Document Type


Publication Date


Publication Citation

42 Journal of Corporation Law 1 (2016)


Did an investment banker who gratuitously shared material nonpublic information with his brother, with no expectation of receiving anything in return, commit securities fraud? And is the investment banker's brother-in-law jointly liable for trading securities on the basis of what he knew to be gratuitous tips? The Supreme Court is poised to answer those questions in Salman v. United States, after steering clear of insider trading law for nearly two decades. It has been even longer still since the Court last addressed securities fraud liability relating to stock trading tips-it articulated a "personal benefit" test for joint tipper-tippee liability in 1983 in Dirks v. SEC, a decision reaffirming the "classical" theory of insider trading. In 2015, a circuit split arose as to whether gratuitous tipping constitutes a violation of the antifraud provisions in the federal securities laws, and the Court has granted certiorari in Salman to resolve that issue. This Article disagrees with the Second Circuit's finding that gratuitous tips do not result in a personal benefit and supports the Ninth Circuit's conclusion that such tips are illegal. But in arguing that gratuitous tips satisfy the personal benefit test, this Article draws from a potent combination offourpost-Dirks developments in federal securities law and state corporate law. These developments should prompt the Court not only to affirm the Ninth Circuit's decision but also to look beyond Dirks either to replace the personal benefit test with a breach of the duty of loyalty standard or, more boldly, to consolidate the Court's prior complementary theories of insider trading liability-the classical and misappropriation theories-into a unified and expanded framework that would regard insider trading as a 'fraud on contemporaneous traders."