SUPREME COURT NOTEBOOK

Court upholds broad power to curb insider trading

By Sam Hananel
Associated Press

WASHINGTON (AP) - A unanimous Supreme Court on Tuesday sided with the government in a legal clash over the nation's insider trading laws, a victory for prosecutors seeking to curb corruption on Wall Street.

The justices ruled that sharing corporate secrets with friends or relatives is illegal even if the insider providing the tip doesn't receive anything of value in return.

The ruling upheld the conviction of Bassam Yacoub Salman, an Illinois man convicted of making investments based on inside information he received from a member of his extended family. It also limited the impact of a 2014 ruling from the federal appeals court in Manhattan that had raised doubts about the scope of insider trading laws.

Prosecutors have relied on a broad reading of the law to support aggressive anti-corruption efforts that have netted more than 80 arrests and 70 convictions for insider trading over several years.

Writing for the court, Justice Samuel Alito rejected arguments that insider trading prosecutions should be limited to those who make secret profits from revealing confidential data. Government officials had argued that sharing corporate secrets with friends or family is just as damaging to the integrity of financial markets.

Salman was prosecuted for earning more than $1.5 million in profits from trading on nonpublic information he received about future health care deals. The tip originated with Salman's brother-in-law, Maher Kara, an investment banker at Citigroup Global Markets in New York. Kara passed the tip on to his own brother, Michael Kara, who then gave it to Salman.

Salman was aware that Maher Kara was the source. Kara pleaded guilty to conspiracy and securities fraud charges.

"Salman's jury was properly instructed that a personal benefit includes the benefit one would obtain from simply making a gift of confidential information to a trading relative," Alito said.

Alito said that Maher Kara disclosed confidential information as a gift to his brother with the expectation that his brother would trade on it. That was a breach of his duty of trust to Citigroup, Alito said, and that breach of duty continued when Salman received the information and traded on it.

Prosecutors had suffered a blow two years ago when the federal appeals court in Manhattan overturned the conviction of hedge fund managers Todd Newman and Anthony Chiasson after finding they were too far removed from inside information to be prosecuted.

The Manhattan court said Newman and Chiasson got their information through a chain of traders who didn't have a close personal relationship with them. The ruling forced Manhattan U.S. Attorney Preet Bharara to drop some cases and put others on hold.

Alito specifically noted the Manhattan ruling and rejected any notion that an insider doesn't violate the law unless he receives something of value when giving confidential information to a friend or relative.

Bharara said in a statement that the Supreme Court "easily" rejected the Manhattan court's "novel interpretation of insider trading laws."

"The Court stood up for common sense and affirmed what we have been arguing from the outset - that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public," Bharara said. "Today's decision is a victory for fair markets and those who believe that the system should not be rigged."

The ruling is likely to affect high-profile hedge fund manager Leon Cooperman, who earlier this year was accused by federal regulators of illegally trading on confidential information he learned from a company executive. Cooperman had told his investors in a letter that federal prosecutors were holding off on pursuing charges until the Supreme Court ruled in the Salman case.

 

Justices side with Samsung in patent dispute with Apple

By Sam Hananel
Associated Press

WASHINGTON (AP) - The Supreme Court unanimously sided with smartphone maker Samsung on Tuesday in its high-profile patent dispute with Apple over design of the iPhone.

The justices said Samsung may not be required to pay all the profits it earned from 11 phone models because the features it copied from the iPhone were only a part of Samsung's devices.

Cupertino, California-based Apple had won a $399 million judgment against South Korea-based Samsung for infringing parts of the iPhone's patented design, but the case now returns to a lower court to decide what Samsung must pay.

The case is part of a series of disputes between the technology rivals that began in 2011. Apple accused Samsung of duplicating a handful of distinctive iPhone features for which Apple holds patents: the flat screen, the rounded rectangular shape of the phone and the layout of icons on the screen.

