John Marshall and Alan Tucker began working together at Marshall’s financial consulting firm in approximately 1995, and they renamed the firm Marshall, Tucker & Associates, LLC. In addition to working at his firm, from May 2000 until March 2008, Marshall served as a member of the board of directors of the International Securities Exchange (ISE). From late 2006 through early 2007, the ISE engaged in merger discussions with several other exchanges. In his role on the ISE board of directors, Marshall learned material, nonpublic information relating to discussions about that potential merger. From late 2006 through April 2007, Marshall provided Tucker with that material, nonpublic information. Marshall instructed Tucker “to make certain trades from which they would share the profits.” Tucker performed those transactions, and when the merger was made public around April 30, 2007, Marshall and Tucker “made a significant profit.”
On March 13, 2008, the government filed a complaint charging Marshall, Tucker, and a third defendant with one count of conspiracy to commit securities fraud and 10 counts of securities fraud. On September 25, 2008, the government filed an Information charging Marshall with one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371, and Marshall pleaded guilty to that count the same day. Marshall now files a petition for a writ of error because, he alleges, he is innocent of the crimes he pled guilty to. Specifically, he argues that the elements of insider trading were not met.
JUDGE NATHAN Petitioner contends that he was innocent of insider trading, or of a conspiracy to commit that offense, because “he never received or expected to receive any benefit of any kind in exchange for the informational tip he gave to Alan Tucker.”
The Supreme Court recently clarified the personal benefit requirement for tipper liability in Salman v. United States, 137 S. Ct. 420 (2016). There, the Supreme Court explained, “[A] tippee is exposed to liability for trading on inside information only if the tippee participates in a breach of the tipper’s fiduciary duty, i.e. if the tipper ‘will benefit, directly or indirectly, from his disclosure,’ … ‘such as [through] pecuniary gain or … reputational benefit that will translate into future earnings.’” In other words, “the disclosure of confidential information without personal benefit is not enough.” However, to be liable for trading on insider information a tipper need not receive “something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift to family or friends.” Instead, “when a tipper gives inside information to a trading relative or friend, the jury can infer that the tipper meant to provide the equivalent of a cash gift.” “In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.”
Petitioner contends that there is no basis in his plea allocution or elsewhere for the conclusion that he “

(a) received or agreed to receive a benefit in exchange for the tip; or

(b) had a relationship with [Tucker] that was sufficiently close … to make [Tucker’s] trading profit a benefit to Mr. Marshall.” Petitioner insists that there is no evidence that Petitioner received a “tangible benefit” after sharing information with Tucker, so insider trading liability can attach only if there was “a meaningfully close personal relationship” between Petitioner and Tucker. Petitioner avers that there is no evidence such a relationship existed.
However, in United States v. Martoma, 869 F.3d 58 (2d Cir. 2017), the Second Circuit “reject[ed], in light of Salman, the categorical rule that an insider can never personally benefit from disclosing inside information as a gift without a ‘meaningfully close personal relationship.’” The Second Circuit held that “an insider or tipper personally benefits from a disclosure of inside information whenever the information was disclosed ‘with the expectation that [the recipient]
would trade on it,’ and the disclosure ‘resemble[s] trading by the insider followed by a gift of the profits to the recipient,’ whether or not there was a ‘meaningfully close personal relationship’ between the tipper and tippee.” The Second Circuit explained that “a corporate insider personally benefits whenever he ‘disclos[es] inside information as a gift … with the expectation that [the recipient] would trade’ on the basis of such information or otherwise exploit it for his pecuniary gain.” The Second Circuit clarified that not all disclosures of inside information satisfy the personal benefit requirement: “[O]ur holding reaches only the insider who discloses inside information to someone he expects will trade on the information.”
Here, Petitioner clearly stated during his guilty plea allocution that he provided information to Tucker with the expectation that Tucker would trade on that information (“I gave hints about those merger discussions to a colleague with the knowledge that he would likely trade on that information and I know in fact that he did trade on that information.”). In addition, Petitioner described Tucker as a “colleague” in his allocution, thus indicating that he and Tucker had some type of relationship. In fact, Petitioner and Tucker had known each other and worked together for at least a decade before the events at issue occurred. Accordingly, there is a basis in Petitioner’s plea allocution and elsewhere for the conclusion that Petitioner “disclosed [inside information] with the expectation that [Tucker] would trade on it, and that the disclosure resemble[s] trading by [Petitioner] followed by a gift of the profits to the recipient.”
Moreover, the Information to which Petitioner pled guilty states that Petitioner and Tucker agreed to share profits resulting from trades carried out pursuant to the insider trading scheme. The Information also states that as a result of the trading scheme, Marshall and Tucker “made a significant profit.” The Information thus provides a basis for a conclusion that Petitioner received or expected to receive a pecuniary benefit from providing material non-public information to Tucker. Sufficient evidence thus supports Petitioner’s conviction for conspiracy to commit securities fraud.
CRITICAL THINKING:
What do you think is the strongest reason why the court did not accept petitioner’s claim that he did not personally benefit from sharing the inside information?
What kind of evidence, had it existed, would have led the court to a different conclusion?
ETHICAL DECISION MAKING:
What values are furthered by the outcome of this case?