John Helms, Dallas Fraud Defense Lawyer Discusses Insider Trading

Dallas fraud defense lawyer answers the securities fraud question “Can you go to jail if a friend or relative gives you inside information for nothing in return?”

The United States Supreme Court recently held that, if you receive inside confidential information about a company from a friend or relative, and if you use that to trade on the company’s stock, you can be convicted of criminal securities fraud if you knew the information came from an inside source, even if you did not give anything in return for the information. In other words, just getting and using the information is enough. You do not have to pay anything for it or promise anything in return for it, adds Dallas fraud defense lawyer John Helms.

In Salman v. United States, a Citibank employee who knew confidential information about the bank’s clients’ merger and acquisition plans passed on inside information to his brother, who then passed it on to his brother-in-law, Mr. Salman. Mr. Salman knew that the information was confidential and came from the Citibank employee. He used the inside information to make money trading stock. He was convicted of securities fraud and sentenced to spend three years in federal prison.

On appeal, Mr. Salman argued that he should not be guilty because he did not give anyone anything in return for the information. The Supreme Court disagreed.

Essentially, the Supreme Court held that the sense of satisfaction you get from giving a gift to a friend or relative is enough of a benefit to the person supplying the inside information. No other pay or compensation is necessary. By analogy, the court said that a person with inside information could not use it to trade stock and then give a gift of the profits to a friend or relative, and this is no different.

The Supreme Court’s ruling makes sense. The purpose of the securities laws is to protect the integrity of the securities markets so that no one has an unfair advantage. If people with inside information could pass it on to friends and relatives and they could feel free to use it to make profits from trading, they would get an unfair advantage, and the public would know that the securities markets were not a level playing field. This could reduce people’s desire to invest, which would hurt companies and the financial markets.

So, if you are at a party or a holiday gathering with the family, and a friend or relative happens to mention some inside information that could help you make you money in the stock market, don’t use it. Even though it was just a casual conversation, and even though you didn’t secretly pass the person a briefcase full of money, it is still illegal.

The securities laws are very complicated. If you or a loved one is being investigated for securities fraud, contact a Dallas fraud defense lawyer who knows the ins and outs of the securities laws and who is an expert in criminal law.  Some securities lawyers advise companies on how to prepare stock offerings or how to make the disclosures the securities laws require.  They may know a lot about the securities laws but next to nothing about criminal law.  You need someone who knows both areas.  I practice in the areas of both civil and criminal securities law, and I know how important it is to have that knowledge to protect the rights of someone who is being investigated or charged with securities fraud.