Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-14-10204/USCOURTS-ca9-14-10204-0/pdf.json

Parties Involved:
Bassam Yacoub Salman
Appellant
United States of America
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

BASSAM YACOUB SALMAN, AKA

Bessam Jacob Salman,

Defendant-Appellant.

No. 14-10204

D.C. No.

3:11-CR-00625-

EMC-1

OPINION

Appeal from the United States District Court

for the Northern District of California

Edward M. Chen, District Judge, Presiding

Argued and Submitted

June 9, 2015—San Francisco, California

Filed July 6, 2015

Before: Morgan Christen and Paul J. Watford, Circuit

Judges, and Jed S. Rakoff, Senior District Judge.

*

Opinion by Judge Rakoff

* The Honorable Jed S. Rakoff, Senior District Judge for the U.S.

District Court for the Southern District of New York, sitting by

designation.

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2 UNITED STATES V. SALMAN

SUMMARY**

Criminal Law

The panel affirmed a conviction by jury trial for

conspiracy and securities fraud arising from an insider-trader

scheme.

The panel held that the defendant did not waive a

sufficiency of the evidence issue raised only in a

supplemental brief because both parties had an opportunity to

brief the issue and to address it at oral argument.

The panel held that the evidence was sufficient to support

the conviction because it showed that an insider breached his

fiduciary duty by disclosing information to a trading relative,

and that the defendant knew of that breach at the time he

traded on it. The panel declined to hold that under the

Second Circuit’s opinion in United States v. Newman, 773

F.3d 438 (2d Cir. 2014), the government also was required to

prove that the insider disclosed the information for a personal

benefit.

COUNSEL

John D. Cline (argued), Law Office of John D. Cline, San

Francisco, California, for Defendant-Appellant.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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UNITED STATES V. SALMAN 3

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, California, for Plaintiff-Appellee.

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:

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.

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4 UNITED STATES V. SALMAN

In 2002, Salman’s future brother-in-law Maher Kara

joined Citigroup’s healthcare investment banking group. Over

the next 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 “mirror-imag[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. The brokerage records introduced at trial

revealed that, on numerous occasions from 2004 to 2007,

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UNITED STATES V. SALMAN 5

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

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6 UNITED STATES V. SALMAN

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.

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 insider-trading 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

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UNITED STATES V. SALMAN 7

WL1954058 (2d Cir. Apr. 3, 2015), Salman promptlymoved

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.

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 “‘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

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8 UNITED STATES V. SALMAN

brief where opponent had an opportunity to address the issue

at oral argument). Accordingly, we address Salman’s claim

on the merits.

B.

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 (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

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.”

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UNITED STATES V. SALMAN 9

naught. Id. at 649 & 650 n.3. 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. 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 EquityFunding stock

on the basis of that information. Id. at 649. 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 650–52.3

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.

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. 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

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.

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10 UNITED STATES V. SALMAN

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.

“Thus, the test is whether the insider personally will

benefit, directly or indirectly, from his disclosure,” id. at 662,

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] a breach,” id. at 660, 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. 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 (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

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 (1997).

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UNITED STATES V. SALMAN 11

“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 fiduciaryduties 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

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12 UNITED STATES V. SALMAN

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 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 courtesywithout 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

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UNITED STATES V. SALMAN 13

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, . . . 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

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14 UNITED STATES V. SALMAN

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. 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 friend.’” Newman, 773 F.3d at 452 (alteration

omitted) (quoting United States v. Jiau, 734 F.3d 147, 153

(2d Cir. 2013)).

In our case, the Government presented direct evidence

that the disclosure was intended as a gift of market-sensitive

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 market-sensitive — and therefore within the

reach of the securities laws, see O’Hagan, 521 U.S. at 656 —

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

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UNITED STATES V. SALMAN 15

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.

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