Defendant‐appellant Mathew Martoma appeals from a judgment of conviction entered on September 9, 2014 in the United States District Court for the Southern District of New York (Gardephe, J.). Martoma was found guilty, after a jury trial, of one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371 and two counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) & 78ff in connection with an insider trading scheme. After Martoma was convicted, this Court issued a decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), which elaborated on the Supreme Court's ruling in Dirks v. S.E.C., 463 U.S. 646 (1983), concerning liability for a "tippee" who trades on confidential information obtained from an insider, or a "tipper." Newman concluded that the "personal benefit" that a tipper must derive from providing inside information for a disclosure to trigger insider trading liability could not be inferred under the "gift theory" articulated in Dirks "in the absence of proof of a meaningfully close personal relationship [between the tipper and tippee] that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature." Newman, 773 F.3d at 452Martoma initially argued on appeal that the jury in his case had not been properly instructed and that the evidence presented at his trial was insufficient to convict him in light of Newman. While Martoma's appeal was pending, the Supreme Court issued a decision in Salman v. United States, 137 S. Ct. 420 (2016), which rejected certain aspects of Newman's holding. Id. at 428. In supplemental briefing, Martoma argues that his conviction should still be reversed under Newman because Salman did not overrule Newman's requirement that a tipper have a "meaningfully close personal relationship" with a tippee to justify the inference that a tipper received a personal benefit from his gift of inside information. Newman, 773 F.3d at 452. We conclude that the logic of Salman abrogated Newman's "meaningfully close personal relationship" requirement and that the district court's jury instruction was not obviously erroneous. Further, any instructional error would not have affected Martoma's substantial rights because the government presented overwhelming evidence that at least one tipper received a financial benefit from providing confidential information to Martoma. Accordingly, the judgment of the district court is AFFIRMED.POOLER, Circuit Judge, dissents in a separate opinion
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[I]n other words, the defendant in Salman urged the Supreme Court to adopt a standard similar to the ruling in Newman. The Supreme Court declined to do so and instead "adhere[d] to Dirks," which contained a "discussion of gift giving [that] resolve[d] the case." Id. at 427. According to the Salman Court:
Dirks specifies that 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. Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, [the tipper] breached his duty of trust and confidence to [his employer] and its clients-a duty [the defendant] acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed.
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Pages 27 -29 of the 2Cir OpinionThus, we hold 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," Salman, 137 S. Ct. at 428, and the disclosure "resemble[s] trading by the insider followed by a gift of the profits to the recipient," id. at 427 (quoting Dirks, 463 U.S. at 664), whether or not there was a "meaningfully close personal relationship" between the tipper and tippee.8 The dissent criticizes us for "holding that someone who gives a gift always receives a personal benefit from doing so" and that "an insider receives a personal benefit when the insider gives inside information as a 'gift' to any person." Dissent Slip Op. at 2. But our holding reaches only the insider who discloses inside information to someone he expects will trade on the information. This holding is no broader than the logic underpinning the Supreme Court's conclusion in Salman. Indeed, as noted above, the Supreme Court has found it "obvious" that an insider would personally benefit from "trad[ing] on [inside] information . . . himself and then giv[ing] the proceeds as a gift to his brother." Salman, 137 S. Ct. at 427-28. Our holding comports with Salman's observation that personal benefit to the insider is equally obvious when an insider "effectively achieve[s] the same result by disclosing the information to [the tippee]" for the purpose of "allowing [the tippee] to trade on it." Id. at 428.
Having concluded that the evidence was sufficient to support Martoma's conviction and that Newman's "meaningfully close personal relationship" requirement is no longer good law, the remaining question is whether the district court's jury instruction, which Martoma challenges for its failure to include Newman's "meaningfully close personal relationship" requirement, accurately conveyed the elements of insider trading. The jury instruction given at Martoma's trial stated that a "gift [given] with the goal of maintaining or developing a personal friendship or a useful networking contact" constitutes a personal benefit. Tr. 3191. Martoma focuses on the language about developing friendships, arguing that gifts given to develop future friendships do not give rise to the personal benefit needed to trigger insider trading liability. Salman reiterated that when confidential information is given as a gift, it is "the same thing as trading by the tipper followed by a gift of the proceeds" and is thus the functional equivalent of a cash gift. Salman, 137 S. Ct. at 428. Whether the recipient of the gift is an existing friend or a potential future friend whom a gift is intended to entice, the logic-that a tipper personally benefits by giving inside information in lieu of a cash gift-operates in a similar manner. For this reason, the aspect of the district court's instruction on gifts with the goal of developing friendships, which is at most "subject to reasonable dispute," did not constitute "obvious" error. Marcus, 560 U.S. at 262 (internal quotation marks omitted).
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Page 1 of the DissentBecause the majority rejects limitations the Supreme Court set forth in Dirks v. S.E.C., 463 U.S. 646 (1983), and Salman v. United States, 137 S. Ct. 420 (2016), and overrules our holding in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), without convening this Court en banc, I cannot join the opinion. And, because those precedents show that Martoma's jury instructions were erroneous in a way that affected his rights at trial, I respectfully dissent.
Page 2 of the DissentToday, the majority holds that an insider receives a personal benefit when the insider gives inside information as a "gift" to any person. In holding that someone who gives a gift always receives a personal benefit from doing so, the majority strips the long‐standing personal benefit rule of its limiting power. What counts as a "gift" is vague and subjective. Juries, and, more dangerously, prosecutors, can now seize on this vagueness and subjectivity. The result will be liability in many cases where it could not previously lie.
Page 18 of the DissentTo summarize, Dirks held that a gift of information to an insider's relatives or friends could permit an inference of a personal benefit. In Newman, we held that such an inference could only be made when (1) the gift was exchanged within a "meaningfully close personal relationship," and (2) a gift created the potential for an insider to receive a pecuniary or similar benefit. Salman reversed the second holding of Newman, requiring the potential of pecuniary gain, but left untouched the first holding that, in order to allow inference of a personal benefit, gifts must be exchanged within a "meaningfully close personal relationship."
Pages 31 - 32 of the DissentI note, also, that the majority's opinion exactly mirrors the government's view pressed in Salman: that "a gift of confidential information to anyone, not just a 'trading relative or friend,' is enough to prove securities fraud." Salman, 137 S. Ct. at 426. The Supreme Court, however, did not adopt that view. Id. at 427. It is curious indeed that the majority would understand Salman to require us to take a position that the Supreme Court explicitly considered but did not adopt.Accordingly, I would hold (1) that Salman does not overrule Newman's "meaningfully close personal relationship" requirement, and (2) that Salman does not overrule the limitation described in both Dirks and in Salman itself-that an inference of personal benefit may be based on an insider's gift to relatives or friends, but not a gift to someone else.
Adhering to the Supreme Court's precedent may challenge us when it leaves unethical conduct unpunished. But there is great wisdom in the Supreme Court's limitations on broad rules, particularly when those rules might otherwise allow punishment of the absentminded in addition to persons with corrupt intentions. Today, however, the majority severely damages the limitation provided by the personal benefit rule, and casts aside Circuit precedent and Supreme Court rulings to do so.