The Salman case involved three primary players: Maher Kara, Michael Kara, and Bassam Salman. Maher worked at a financial institution’s healthcare investment banking group and had access to highly confidential information about mergers and acquisitions involving its clients. Maher began sharing inside information with his older brother, Michael, who executed trades based on this confidential information. After receiving “tips” from his brother, Michael occasionally shared this information with Salman, who was Michael’s friend and Maher’s brother-in-law. Salman traded on this inside information and accumulated over $1.5 million in profits, which he split with another relative who executed trades via a brokerage account on Salman’s behalf. Salman was indicted in the Northern District of California on one count of conspiracy to commit securities fraud (18 U.S.C. § 371) and four counts of securities fraud (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 2; 17 C.F.R. § 240.10b-5). Maher and Michael both pleaded guilty and testified at Salman’s trial. Ultimately, Salman was convicted on all counts and sentenced to 36 months of imprisonment, three years of supervised release, and over $730,000 in restitution. Salman appealed to the Ninth Circuit. While his appeal was pending, the Second Circuit issued its opinion in Newman. The Newman court recognized that in order to sustain an insider trading conviction, the government must prove that the tippee was aware that the tipper disclosed confidential information in exchange for a personal benefit. Moreover, the court held that although a factfinder may infer a personal benefit from a gift of inside information to a trading relative or friend, such an inference “is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” Relying on Newman, Salman argued that his conviction should be reversed because there was no evidence that Maher received anything of “a pecuniary or similarly valuable nature” in exchange for his sharing of inside information. The Ninth Circuit rejected Salman’s argument and declined to follow Newman. Instead, the Ninth Circuit adhered to the holding in Dirks v. SEC, 463 U.S. 646 (1983), which provided that a tipper personally benefits from making a gift of confidential information to a trading relative or friend, even without receiving or expecting to receive something of pecuniary value. After reading the text above please answer the question below.

How would you evaluate the court’s claim that giving a gift of trading information is the same thing as trading by tipper followed by a gift of the proceeds?

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