Cooper, James 10/28/2016
For Educational Use Only
U.S. v. Salman, 792 F.3d 1087 (2015)
Fed. Sec. L. Rep. P 98,567
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1
KeyCite Yellow Flag - Negative Treatment
Certiorari Granted in Part by Salman v. U.S., U.S., January 19, 2016
792 F.3d 1087
United States Court of Appeals,
Ninth Circuit.
UNITED STATES of America, Plaintiff–Appellee,
v.
Bassam Yacoub SALMAN, aka Bessam
Jacob Salman, Defendant–Appellant.
No. 14–10204.
|
Argued and Submitted June 9, 2015.
|
Filed July 6, 2015.
Synopsis
Background: Defendant was convicted in the United
States District Court for the Northern District of
California, Edward M. Chen, J., of conspiracy and insider
trading. Defendant appealed.
[Holding:] The Court of Appeals, Rakoff, Senior District
Judge, held that evidence was sufficient to support finding
tipper received personal benefit in exchange for disclosure
as required to support conviction.
Affirmed.
West Headnotes (4)
[1] Criminal Law
Points and authorities
Court of Appeals will not ordinarily consider
matters on appeal that are not specifically and
distinctly argued in appellant's opening brief.
Cases that cite this headnote
[2] Criminal Law
Points and authorities
Court of Appeals may consider an argument
on appeal not raised in an opening brief: (1)
for good cause shown or if a failure to do so
would result in manifest injustice, (2) when it is
raised in the appellee's brief, or (3) if the failure
to raise the issue properly did not prejudice the
defense of the opposing party.
Cases that cite this headnote
[3] Criminal Law
Construction in favor of government,
state, or prosecution
Criminal Law
Reasonable doubt
In reviewing a challenge to the sufficiency of
the evidence to support a criminal conviction,
Court of Appeals must determine whether,
when viewed in the light most favorable to
the Government, the evidence was adequate
to allow any rational trier of fact to find
the essential elements of the crime beyond a
reasonable doubt.
Cases that cite this headnote
[4] Securities Regulation
Tippees
Evidence was sufficient to support finding
that defendant, as close friend and family
member of corporate insider, must have
known that when insider gave material nonpublic
information to his brother, defendant's
tipper, he did so in breach of his fiduciary
duty with intent to benefit a close relative such
that he received a personal benefit in exchange
for his tips, as required to sustain defendant's
conviction for insider trading; defendant, as
brother-in-law of insider, knew of insider and
tipper's close familial relationship as fraternal
brothers and was told by tipper that it was
his brother who repeatedly leaked inside
information on which defendant traded,
insider testified he disclosed confidential
Cooper, James 10/28/2016
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U.S. v. Salman, 792 F.3d 1087 (2015)
Fed. Sec. L. Rep. P 98,567
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2
information to benefit and fulfill the needs
of his brother, the tipper, and defendant and
tipper agreed they had to protect insider
from exposure. 18 U.S.C.A. § 371; Securities
Exchange Act of 1934, §§ 10(b), 32, 15
U.S.C.A. §§ 78j(b), 78ff; 17 C.F.R. § 240.10b–
5.
7 Cases that cite this headnote
Attorneys and Law Firms
*1088 John D. Cline (argued), Law Office of John D.
Cline, San Francisco, CA, for Defendant–Appellant.
Merry Jean Chan, Assistant United States Attorney
(argued), Melinda Haag, United States Attorney, Barbara
J. Valliere, Chief, Appellate Division, United States
Attorney's Office, San Francisco, CA, for Plaintiff–
Appellee.
Appeal from the United States District Court for the
Northern District of California, Edward M. Chen,
District Judge, Presiding. D.C. No. 3:11–CR–00625–
EMC–1.
Before: MORGAN CHRISTEN and PAUL J.
