Much Ado About Little

The U.S. Supreme Court decided its big insider-trading case of the term on Tuesday, and it turns out you still can’t toss a friend or family member a tip to trade on. Who knew?

Here are the facts. The defendant’s brother-in-law was an investment banker who advised major healthcare companies on mergers and acquisitions. Over time, he shared inside information about these corporate deals with his biological brother, who shared them with the defendant. By the time of defendant’s trial, the brothers had both pleaded guilty, and they testified that defendant knew the tips came from insider trading.

Well, the jury convicted him, and on appeal, he relied on a recent case out of New York that we wrote about here.

Under that case, he argued, insider trading required proof that the insider benefited financially from the tipping. In his case, however, the insider (banker) had tipped off his brother freely as a gift. Therefore, none of it was insider trading.

The problem was that the New York case didn’t say that. While insider trading does require the insider to benefit personally from the tip, the law has long defined such personal benefit to include the benefit you get from making a gift of confidential information to a relative or friend. The New York case didn’t change that, though it did question who should count as a friend (or relative, for that matter) in a world full of loose connections.

Still, the New York case had caused a stir in the white-collar-defense world over whether the Supreme Court would use this case to reshape the law of insider trading.

But this case was different, and the Court did no such thing.