Mind the Gap(s): Solutions for Defining Tipper-Tippee Liability and the Personal Benefit Test Post-Salman v. United States

Abstract

The Supreme Court’s decision in Salman v. United States reaffirmed (and indeed, clarified) the central holding of Dirks v. SEC that no additional pecuniary or reputational gain is needed when an insider gives information to a “trading relative or friend.” While this was considered a win for prosecutors, the Court chose to abstain from considering more complex questions regarding tipper-tippee liability. Namely, the Court provided no guidance on what constitutes a “friend” or “trading relative” nor how a tippee “should know” whether information was improperly disclosed. Without any clear standards, prosecutors and courts have wide discretion to determine whether these criteria are met, which is often a case-specific and fact-intensive inquiry. Anticipating some of these difficulties, this Note proposes some objective criteria for courts to consider when determining whether the criteria in Salman has been satisfied. This promotes a uniform state of tipper-tippee liability and avoids uncertainty about the outcomes in future insider trading cases