WATFORD, Circuit Judges, and JED S. RAKOFF,
Senior District Judge. *
OPINION
RAKOFF, Senior District Judge:
Defendant–Appellant Bassam Yacoub Salman appeals
his conviction, following jury trial, for conspiracy
and insider trading. He argues that the evidence was
insufficient to sustain his conviction under the standard
announced by the United States Court of Appeals for the
Second Circuit in United States v. Newman, 773 F.3d 438
(2d Cir.2014), which he urges us to adopt. We find that the
evidence was sufficient, and we affirm. 1
BACKGROUND
This case arises from an insider-trading scheme involving
members of Salman's extended family. On September 1,
2011, Salman was indicted for one count of conspiracy to
commit securities fraud in violation of 18 U.S.C. § 371 and
four counts of securities fraud in violation of 15 U.S.C. §§
78j(b) and 78ff, 17 C.F.R. §§ 240.10b–5, 240.10b5–1 and
240.10b5–2, and 18 U.S.C. § 2. At trial, the Government
presented evidence of the following:
In 2002, Salman's future brother-in-law Maher Kara
joined Citigroup's healthcare investment banking group.
Over the next *1089 few years, Maher began to
discuss aspects of his job with his older brother, Mounir
(“Michael”) Kara. At first, Maher sought help from
Michael, who held an undergraduate degree in chemistry,
in understanding scientific concepts relevant to his work
in the healthcare and biotechnology sectors. In 2004, when
their father was dying of cancer, the focus of the brothers'
discussions shifted to companies that were active in the
areas of oncology and pain management. Maher began
to suspect that Michael was trading on the information
they discussed, although Michael initially denied it. As
time wore on, Michael became more brazen and more
persistent in his requests for inside information, and
Maher knowingly obliged. From late 2004 through early
2007, Maher regularly disclosed to Michael information
about upcoming mergers and acquisitions of and by
Citigroup clients.
Meanwhile, in 2003, Maher Kara became engaged to
Salman's sister, Saswan (“Suzie”) Salman. Over the course
of the engagement, the Kara family and the Salman
family grew close. In particular, Salman and Michael Kara
became fast friends. In the fall of 2004, Michael began
to share with Salman the inside information that he had
learned from Maher, encouraging Salman to “mirrorimag
[e]” his trading activity. Rather than trade through
his own brokerage account, however, Salman arranged
to deposit money, via a series of transfers through other
accounts, into a brokerage account held jointly in the
name of his wife's sister and her husband, Karim Bayyouk.
Salman then shared the inside information with Bayyouk
and the two split the profits from Bayyouk's trading.
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The brokerage records introduced at trial revealed that,
on numerous occasions from 2004 to 2007, Bayyouk
and Michael Kara executed nearly identical trades in
securities issued by Citigroup clients shortly before the
announcement of major transactions. As a result of
these trades, Salman and Bayyouk's account grew from
$396,000 to approximately $2.1 million.
Of particular relevance here, the Government presented
evidence that Salman knew full well that Maher Kara
was the source of the information. Michael Kara (who
pled guilty and testified for the Government) testified that,
early in the scheme, Salman asked where the information
was coming from, and Michael told him, directly, that
it came from Maher. Michael further testified about an
incident that occurred around the time of Maher and
Suzie's wedding in 2005. According to Michael Kara, on
that visit, Michael noticed that there were many papers
relating to their stock trading strewn about Salman's
office. Michael became angry and admonished Salman
that he had to be careful with the information because it
was coming from Maher. Michael testified that Salman
agreed that they had to “protect” Maher and promised to
shred all of the papers.
The Government further presented evidence that Maher
and Michael Kara enjoyed a close and mutually beneficial
relationship. Specifically, the jury heard testimony that
Michael helped pay for Maher's college, that he stood
in for their deceased father at Maher's wedding, and, as
discussed above, that Michael coached Maher in basic
science to help him succeed at his job. Maher, for his
part, testified that he “love[d] [his] brother very much”
and that he gave Michael the inside information in order
to “benefit him” and to “fulfill [ ] whatever needs he
had.” For example, Maher testified that on one occasion,
he received a call from Michael asking for a “favor,”
requesting “information,” and explaining that he “owe[d]
somebody.” After Michael turned down Maher's offer
of money, Maher gave him a tip about an upcoming
acquisition instead.
