4 ms·

Reality begs to differ. https://www.casebriefs.com/blog/law/securities-regulation/securities-regulation-keyed-to-coffee/rule-10b-5-in-connection-with-a-purchas

Reality begs to differ. https://www.casebriefs.com/blog/law/securities-regulation/securities-regulation-keyed-to-coffee/rule-10b-5-in-connection-with-a-purchase-or-sale-of-a-security/blue-chip-stamps-v-manor-drug-stores/ https://www.casebriefs.com/blog/law/securities-regulation/se... >Held. (Rehnquist, J.) No. We embrace the holding of the Second Circuit in the 1952 Birnbaum case, 193 F2.d 461 (2d Cir. 1952). That rule demands that a plaintiff must be either a seller or a buyer to seek a remedy under 10b-5 and we reinforce this rule both through contemplation of legislative history and by policy deliberations. The SEC had attempted to get Congress to amend 10b-5 to contain “any attempt to purchase or sell a security”, but Congress had declined to do this. Congress desired to restrict 10b-5 to cases of “actual damage”, and without Birnbaum, evidence of damage would be too theoretical. Regarding policy considerations,the Birnbaum rulemay incite the offerees, knowing that they would not be subject to summary judgment would sue to push the corporate defendant to settle out of court,would lead to “strike suits”. The evidence presented by an offeree at trial would be too subjective, seeing as no objective criteria could assistin measuring plaintiff’s dependence on the prospectus. In conclusion, Manor Drugs has no contractual right to a Birnbaum rule. Manor Drugs was a member of a limited class, but permitting them to utilize the rule would lead to a breakdown of the Birnbaum rule. Reversed. And of course you can see Congress adding loopholes they can themselves use. The no insider trading rules are a joke.

dllthomas 9y ago
TBH, I'm not sure I follow all of that, but it sounds to me like they're saying a trade must be made for there to be insider trading. I'm not sure I like that, but okay. But upthread your suggestion was "cancel the ones you don't want, until you do" - at that point, a trade has been made, so it's at least a different question.
- zeth___ 9y ago
  Breaking it down: 1). Set up a 10b5-1 plan selling all your shares each day. 2). Set up a 10b5-1 plan that buys as many shares as possible. 3). Get insider information on the company. a). If good for company cancel plan from step 1. b). If bad for company cancel plan from step 2. c). If neither cancel both plans. 4). Profit.
  - dllthomas 9y ago
    Yeah, I got that part. The problem is that after 3a) or 3b), you have made trades. So "no trades were made, it can't possibly be insider trading" doesn't apply. It may be that the SEC would nonetheless honor the "it's not an issue if you're just following your plan" thing, but since obviously you're not just following your plan I wouldn't bet on it. I'd be interested to know of examples in either direction if anyone has been bold enough to try this.
    - deleted 9y ago
      [deleted]
    - zeth___ 9y ago
      You're not choosing to make a trade, you're choosing to cancel a trade. Both are things the FCC has said it will not charge anyone other as long as congress does not change the rules. Sorry to say but you're looking for a way to defend an indefensible system. If you want to see it in action look at what the Intel CEO did.
      - dllthomas 9y ago
        > You're not choosing to make a trade, you're choosing to cancel a trade. You're also choosing not to cancel a trade, which is the difference from the example you've cited. Choosing not to cancel a trade based on material, non-public information after establishing a pattern of regularly canceling your planned trades doesn't seem to be something that's been tested (at least in anything discussed here so far). And note that I'm not saying no one pushes - or crosses - lines; nor am I saying that the system isn't exploitable near the margins. I am saying that if you were as flagrant in abusing it as you posted above, I wouldn't bet on your safety from the SEC. > Sorry to say but you're looking for a way to defend an indefensible system. No, I'm contesting a claim that seems inaccurate. I quite readily agree there are things that need fixing. > If you want to see it in action look at what the Intel CEO did. I don't think we have enough details about what the Intel CEO did to say much - more shares were sold, but it was plausible the formula was set in advance of discovery of the flaw and more shares were sold simply because the stock had gone up. If you have a source with more details, please share it.

dllthomas 9y ago

TBH, I'm not sure I follow all of that, but it sounds to me like they're saying a trade must be made for there to be insider trading. I'm not sure I like that, but okay. But upthread your suggestion was "cancel the ones you don't want, until you do" - at that point, a trade has been made, so it's at least a different question.

zeth___ 9y ago
Breaking it down: 1). Set up a 10b5-1 plan selling all your shares each day. 2). Set up a 10b5-1 plan that buys as many shares as possible. 3). Get insider information on the company. a). If good for company cancel plan from step 1. b). If bad for company cancel plan from step 2. c). If neither cancel both plans. 4). Profit.
- dllthomas 9y ago
  Yeah, I got that part. The problem is that after 3a) or 3b), you have made trades. So "no trades were made, it can't possibly be insider trading" doesn't apply. It may be that the SEC would nonetheless honor the "it's not an issue if you're just following your plan" thing, but since obviously you're not just following your plan I wouldn't bet on it. I'd be interested to know of examples in either direction if anyone has been bold enough to try this.
  - deleted 9y ago
    [deleted]
  - zeth___ 9y ago
    You're not choosing to make a trade, you're choosing to cancel a trade. Both are things the FCC has said it will not charge anyone other as long as congress does not change the rules. Sorry to say but you're looking for a way to defend an indefensible system. If you want to see it in action look at what the Intel CEO did.
    - dllthomas 9y ago
      > You're not choosing to make a trade, you're choosing to cancel a trade. You're also choosing not to cancel a trade, which is the difference from the example you've cited. Choosing not to cancel a trade based on material, non-public information after establishing a pattern of regularly canceling your planned trades doesn't seem to be something that's been tested (at least in anything discussed here so far). And note that I'm not saying no one pushes - or crosses - lines; nor am I saying that the system isn't exploitable near the margins. I am saying that if you were as flagrant in abusing it as you posted above, I wouldn't bet on your safety from the SEC. > Sorry to say but you're looking for a way to defend an indefensible system. No, I'm contesting a claim that seems inaccurate. I quite readily agree there are things that need fixing. > If you want to see it in action look at what the Intel CEO did. I don't think we have enough details about what the Intel CEO did to say much - more shares were sold, but it was plausible the formula was set in advance of discovery of the flaw and more shares were sold simply because the stock had gone up. If you have a source with more details, please share it.