5 ms·

I will admit to suffering from this misconception, so thanks for explaining it. What happens with the edge cases? e.g. I play golf with an insider and he tells

by blowski 10y ago

I will admit to suffering from this misconception, so thanks for explaining it. What happens with the edge cases? e.g. I play golf with an insider and he tells me to buy Ford stocks, but doesn't profit himself (at least not directly).

fiatmoney 10y ago
Usually there is a sort of assumed propagation of the insider's duty to keep the info private. Edge cases (my brother-in-law the VP of Ford has started drinking heavily and having panic attacks, so I short the stock) and further degrees of removal are of course trickier. There is also a distinction between the SEC's civil remedies, which theoretically can reach out at a few degrees of separation (eg the Phil Mickelson case recently, where IIRC he unknowingly profited from a tip relayed from a guy who got it from an insider), and criminal liability.
ikeboy 10y ago
There's a personal benefit test: if the insider didn't gain anything from giving you the information, you can legally trade on it. See https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm https://www.sec.gov/news/speech/speecharchive/1998/spch221.h..., http://www.bloomberg.com/view/articles/2016-01-19/justices-will-know-insider-trading-when-they-see-it http://www.bloomberg.com/view/articles/2016-01-19/justices-w..., and https://www.bloomberg.com/view/articles/2014-12-10/appeals-court-not-so-keen-on-insider-trading-crackdown https://www.bloomberg.com/view/articles/2014-12-10/appeals-c... Or https://www.bloomberg.com/view/articles/2016-05-20/insider-trading-law-comes-for-more-golf-buddies https://www.bloomberg.com/view/articles/2016-05-20/insider-t... for a recent example
- blowski 10y ago
  Fascinating. Thanks for the links. These cases seem to be more evidence for how the system is rigged in favour of the elite.
- jonknee 10y ago
  That said, a technically legal inside tip based trade can certainly face the wrath of the SEC and leave you on the hook for a ton of legal bills.
  - ikeboy 10y ago
    If it's clearly against previous precedent, they wouldn't prosecute, that just wastes their resources.
    - jonknee 10y ago
      In theory, but that's not a theory I'd like to test personally. In cases that they do bring it frequently comes down to arguments about who received benefit. Sometimes it's as little as status/friendship.
      - ikeboy 10y ago
        Not since Newman, which explicitly found that a friendship is not enough.
- dwaltrip 10y ago
  Does winning a person's good will and thus the likelihood of them doing favors for you in the future not count?
  - ikeboy 10y ago
    It depends on the court, and how clearly a quid pro quo can be established.

by blowski 10y ago

fiatmoney 10y ago

Usually there is a sort of assumed propagation of the insider's duty to keep the info private. Edge cases (my brother-in-law the VP of Ford has started drinking heavily and having panic attacks, so I short the stock) and further degrees of removal are of course trickier. There is also a distinction between the SEC's civil remedies, which theoretically can reach out at a few degrees of separation (eg the Phil Mickelson case recently, where IIRC he unknowingly profited from a tip relayed from a guy who got it from an insider), and criminal liability.

ikeboy 10y ago

There's a personal benefit test: if the insider didn't gain anything from giving you the information, you can legally trade on it. See https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm https://www.sec.gov/news/speech/speecharchive/1998/spch221.h..., http://www.bloomberg.com/view/articles/2016-01-19/justices-will-know-insider-trading-when-they-see-it http://www.bloomberg.com/view/articles/2016-01-19/justices-w..., and https://www.bloomberg.com/view/articles/2014-12-10/appeals-court-not-so-keen-on-insider-trading-crackdown https://www.bloomberg.com/view/articles/2014-12-10/appeals-c... Or https://www.bloomberg.com/view/articles/2016-05-20/insider-trading-law-comes-for-more-golf-buddies https://www.bloomberg.com/view/articles/2016-05-20/insider-t... for a recent example

blowski 10y ago
Fascinating. Thanks for the links. These cases seem to be more evidence for how the system is rigged in favour of the elite.
jonknee 10y ago
That said, a technically legal inside tip based trade can certainly face the wrath of the SEC and leave you on the hook for a ton of legal bills.
- ikeboy 10y ago
  If it's clearly against previous precedent, they wouldn't prosecute, that just wastes their resources.
  - jonknee 10y ago
    In theory, but that's not a theory I'd like to test personally. In cases that they do bring it frequently comes down to arguments about who received benefit. Sometimes it's as little as status/friendship.
    - ikeboy 10y ago
      Not since Newman, which explicitly found that a friendship is not enough.
dwaltrip 10y ago
Does winning a person's good will and thus the likelihood of them doing favors for you in the future not count?
- ikeboy 10y ago
  It depends on the court, and how clearly a quid pro quo can be established.