*1090 Finally, the Government presented evidence that
Salman was aware of the Kara brothers' close fraternal
relationship. The Salmans and the Karas were tightly knit
families, and Salman would have had ample opportunity
to observe Michael and Maher's interactions at their
regular family gatherings. For example, Michael gave a
toast at Maher's wedding, which Salman attended, in
which Michael described how he spoke to his younger
brother nearly every day and described Maher as his
“mentor,” his “private counsel,” and “one of the most
generous human beings he knows.” Maher, overcome
with emotion, began to weep.
The jury found Salman guilty on all five counts. Salman
then moved for a new trial pursuant to Rule 33 of the
Federal Rules of Criminal Procedure, on the ground, inter
alia, that there was no evidence that he knew that the
tipper disclosed confidential information in exchange for
a personal benefit. The district court denied his motion in
full.
Salman timely appealed, but did not raise a challenge
to the sufficiency of the evidence in his opening brief.
After he filed his reply brief, the United States Court
of Appeals for the Second Circuit, in United States v.
Newman, 773 F.3d 438 (2d Cir.2014), vacated the insidertrading
convictions of two individuals on the ground
that the Government failed to present sufficient evidence
that they knew the information they received had been
disclosed in breach of a fiduciary duty. Id. at 455. After
the Second Circuit denied the Government's petition for
panel rehearing and rehearing en banc, United States v.
Newman, Nos. 13–1837, 13–1917, 2015 WL 1954058 (2d
Cir. Apr. 3, 2015), Salman promptly moved for leave to
file a supplemental brief arguing that the Government's
evidence in the instant case was insufficient under the
standard announced in Newman, which he urged this
Court to adopt. We granted Salman's motion and gave the
Government an opportunity to respond.
DISCUSSION
A.
[1] [2] The threshold question is whether Salman waived
the present argument by failing to raise it in his opening
brief on this appeal, even though he had raised it below
and, after Newman was decided, promptly raised it in
a supplemental brief that the Government responded to
before oral argument. Ordinarily, we will not consider “
Cooper, James 10/28/2016
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Fed. Sec. L. Rep. P 98,567
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4
‘matters on appeal that are not specifically and distinctly
argued in appellant's opening brief.’ ” United States v.
Ullah, 976 F.2d 509, 514 (9th Cir.1992) (quoting Miller v.
Fairchild Indus., Inc., 797 F.2d 727, 738 (9th Cir.1986)).
However, we make an exception to this general rule (1) for
“good cause shown” or “if a failure to do so would result in
manifest injustice,” (2) “when it is raised in the appellee's
brief,” or (3) “if the failure to raise the issue properly
did not prejudice the defense of the opposing party.” Id.
(internal citation and quotation marks omitted).
The third exception applies here. As both parties have
had a full opportunity to brief this issue and to address
it at oral argument, the Government cannot complain
of prejudice. See Hall v. City of Los Angeles, 697 F.3d
1059, 1072 (9th Cir.2012) (finding no prejudice where
parties had opportunity to brief the issue); Ibarra–Flores
v. Gonzales, 439 F.3d 614, 619 n. 4 (9th Cir.2006)
(considering issue not raised in opening brief where
opponent had an opportunity to address the issue at oral
argument). Accordingly, we address Salman's claim on the
merits.
*1091 B.
[3] In reviewing a challenge to the sufficiency of the
evidence, we must determine whether, when viewed in
the light most favorable to the Government, the evidence
was “ ‘adequate to allow any rational trier of fact to find
the essential elements of the crime beyond a reasonable
doubt.’ ” United States v. Richter, 782 F.3d 498, 501 (9th
Cir.2015) (quoting United States v. Nevils, 598 F.3d 1158,
1164 (9th Cir.2010) (en banc)). Salman urges us to adopt
Newman as the law of this Circuit, and contends that,
under Newman, the evidence was insufficient to find either
that Maher Kara disclosed the information to Michael
Kara in exchange for a personal benefit, or, if he did, that
Salman knew of such benefit. 2
The “personal benefit” requirement for tippee liability
derives from the Supreme Court's opinion in Dirks v.
