July 6 (Reuters) - A U.S. appeals court on Monday upheld the conviction of an Illinois man who prosecutors said made nearly $1.2 million trading on inside information about mergers involving clients of Citigroup Inc, where his brother-in-law worked.
The 9th U.S. Circuit Court of Appeals in San Francisco affirmed the conviction of Bassam Salman, who was sentenced in April 2014 to three years in prison after a federal jury found him guilty of conspiracy and securities fraud.
Salman had argued that under a significant recent ruling by a New York appeals court on insider trading, prosecutors should be required to prove his brother-in-law received a tangible benefit for his tips.
But U.S. District Judge Jed Rakoff, writing as a visiting judge on the three-judge panel, said that interpretation would mean corporate insiders would be free to tip their relatives as long as they received 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,” Rakoff, a New York judge, wrote.
John Cline, Salman’s lawyer, declined to comment. A spokesman for U.S. Attorney Melinda Haag in San Francisco did not responded to a request for comment.
Salman’s appeal was the latest in a series of legal challenges following a Dec. 10 ruling by the 2nd U.S. Circuit Court of Appeals in New York that limited prosecutors’ ability to pursue insider trading cases.
The court, in overturning the convictions of hedge fund managers Todd Newman and Anthony Chiasson, said prosecutors must prove a trader knew a tip’s source received a benefit in exchange and that the benefit must be “of some consequence.”
Prosecutors said from 2004 to 2007, Maher Kara, a former Citigroup investment banker who was Salman’s brother-in-law, tipped Michael Kara, his brother, about mergers involving Citi clients.
Michael Kara, in turn, tipped Salman, 56, whom he had become close with, enabling him to make $1.19 million trading ahead of deals including a 2007 merger announcement involving Biosite Inc, prosecutors said.
Salman’s other brother-in-law, Karim Bayyouk, became his secret trading partner, and trades were conducted in Bayyouk’s brokerage account, prosecutors said.
The Kara brothers pleaded guilty in 2011 and were sentenced to probation. Bayyouk was convicted for obstruction of justice and was sentenced in 2014 to 1-1/2 years in prison.
The case is U.S. v. Salman, 9th U.S. Circuit Court of Appeals, No. 14-10204. (Reporting by Nate Raymond in New York; Editing by Richard Chang)