9 ms·
So, does this count as insider trading? My intuition says 'yes'. But my intuition about a thing and what the law says don't always match.
by korethr 9y ago
So, does this count as insider trading? My intuition says 'yes'. But my intuition about a thing and what the law says don't always match.
- jdmichal 9y agoInsider trading is any trading performed using non-public knowledge. Theoretically even a pre-scheduled trade could be insider trading, if it relied on non-public knowledge which remained non-public until the time the trade executes. Of course, that's a pretty hard scenario to concoct, so generally pre-scheduled trades 3+ months out are considered safe for even high-level insiders. Not to mention all the extraneous movement that might happen within that same time period that could very well nullify any knowledge advantage.
- thephyber 9y agoInteresting fact: commodities were not subject to such a law in the USA until Frank-Dodd Act. The rule was named for Eddy Murphy, who played a commodities trader in Trading Places[1]. The reasoning, as I heard it, was that all farmers who hedged their own crops with commodities trading, had some amount of insider knowledge just by looking at their own farm/crop/weather. Stealing a data report before it is publicly announced, however, seems like it would violate some laws. Paying to access reports early seems to be a lucrative offering of some of the data providers. [1] https://en.wikipedia.org/wiki/Trading_Places#Legacy https://en.wikipedia.org/wiki/Trading_Places#Legacy
- toomuchtodo 9y agoIf you haven't seen Trading Places, please please please make the time to watch it. Its both educating and entertaining!
- airza 9y agoIf all trades based on non-public knowledge were insider trading, the financial analysis industry would not exist
- jdmichal 9y agoThe financial analysis industry synthesizes its models from public knowledge.
- gehwartzen 9y agoDoesn't there still have to be some judgement call? I would assume Insider Trading means trading on non-public knowledge that will significantly move the stock price, not just any old information that is not public. All kinds of employees have non public knowledge of things going on in a company that may or may not affect the stock price. What would happen if a Executive found out about a data breach, sold some stock, but when the breach was announced later the stock price remained flat or went up (just for the sake of argument). Would that still be insider trading?
- jdmichal 9y agoYou are correct. I was a little loose in my language, and should have said material non-public information. Material information is exactly what you describe: Information which would be reasonably expected to affect the market.
- hqian 9y agoMost likely yes. Actually if this doesn't count I don't know what is. However just like you, don't take my word, not a lawyer.
- devmunchies 9y agoOff topic question... Is there a law about giving legal advice in a public forum if you're not a lawyer? Why do people add the disclaimer about not being a lawyer. Generally curious. Moreover, is there a law about impersonating lawyer in a public forum (not that any ethical person would do that of course)?
- glittershark 9y agoNot a lawyer (ironically) but afaik there are all sorts of laws governing an attorney-client relationship, and it's possible to implicitly enter into such a relationship by giving something resembling legal advice.
- jzwinck 9y agoNo there is not a law against giving legal advice if you're not a lawyer. It's lawyers who are sometimes prohibited from giving legal advice. Non-lawyers have the usual freedom of speech, restricted in the usual ways. Claiming that you are someone you're not on the Internet is so commonplace it is hard to see where any trouble would come of it by itself. Again it's different if you knowingly cause harm to others. I'm not a lawyer. This is not legal advice. Or maybe I am and it is. Who knows.
- dragonwriter 9y ago> No there is not a law against giving legal advice if you're not a lawyer. In most (all, I think) US jurisdictions, providing legal advice is practice of law, and doing it without a license to do so in the state is prohibited (usually, a crime.) This isn't not legal advice and I am not a lawyer. Consult an actual lawyer licensed in your state before deciding whether or not you should provide legal advice.
- ConnorBoyd 9y agoThey traded based on material, non-public information, so I would have to say yes, this is definitely insider trading, but I'm not a lawyer...
- peterwwillis 9y agoFood for thought: you are basing your admittedly uneducated opinion of a legal matter on a single criteria. If you end up being right, it will have been almost pure luck, but it may reinforce certain incorrect assumptions, like your theory that this single criteria was the deciding factor, or that this kind of armchair analysis is productive. Point being: even if you are right, it's probably a bad idea to even take the position to begin with.
- Bootvis 9y agoActing on material, non-public information is considered insider trading by most definitions, no need to get lawyers involved. However, whether these managers broke the law and if and how they should be punished is a legal question most people here should probably shut up about.
- trjordan 9y agoIt's hard to prove intent. If there's a history of these execs selling similar amounts of stock in other quarters, then it's probably not insider trading. If the paperwork trail started an hour after the first meeting where they learned about the breach, and they had never sold stock before, then it's probably insider trading. Since the truth is somewhere in between, it's hard to say. It's hard to believe that these people didn't recognize the optics of what they were doing. But, that's why we have investigators and courts.
- khuey 9y agoIntent doesn't need to be proven. If you knew of the material non-public information and you then decided to execute a trade you're guilty of insider trading.
- marcoperaza 9y agoIt's not that clear cut. Otherwise, no one in the leadership of a company would ever be allowed to buy or sell stock.
- khuey 9y agoCorporate leadership is usually reluctant to trade in the company's stock outside of a 10b5-1 plan because of this sort of problem.
- deleted 9y ago[deleted]
- RhodesianHunter 9y agoThat's precisely what scheduled sales via 10b5-1 plans are for. To schedule future and recurring stock sales to avoid this.
