Nov 09, 2016

After two decades, the Supreme Court of America has decided to hear a case involving an insider-trading charge. Bassam Salman has been suspected of performing insider trading after he was tipped off by his brother-in-law.

The case comes from California and addresses the trading done by Bassam Salman based on the information that was provided to him by his future brother-in-law. His brother-in-law was a part of Citigroup’s healthcare investment banking group. The case was brought down to the simple question of whether Mr. Maher Kara (brother-in-law of Salman) had  any personal benefit from the trading that was done by Salman?

The Supreme Court wants to make it easier to prosecute insiders by indicating any sort of profit that was made by the informant in exchange for the information. The ruling seems to be OK on the surface, but it is still being opposed by a lot of people as there are loop holes in this system.

Due to Congress not having supplied any legal action that is to be taken against insider-trading and the informants, courts have to rely on their own understanding on dealing with the matter. The Justice department has been keen on not allowing Salman to take the similar road that had been taken by previous people suspected of insider-trading. The decision taken by the Supreme Court in 1983 considering Newman vs. Securities and Exchange Commission, involved the factual evidence of the insider “directly or indirectly” gaining something from the trade themselves.

The main problem that arises with such decisions is the fact that it would give freedom to insiders to trade information with relatives. The only thing they have to do is not gain something personally. The fact is that the money is still circulating inside the family. It can be laundered in so many ways that the government cannot keep track of it.

There is a serious need to revisit laws regarding insider trading and to add articles which apply to relatives giving any sort of confidential information to anyone outside the company.

Although Salman has not been proven guilty, there are still a lot of gray areas in this case that need to be explored thoroughly. A thorough investigation of both the insider and the trader are to be carried out, tracing back their histories to see how much they have been in contact.

The problem here is that the ruling in favor of Salman has opened up chances for many insiders to provide their relatives with sensitive information. They can simply plead innocence by claiming that they have not made any contact in regard to exchange of funds or gifts with each other and walk free.

This will definitely hurt market participants and gives a lot of leverage for unfair dealings within the securities market.

The Supreme Court has not taken the Justice Department’s advice and has not disclosed the reason for agreeing to review the case.

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