Supreme Court To Hear Insider Trading Appeal Related To Citigroup

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The U.S. Supreme Court is set to review the conviction of an Illinois man convicted of insider trading following a July ruling that upheld the conviction for trading on information supplied by a Citigroup investment banker.

What’s at stake for insider trading prosecutions?

Today’s Supreme Court headlines will certainly be dominated by the court’s decision to look at the constitutionality of President Obama’s executive orders on immigration. However, the court will also have a look at the July ruling by the 9th U.S. Circuit Court of Appeals, which upheld the conviction of Bassam Salman who was sentenced to three years in prison for conspiracy and securities fraud.

Salman was convicted of making nearly $1.2 million trading on tips about mergers that were supplied by his brother-in-law, a Citigroup investment banker privy to the upcoming mergers.

Salman argued that prosecutors have it far too easy in proving that information was passed by a corporate insider. The true crux of the issue is whether or not prosecutors need to show a specific benefit was received by the person passing the information to a colleague, friend or family member. While the appeals court ruled that it wasn’t necessary for a prosecution, this ruling flew in the face of a ruling reached by a New York panel seven months earlier in 2014.

U.S District Jude Jed Rakoff wrote for the three-judge panel that disagreed with the New York Panel saying that if the New York ruling was followed insiders would be free to pass information on to friends and family as long as no compensation was received in return for the tip.

While the Supreme Court decided not to listen to the Justice Department’s appeal of the New York ruling by the 2nd U.S. Circuit Court of Appeals in October, Tuesday saw them return to the issue by agreeing to hear Salman’s appeal.

Citigroup banker’s role in the Salman trades

Prosecutors outlined how, from 2004 to 2007, Maher Kara, a former Citigroup investment banker tipped his brother Michael Kara about mergers that were in the pipeline for Citigroup clients.

Micheal Kara then passed these tips to Salmon who looked to another of his brother-in-laws, Karim Bayyouk,  to become a secret partner in an attempt to  obscure the source of the information. Salman used Boyouk’s brokerage account to make the trades. One of these trades allowed Salman to make $1.2 million ahead of a 2007 merger involving Citygroup client Biosite Inc.

After successfully profiting on the Biosite call options that Salman traded, he once again traded on a merger of a Citigroup client, United Surgical Partners International Inc. with the information obtained in a similar manner.

Both Kara brothers pleaded guilty in 2011 and received probation in 2011. In 2014, Bayyouk was sentenced to 18 months in prison on obstruction of justice chargers in 2014.

In 2013, Salmon was sentenced to three years in prison and ordered to pay $738,539.42 in restitution.

“Insider trading is a scourge that too often victimizes innocent investors and publicly traded companies alike,” said U.S. Attorney Melinda Haag after the conviction. “This sentence should warn those who might engage in insider trading that the consequences can be severe.”

“Forming a network of conspirators in an attempt to cheat the marketplace has consequences,” said FBI SAC David Johnson. “Our financial system is designed to benefit honest working people; contradicting this through white-collar crimes such as insider trading have criminal implications.”

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