5 ms·

If a journalis sells short a company stocks before printing a story that will shock shareholders, is that insider trading? What's the legality of that?

by keyle 8y ago

landr0id 8y ago
If they got information from an insider, it could potentially be insider trading. Something somewhat similar happened when MedSec shorted St. Jude before publishing some security research about some hardware: https://arstechnica.com/information-technology/2016/08/trading-in-stock-of-medical-device-paused-after-hackers-team-with-short-seller/ https://arstechnica.com/information-technology/2016/08/tradi... I don't believe that case was considered insider trading but I may be mistaken.
- abstractbeliefs 8y ago
  Buying a product, realising it's trash, shorting it, and then telling people why you shorted it isn't insider trading. The giveaway in this case is that MedSec/Muddy Waters were not in any way insiders, they were simply smart enough to investigate a company and find out it was overvalued before anyone else did, and then pointed it out when they had their financial ducks in a row to benefit from it.
pmorici 8y ago
Would probably hinge on where the information in the story came from. If the story is based on insider information the absolutely it meets the definition of insider trading. If the journalist is simply using publicly available information then no.
Lazare 8y ago
Short answer: If they "stole" the information (by, say, bribing an insider), they it's probably illegal. If they found it out by being clever (by, say, buying some satellite images and counting cars in parkings lots), then it's probably legal. If you need to know how a court is likely to draw the line, talk to a lawyer. :) But in general, the fact that a journalist is involved doesn't really change anything. In general, you can trade on whatever information you may have; the exception is if you have some duty not to trade on it.
gammateam 8y ago
Having disproportionate influence in the market isn't illegal. Never was, never is, it wasn't the intent of Congress, wasn't an interpretation ever considered by the SEC, and nobody in the courts care. In fact, the courts typically find the SEC's interpretation of 'insider trading' to be WAY too broad. So this Hollywood interpretation needs to go. Its only insider trading if you trade on material non-public information ABOUT SECURITIES (but if we're being honest, only equities and equities derivatives, corporate bonds are supposedly covered but no-one cares enough) where you have a fiduciary duty to not tell, such as by being employed with the company or in a nondisclosure agreement. You also create liability if you have a fiduciary duty not to tell, and you tell and that person or someone in that chain or persons trades. If you: - don't have a fiduciary duty not to tell, and you have material non-public information, you can trade or tell people who then trade. - don't have a fiduciary duty not to tell, and you have baseless non-public information, you can trade or tell people who then trade. It doesn't matter if you KNOW that your baseless information is going to move the markets. To avoid liability from individuals - this is distinct from liability from the regulators - all you do is put a disclaimer at the bottom of your post. The PSLRA of 1995 streamlined this due to frivolous lawsuits. - and last but not least, if you aren't trading securities then there is no prohibition of insider trading. there is no regulator that polices trading ahead of information in non-securities markets, there is no statute, there is no interest in Congress which assumes they could even make that constitutional at all, since there is no voluntary fiduciary duty role people could get themselves into.
lettergram 8y ago
Kind of similar to how my own system works (by identifying insiders and what they discuss): https://projectpiglet.com/ https://projectpiglet.com/ It is totally legal to get information ahead of the market, especially if it's "public". It is not legal to trade if it's non-public information as it relates to securities. In this case, it's also legal to get information from a paid source (think a paid news source - WSJ), it's not legal if they are bribing. In this case, the journalist is just selling the story to bloomberg who is then distributing the news (potentially) slightly ahead of it's public release (this is no different than a paid journal).
froindt 8y ago
Typically, if there's no exchange of value from the person with insider knowledge to the person making a trade, it's not insider trading. Generally speaking, I can go golf with my CEO buddy and he can mention what's going to happen in the next quarterly report without me ending up in jail. Matt Levine was in the banking industry and now frequently writes about insider trading. One might question journalistic integrity and incentives, but there is some good that can come from this sort of reporting. It helps in price discovery. In the below link, someone does additional research and short sells companies he believes are fraudulently reporting numbers to great success. Having insider information doesn't necessarily mean it's insider trading. https://www.washingtonpost.com/business/gaining-by-betting-against-flimsy-chinese-firms/2011/08/20/gIQAe4KFgJ_story.html?utm_term=.cf926555b5a5 https://www.washingtonpost.com/business/gaining-by-betting-a...
maxlybbert 8y ago
I can say that as far as Bloomberg is concerned, that would violate company policies (one policy about short selling and another about trading in ways that could harm the company’s credibility).
philipov 8y ago
If you don't disclose your position in the stock, that could be illegal stock manipulation, but it isn't the same as insider trading. Try this discussion on for size: https://seekingalpha.com/article/2389665-is-it-wrong-to-take-a-position-in-a-stock-and-then-write-about-it-on-seeking-alpha https://seekingalpha.com/article/2389665-is-it-wrong-to-take...
manicdee 8y ago
What you are describing is expected and normal behaviour especially for shorts. If you complain, you will be duly lectured on the role of shorts in maintaining a sensible market and finding true value of stocks, yadda yadda.
ikeboy 8y ago
https://en.wikipedia.org/wiki/R._Foster_Winans#Conviction https://en.wikipedia.org/wiki/R._Foster_Winans#Conviction
frutiger 8y ago
As an aside: Bloomberg employees are not permitted to short sell, and must hold most kinds of securities for 30 days or longer.

