4