S.E.C., 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911
(1983). Dirks presented an unusual fact pattern. Ronald
Secrist, a whistleblower at a company called Equity
Funding, had contacted Raymond Dirks, a well-known
securities analyst, after Secrist's prior disclosures to the
Securities and Exchange Commission (“SEC”) had gone
for naught. Id. at 649 & 650 n. 3, 103 S.Ct. 3255. Secrist,
for no other purpose than exposing the Equity Funding
fraud, disclosed inside information about the company to
Dirks, who in turn launched his own investigation that
eventually led to public exposure of a massive fraud. Id.
at 649–50, 103 S.Ct. 3255. However, in the process of
his investigation, Dirks openly discussed the information
provided by Secrist with various clients and investors,
some of whom then sold their Equity Funding stock on the
basis of that information. Id. at 649, 103 S.Ct. 3255. Upon
learning this, the SEC charged Dirks with securities fraud,
and this position was upheld by an SEC Administrative
Law Judge and affirmed by the District of Columbia
Circuit, after which certiorari was granted. Id. at 650–52,
103 S.Ct. 3255. 3
When the case came to the Supreme Court, Justice
Powell, writing for the Court, began by noting that,
whistleblowing quite aside, corporate insiders, in the
many conversations they typically have with stock
analysts, often accidentally or mistakenly disclose
material information that is not immediately available to
the public. Id. at 658–59, 103 S.Ct. 3255. Thus, “[i]mposing
a duty to disclose or abstain solely because a person
knowingly receives material nonpublic information from
an insider and trades on it could have an inhibiting
influence on the role of market analysts, which the SEC
itself recognizes is necessary to the preservation of a
healthy market.” Id. at 658, 103 S.Ct. 3255. At the same
time, the Court continued, “[t]he need for a ban on some
tippee trading is clear. Not only are insiders forbidden
by their fiduciary relationship from personally using
undisclosed corporate information to their advantage, but
they may not give such information to an outsider for the
same improper purpose of exploiting the information for
their personal gain.” Id. at 659, 103 S.Ct. 3255.
*1092 “Thus, the test is whether the insider personally
will benefit, directly or indirectly, from his disclosure,”
id. at 662, 103 S.Ct. 3255, for in that case the
insider is breaching his fiduciary duty to the company's
shareholders not to exploit company information for his
personal benefit. 4 And a tippee is equally liable if “the
tippee knows or should know that there has been [such]
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a breach,” id. at 660, 103 S.Ct. 3255, i.e., knows of the
personal benefit.
Of particular importance here, the Court then went on
to define what constitutes the “personal benefit” that
constitutes the breach of fiduciary duty. It would include,
for example, “a pecuniary gain or a reputational benefit
that will translate into future earnings.” Id. at 663, 103
S.Ct. 3255. However, “[t]he elements of fiduciary duty and
exploitation of nonpublic information also exist when an
insider makes a gift of confidential information to a trading
relative or friend.” Id. at 664, 103 S.Ct. 3255 (emphasis
supplied).
The last-quoted holding of Dirks governs this case.
Maher's disclosure of confidential information to
Michael, knowing that he intended to trade on it,
was precisely the “gift of confidential information to a
trading relative” that Dirks envisioned. Id. Indeed, Maher
himself testified that, by providing Michael with inside
information, he intended to “benefit” his brother and
to “fulfill[ ] whatever needs he had.” As to Salman's
knowledge, Michael Kara, whose testimony we must
credit on a challenge to the sufficiency of the evidence,
testified that he directly told Salman that it was Michael's
brother Maher who was, repeatedly, leaking the inside
information that Michael then conveyed to Salman, and
that Salman later agreed that they had to “protect”
Maher from exposure. Given the Kara brothers' close
relationship, Salman could readily have inferred Maher's
intent to benefit Michael. Thus, there can be no question
that, under Dirks, the evidence was sufficient for the jury
to find that Maher disclosed the information in breach of
his fiduciary duties and that Salman knew as much.