If a journalis sells short a company stocks before printing a story that will shock shareholders, is that insider trading? What's the legality of that?

by keyle 8y ago

If a journalis sells short a company stocks before printing a story that will shock shareholders, is that insider trading? What's the legality of that?

landr0id 8y ago

If they got information from an insider, it could potentially be insider trading. Something somewhat similar happened when MedSec shorted St. Jude before publishing some security research about some hardware: https://arstechnica.com/information-technology/2016/08/trading-in-stock-of-medical-device-paused-after-hackers-team-with-short-seller/ https://arstechnica.com/information-technology/2016/08/tradi... I don't believe that case was considered insider trading but I may be mistaken.

abstractbeliefs 8y ago
Buying a product, realising it's trash, shorting it, and then telling people why you shorted it isn't insider trading. The giveaway in this case is that MedSec/Muddy Waters were not in any way insiders, they were simply smart enough to investigate a company and find out it was overvalued before anyone else did, and then pointed it out when they had their financial ducks in a row to benefit from it.

pmorici 8y ago

Would probably hinge on where the information in the story came from. If the story is based on insider information the absolutely it meets the definition of insider trading. If the journalist is simply using publicly available information then no.

Lazare 8y ago

Short answer: If they "stole" the information (by, say, bribing an insider), they it's probably illegal. If they found it out by being clever (by, say, buying some satellite images and counting cars in parkings lots), then it's probably legal. If you need to know how a court is likely to draw the line, talk to a lawyer. :) But in general, the fact that a journalist is involved doesn't really change anything. In general, you can trade on whatever information you may have; the exception is if you have some duty not to trade on it.

gammateam 8y ago

Having disproportionate influence in the market isn't illegal. Never was, never is, it wasn't the intent of Congress, wasn't an interpretation ever considered by the SEC, and nobody in the courts care. In fact, the courts typically find the SEC's interpretation of 'insider trading' to be WAY too broad. So this Hollywood interpretation needs to go. Its only insider trading if you trade on material non-public information ABOUT SECURITIES (but if we're being honest, only equities and equities derivatives, corporate bonds are supposedly covered but no-one cares enough) where you have a fiduciary duty to not tell, such as by being employed with the company or in a nondisclosure agreement. You also create liability if you have a fiduciary duty not to tell, and you tell and that person or someone in that chain or persons trades. If you: - don't have a fiduciary duty not to tell, and you have material non-public information, you can trade or tell people who then trade. - don't have a fiduciary duty not to tell, and you have baseless non-public information, you can trade or tell people who then trade. It doesn't matter if you KNOW that your baseless information is going to move the markets. To avoid liability from individuals - this is distinct from liability from the regulators - all you do is put a disclaimer at the bottom of your post. The PSLRA of 1995 streamlined this due to frivolous lawsuits. - and last but not least, if you aren't trading securities then there is no prohibition of insider trading. there is no regulator that polices trading ahead of information in non-securities markets, there is no statute, there is no interest in Congress which assumes they could even make that constitutional at all, since there is no voluntary fiduciary duty role people could get themselves into.

lettergram 8y ago

Kind of similar to how my own system works (by identifying insiders and what they discuss): https://projectpiglet.com/ https://projectpiglet.com/ It is totally legal to get information ahead of the market, especially if it's "public". It is not legal to trade if it's non-public information as it relates to securities. In this case, it's also legal to get information from a paid source (think a paid news source - WSJ), it's not legal if they are bribing. In this case, the journalist is just selling the story to bloomberg who is then distributing the news (potentially) slightly ahead of it's public release (this is no different than a paid journal).

froindt 8y ago

Typically, if there's no exchange of value from the person with insider knowledge to the person making a trade, it's not insider trading. Generally speaking, I can go golf with my CEO buddy and he can mention what's going to happen in the next quarterly report without me ending up in jail. Matt Levine was in the banking industry and now frequently writes about insider trading. One might question journalistic integrity and incentives, but there is some good that can come from this sort of reporting. It helps in price discovery. In the below link, someone does additional research and short sells companies he believes are fraudulently reporting numbers to great success. Having insider information doesn't necessarily mean it's insider trading. https://www.washingtonpost.com/business/gaining-by-betting-against-flimsy-chinese-firms/2011/08/20/gIQAe4KFgJ_story.html?utm_term=.cf926555b5a5 https://www.washingtonpost.com/business/gaining-by-betting-a...

maxlybbert 8y ago

I can say that as far as Bloomberg is concerned, that would violate company policies (one policy about short selling and another about trading in ways that could harm the company’s credibility).

philipov 8y ago

If you don't disclose your position in the stock, that could be illegal stock manipulation, but it isn't the same as insider trading. Try this discussion on for size: https://seekingalpha.com/article/2389665-is-it-wrong-to-take-a-position-in-a-stock-and-then-write-about-it-on-seeking-alpha https://seekingalpha.com/article/2389665-is-it-wrong-to-take...

manicdee 8y ago

What you are describing is expected and normal behaviour especially for shorts. If you complain, you will be duly lectured on the role of shorts in maintaining a sensible market and finding true value of stocks, yadda yadda.

ikeboy 8y ago

https://en.wikipedia.org/wiki/R._Foster_Winans#Conviction https://en.wikipedia.org/wiki/R._Foster_Winans#Conviction

frutiger 8y ago

As an aside: Bloomberg employees are not permitted to short sell, and must hold most kinds of securities for 30 days or longer.