I posted the following hypothetical about 10 days ago:
Target CEO Tony Treadwell has become highly stressed as a result of the high pressure merger negotiations and begins seeing a psychologist for therapy. In the course of their sessions, Treadwell discloses confidential information about the merger to his psychologist. Unbeknownst to Treadwell, the psychologist buys Target stock on the basis of that information. Does Treadwell’s conduct constitute an illegal tip under SEC Rule 10b-5? ...
One issue is whether disclosing information to a mental health care provider in order to receive appropriate treatment should be deemed the requisite sort of personal benefit required for a disclosure to be deemed an illegal tip. Your instinct may to say no, because Tony disclosed the information not with the intent of conducting an exchange or of making a gift. But this confuses the personal benefit test with the requirement of scienter.
In Salman, the Supreme Court blew off these sort of hypotheticals:
It remains the case that “[d]etermining whether an insider personally benefits from a particular disclosure, a question of fact, will not always be easy for courts.” 463 U. S., at 664. But there is no need for us to address those difficult cases today, because this case involves “precisely the ‘gift of confidential information to a trading relative’ that Dirks envisioned.” 792 F. 3d, at 1092 (quoting 463 U. S., at 664).
To which one can only reply, thanks a bunch. That's a big [expletive deleted] help.
So the question remains: Because personal benefit is not limited to a monetary or similar quid pro quo, what is the outer limit of the personal benefit requirement?
I asked some friends who specialize in this area for their thoughts and we ended up having a mini-symposium of sorts:
Adam Pritchard on the Salman Personal Benefit Standard for Tipping Liability
Steve asks if CEO Tony Treadwell has violated Rule 10b-5 by sharing confidential information about a potential merger in the course of seeing his psychologist for therapy.
Sung Hui Kim on the Salman Personal BenefitStandard for Tipping Liability
Mark Ramseyer on the Salman Personal BenefitStandard for Tipping Liability
James Park on the Salman Personal BenefitStandard for Tipping Liability
Joan Heminway on the Salman Personal BenefitStandard for Tipping Liability
Andrew Verstein on the Salman Personal BenefitStandard for Tipping Liability