Salman, however, argues that the Second Circuit in
Newman interpreted Dirks to require more than this. Of
course, Newman is not binding on us, and our own reading
of Dirks is guided by the clearly applicable language
italicized above. But we would not lightly ignore the most
recent ruling of our sister circuit in an area of law that it
has frequently encountered.
The defendants in Newman, Todd Newman and Anthony
Chiasson, both portfolio managers, were charged with
trading on material non-public information regarding
two companies, Dell and NVIDIA, obtained by a group
of analysts at various hedge funds and investment
firms. Newman, 773 F.3d at 442–43. The information
came to them via two distinct tipping chains. The Dell
tipping chain originated with Rob Ray, a member of
Dell's investor relations department. Id. at 443. Ray
tipped information regarding Dell's earnings numbers to
Sandy Goyal, an analyst. Id. Goyal, in turn, relayed
the information to Jesse Tortora, another analyst, who
relayed it to his manager, Newman, as well as to other
analysts including Spyridon Adondakis, who passed it
to Chiasson. Id. The NVIDIA tipping chain began
with Chris Choi, of NVIDIA's finance unit, who tipped
inside information to his acquaintance Hyung Lim, who
passed it to Danny Kuo, an analyst, who circulated
it to his analyst friends, including Tortora and *1093
Adondakis, who in turn gave it to Newman and Chiasson.
Id. Having received this information, Newman and
Chiasson executed trades in both Dell and NVIDIA stock,
generating lavish profits for their respective funds. Id.
The Government presented the following evidence
regarding the relationships between the Dell and NVIDIA
insiders and their respective tippees. The Dell tipper and
tippee, Ray and Goyal, attended business school together
and had been colleagues at Dell, but were not “close.”
Id. at 452. Goyal provided career advice and assistance to
Ray, for example, discussing the qualifying examination
required to become an analyst and editing his résumé.
Id. This advice began before Ray started to give Goyal
information, and Goyal testified that he would have given
it as a routine professional courtesy without receiving
anything in return. Id. As to the NVIDIA tips, the insider,
Choi, and his tippee, Lim, were “family friends” who
met through church and occasionally socialized with one
another. Id. Lim testified that he did not provide anything
of value to Choi in return for the tips, and that Choi did
not know that he was trading in NVIDIA stock. Id.
The Second Circuit held that this evidence was insufficient
to establish that either Ray or Choi received a personal
benefit in exchange for the tip. It noted that, although
the “personal benefit” standard is “permissive,” it “does
not suggest that the Government may prove the receipt
of a personal benefit by the mere fact of a friendship,
particularly of a casual or social nature.” Id. Instead, to
the extent that “a personal benefit may be inferred from
a personal relationship between the tipper and tippee, ...
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such an inference is impermissible in the absence of
proof of a meaningfully close personal relationship that
generates an exchange that is objective, consequential,
and represents at least a potential gain of a pecuniary or
similarly valuable nature.” Id. (emphasis supplied).
Applying these standards, the court concluded that the
“circumstantial evidence ... was simply too thin to warrant
the inference that the corporate insiders received any
personal benefit in exchange for their tips,” id. at 451–
52, and furthermore, that “the Government presented
absolutely no testimony or any other evidence that
Newman and Chiasson knew they were trading on
information obtained from insiders, or that those insiders
received any benefit in exchange for such disclosures.” Id.
at 453.
Salman reads Newman to hold that evidence of a
friendship or familial relationship between tipper and
tippee, standing alone, is insufficient to demonstrate that
the tipper received a benefit. In particular, he focuses on
the language indicating that the exchange of information
must include “at least a potential gain of a pecuniary or
similarly valuable nature,” id. at 452, which he reads as
referring to the benefit received by the tipper. Salman
argues that because there is no evidence that Maher
received any such tangible benefit in exchange for the
inside information, or that Salman knew of any such
benefit, the Government failed to carry its burden.