At issue was how much Samsung is required to compensate Apple under an 1887 law that requires patent infringers to pay "total profit." Apple said that means all the profits from the phone sales, while Samsung argued it was limited to profits related to the specific components that were copied.

Justice Sonia Sotomayor wrote for the court that the law does not require damages to be based on the entire product, but can be limited to only a component of the product. The decision overturned a ruling from a federal appeals court in Washington, which said that Apple was entitled to all the profits.

But the high court declined to lay out a specific test for how such damage awards should be calculated. Sotomayor said doing so was not necessary and the justices left it up to lower courts to resolve.

Samsung had argued that the hefty award ignored the fact that its phones contain more than 200,000 other patents that Apple does not own. Apple said the verdict was fair because the iPhone's success was directly tied to its distinctive look.

Samsung already has handed the $399 million over to Apple, but was hoping to get some of that money back with a favorable Supreme Court ruling. None of the early-generation Samsung phones involved in the lawsuit remains on the market.

In a statement, Apple said the company is optimistic that lower courts "will again send a powerful signal that stealing isn't right."

"Our case has always been about Samsung's blatant copying of our ideas, and that was never in dispute," the company said. "We will continue to protect the years of hard work that has made iPhone the world's most innovative and beloved product."

Samsung in a statement called the ruling a victory "for all those who promote creativity, innovation and fair competition in the marketplace."

The patent battle between the technology titans was being closely watched by other industry giants. Companies including Google, Facebook and eBay sided with Samsung, arguing that the verdict was an excessive windfall for copying a few features of the iPhone.

On the other side, sportswear manufacturer Adidas and jewelry maker Tiffany & Co. said allowing Apple to recover all the profits Samsung earned would discourage "design pirates" and protect companies that invest in creative designs.

"This removes a threat for technology companies," said Janelle Waack, a Washington, D.C., lawyer specializing in patent law. "The products that incorporate technology are not automatically going to get stung with a patent infringement suit that's going to cost them all of the profits from their product."

 

Katrina fraud verdict against State Farm upheld

By Mark Sherman
Associated Press

WASHINGTON (AP) - A unanimous Supreme Court on Tuesday upheld a jury verdict that State Farm Fire and Casualty Co. committed fraud against the federal government after 2005's Hurricane Katrina.

The justices on Tuesday rejected claims by State Farm that the whistleblower case against the insurer should have been dismissed because its existence was leaked while it was supposed to be secret.

Justice Anthony Kennedy wrote for the court in upholding an appellate ruling that there is no requirement in federal law that the lawsuit be dismissed.

Sisters Cori and Kerry Rigsby filed the fraud lawsuit on behalf of the government after they said they witnessed State Farm shifting Mississippi claims to federal flood insurance that should have been paid by private wind insurance.

The Rigsbys won their case in 2013, focused on one home in North Biloxi, Mississippi. State Farm was ordered to pay $750,000 in damages, with 30 percent going to the Rigsbys and the rest going to the federal government. Their lawyers won $2.9 million in legal fees and expenses. The Rigsby sisters worked as independent adjusters for State Farm following Katrina.

More importantly, their case gave rise to other claims that Illinois-based State Farm defrauded the National Flood Insurance Program. Last year, Mississippi filed its own civil fraud lawsuit against State Farm, saying the state paid as much as $522 million to State Farm policyholders after the company manipulated the reports of adjusters and engineers to limit its responsibility.

The high court opinion dealt almost exclusively with the provisions of the federal False Claims Act that call for the existence of whistleblower lawsuits to remain secret for at least two months.

The sisters' lawyer at the time, Dickie Scruggs, emailed information to reporters at The Associated Press, ABC News and The New York Times that revealed the lawsuit's existence before the case was public, Kennedy wrote.

All three organizations published stories discussing fraud allegations, but none specifically mentioned the Rigsbys' lawsuit. Scruggs later withdrew from the case, was subsequently convicted of trying to influence a judge in an unrelated case and was disbarred as an attorney.

The case is State Farm v. U.S., 15-513.

Published: Thu, Dec 08, 2016

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