- dkfmn 9y agoActually there are three criteria: 1) Information is material 2) Information is not public 3) Breach of duty through the "trust and confidence" clause. It would be highly unusual for the CFO not to have the burden of confidence but even for a division president it's not clear they'd have corporate officer responsibilities. During compliance training in my old life they covered the classic "overheard in a coffee shop" example as a way to highlight that a barista does not owe confidentiality to a random public company. However, I don't think it's ethical behavior regardless of whether it'd result in a conviction.
- yen223 9y ago"But my intuition about a thing and what the law says don't always match" I wish more people on this forum recognized this
- nilved 9y agoRecognized that the law doesn't apply to rich people?
- devonkim 9y agoMore like the law was written in cooperation with the people that became wealthy through means that used to be legal and protected themselves and their legacy by kicking away the ladders they used.
- nilved 9y ago\
- fish_fan 9y agoSeems like you're saying the same thing as your parent commenter.
- mercurialshark 9y ago> the law was written in cooperation with the people that became wealthy through means that used to be legal and protected themselves... Hey, if nothing else, you are super-confident. Also, way to not generalize or be presumptuous in any capacity. Fucking super buttoned up analysis. It all checks out.
- devonkim 9y agoDidn't downvote but I figure I should better support it if someone actually cared enough to criticize... From a trade policy perspective alone we have plenty of supporting evidence among developed countries of self-serving policymaking. Ha-Joon Chang, economist at Cambridge, has written several books criticizing neoclassical economics policies commonly used by both left and right wing policy makers across many developed economies including one literally called "Kicking Away the Ladder" describing how an alarming trend for developing countries to make trade and domestic economic policies that close off tools these countries used themselves to grow their economies. A recent case of not following conventional policies and playing into the hands of the ultra wealthy is Iceland following their real estate collapse and now subsequent rebuilding on their terms as suggested by economist Michael Hudson, another critic of neoclassical economic policies. Regulatory capture is one of several by-products of cronyism and an oligarchical rather than impartial, equal opportunity system but even in a toy case study in sports there is clear evidence of bias with regulatory experience http://onlinelibrary.wiley.com/doi/10.1111/coep.12240/abstract http://onlinelibrary.wiley.com/doi/10.1111/coep.12240/abstra... If there's policymaking and enforcement bias over time in something with as little consequence as sports but also certainly fiscal motivators (for teams, NHL Commission, etc) it would be strange if our government policies would be exempt from the same human dynamics that is specifically meant by those with hidden information to stay obscure and hidden. But not a whole lot of grant funding out there to investigate corruption exactly, so rigorous academic research on corruption, regulatory capture, and other perversions of capitalist society is sparse, oftentimes difficult to get solid data, and thus difficult to cite in a random Internet comment to the satisfaction of pedantic critics that react to defend any assailment of the much-maligned wealthy. I'll omit the studies showing those with wealthier backgrounds showing tendencies toward far more loose ideas of lawfulness and fairness compared to the general population. Also, I wrote it partly tongue-in-cheek in tone responding to a potentially more inflammatory, generalized, presumptuous comment and somehow that was ignored?
- mathattack 9y agoFrom the article: Regulatory filings show that three days later, Chief Financial Officer John Gamble sold shares worth $946,374 and Joseph Loughran, president of U.S. information solutions, exercised options to dispose of stock worth $584,099. Rodolfo Ploder, president of workforce solutions, sold $250,458 of stock on Aug. 2. None of the filings lists the transactions as being part of 10b5-1 scheduled trading plans. The three “sold a small percentage of their Equifax shares,” Ines Gutzmer, a spokeswoman for the Atlanta-based company, said in an emailed statement. They “had no knowledge that an intrusion had occurred at the time.” The timing is very suspicious, but if they can prove that they had no knowledge, then they are safe. Given their titles, that seems like a dubious claim.
- ptero 9y agoActually it is the state that has to prove mischief. They still enjoy presumption of innocence. I agree the timing is suspicious, but the amounts are pretty small. Even if the stock drops 20% long term due to this (which IMO is highly unlikely), a high ranking executive risking a jail term to avoid losing 50k of stock is (again IMO), absolutely irrational.
- noobermin 9y ago>high ranking executive risking a jail term to avoid losing 50k of stock is (again IMO), absolutely irrational. You act as if this is a real senario and would have a non-negligible probability of occurring.
- ptero 9y agoDepends on what one considers negligible. But I think govt attorneys made an example of Martha Stewart exactly to highlight the nonzero chances of jail if one, no matter how rich, ignores public securities laws.
- rayiner 9y agoThere is a non-negligible possibility of this occurring. Insider trading is ridiculously easy to prosecute (the market is closely monitored) and the government regularly seeks prison time for executives. Rich people go to jail all the time for it.
- mxwll 9y agoKey quote here: None of the filings lists the transactions as being part of 10b5-1 scheduled trading plans. Public companies typically have scheduled sales of their options for people at this level. This was not that.
- godelski 9y agoCorrelation does not imply causation. But it certainly does cause suspicion. You'd definitely have to look to see if these were normal trades or that they were planned long in advance. Selling like that can be regular.
- hectorr1 9y agoDid they have Material Non-Public Information (MNPI) when they traded? If so, yes. If not, no.