To the extent Newman can be read to go so far, we decline
to follow it. Doing so would require us to depart from
the clear holding of Dirks that the element of breach of
fiduciary duty is met where an “insider makes a gift of
confidential information to a trading relative or friend.”
Dirks, 463 U.S. at 664, 103 S.Ct. 3255. Indeed, Newman
itself recognized that the “ ‘personal benefit is broadly
defined to include not only pecuniary gain, but also, inter
alia, ... the benefit one would obtain from simply making
a gift of confidential information to a trading relative or
*1094 friend.’ ” Newman, 773 F.3d at 452 (alteration
omitted) (quoting United States v. Jiau, 734 F.3d 147, 153
(2d Cir.2013)).
[4] In our case, the Government presented direct evidence
that the disclosure was intended as a gift of marketsensitive
information. Specifically, Maher Kara testified
that he disclosed the material nonpublic information for
the purpose of benefitting and providing for his brother
Michael. Thus, the evidence that Maher Kara breached
his fiduciary duties could not have been more clear,
and the fact that the disclosed information was marketsensitive—
and therefore within the reach of the securities
laws, see O'Hagan, 521 U.S. at 656, 117 S.Ct. 2199—was
obvious on its face. If Salman's theory were accepted and
this evidence found to be insufficient, then a corporate
insider or other person in possession of confidential and
proprietary information would be free to disclose that
information to her relatives, and they would be free to
trade on it, provided only that she asked for no tangible
compensation in return. Proof that the insider disclosed
material nonpublic information with the intent to benefit
a trading relative or friend is sufficient to establish the
breach of fiduciary duty element of insider trading.
In Salman's case, the jury had more than enough facts,
as described above, to infer that when Maher Kara gave
inside information to Michael Kara, he knew that there
was a potential (indeed, a virtual certainty) that Michael
would trade on it. And while Salman may not have been
aware of all the details of the Kara brothers' relationship,
the jury could easily have found that, as a close friend
and member (through marriage) of the close-knit Kara
clan, Salman must have known that, when Maher gave
confidential information to Michael, he did so with the
“intention to benefit” a close relative. Id.
Accordingly, we find that the evidence was more than
sufficient for a rational jury to find both that the inside
information was disclosed in breach of a fiduciary duty,
and that Salman knew of that breach at the time he traded
on it.
AFFIRMED.
All Citations
792 F.3d 1087, Fed. Sec. L. Rep. P 98,567
Footnotes
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Fed. Sec. L. Rep. P 98,567
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7
* The Honorable Jed S. Rakoff, Senior District Judge for the U.S. District Court for the Southern District of New York,
sitting by designation.
1 Salman raised several additional claims relating to the same conviction. Those claims are addressed in a separate
memorandum disposition filed concurrently with this opinion.
2 Another holding of Newman—that even a remote tippee must have some knowledge of the personal benefit (however
defined) that the inside tipper received for disclosing inside information, see Newman, 773 F.3d at 450—is not at issue
here, because the jury was instructed that it had to find that Salman “knew that Maher Kara personally benefitted in some
way, directly or indirectly, from the disclosure of the allegedly inside information to Mounir (‘Michael’) Kara.”
3 The Department of Justice, which successfully prosecuted the perpetrators of the fraud and viewed Dirks as a hero, took
the unusual step of filing an amicus brief in the Supreme Court urging rejection of the SEC's theory. Id. at 648.
4 The same is true in a so-called “misappropriation” case, like the instant case, where the fiduciary duty is owed, not to
the shareholders, but to the tipper's employer, client, or the like. See United States v. O'Hagan, 521 U.S. 642, 652–53,
117 S.Ct. 2199, 138 L.Ed.2d 724 (1997).
End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.