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"""A Facebook spokesperson said all of Zuckerberg’s trading in Facebook stock had been done through plans set up under Securities and Exchange Commission Rule 1

by dpflan 8y ago

"""A Facebook spokesperson said all of Zuckerberg’s trading in Facebook stock had been done through plans set up under Securities and Exchange Commission Rule 10b5-1. The rule allows company insiders to avoid insider trading allegations by establishing formal plans to sell a predetermined number of shares at a preset time.""" So you can follow the rules and have sales on a schedule and not be labeled "insider trading", but restrict disclosure of information that would affect the price prior to the scheduled sales. So there needs to be a mandatory disclosure deadline once something is discovered. I'm not familiar with the law here, but how is it changing? It seems hard to classify different events as worthy of mandatory public disclosure when they vary across industries.

rando444 8y ago
What if you sit on the information long enough that you can plan your trades ahead of time before the information becomes public? cough Intel cough
chollida1 8y ago
> So you can follow the rules and have sales on a schedule and not be labeled "insider trading", but restrict disclosure of information that would affect the price prior to the scheduled sales. So there needs to be a mandatory disclosure deadline once something is discovered. Partially correct. Your trades will still be tagged as a trade by an insider, I can see all Mark's trades on my bloomberg terminal. But you are correct that currently you don't need to stop your scheduled trades if good or bad news is bout to be reported and there isn't a firm rule about when you need to report bad news, ie you could delay the release of bad news until after your preplaneed sale and as long as you had a reason other than "for your own benefit" as the reason why you delayed the release of bad news you would almost certainly be in the clear. Any "pre planned" trades that were originated after the news was known to you would almost certainly get you investigated by the SEC. TL/DR there is a big distinction between "Insider Trades" and "insider trading". The former is any trade by an "insider", which is a term with meaning by the SEC and the later is illegal and what Matt Levine has made a career writing about.
tyre 8y ago
If events are disclosed in a timely manner then shareholders can sue for securities fraud. Matt Levine—a columnist at Bloomberg who is both smart and hilarious; his Money Stuff newsletter is excellent—has a recurring theme of “everything is securities fraud.” The theory: anything that effects the stock price of the company and isn’t disclosed as soon as possible is securities fraud. Company doesn’t disclose a security breach? Securities fraud. Board buries a sexual harassment settlement with the CEO? Securities fraud. If you buy stock after the event but before the event is disclosed, you were trading when the company had material information that could effect the stock price. That’s securities fraud. Levine is both joking and not that really _anything_ could be prosecuted under this, and the SEC has seemed to make some prosecutions under this theory that feel more like, “what you did was shitty and maybe not exactly illegal or we don’t have exact evidence so we’ll prosecute you under this super broad statute.” Wire fraud seems to be applied in a similar manner. (I’m not a lawyer and this is not legal advice, just some things I’ve read and now you’re reading on the internet from a random commentor. The above is how I understand it.)
- elliekelly 8y ago
  Securities lawyer here. And... I kind of agree. With respect to insider trading at least. The laws are both complicated and unclear. Recent cases are taking things to the point where it might soon be difficult for senior executives to own stock without a blind trust. Historically insider trading has required some sort of affirmative _action_ (buying or selling) but there's been a trend recently (as alleged here) of alleging insider trading for inaction. You didn't sell as planned, you didn't disclose in time, etc. It could really put management in a difficult spot. Other than the insider trading conundrum though it might seem like everything is securities fraud because we're too used to executives putting their own interests ahead of (or at least in line with) their shareholders*. That's a problem because their fiduciary duty says that company/shareholder interests have to come above all else. Edit: Meant "shareholders" interests not "own" interests.
  - vec 8y ago
    Just playing devil's advocate a bit, but what would be the downside of just drawing a bright line that owning stock in your employer is inherently a conflict of interest?
hn_throwaway_99 8y ago
Yes, when I set up a 10b5-1 plan I recall reading some research that announcement of market-moving news was adjusted based on the presence of pre-scheduled trades (statistically speaking, looking at a large number of companies over time).
ergocoder 8y ago
This doesn't seem like a difficult problem to solve. We can just sell equal amount of stock every single day. Then, there's no way to do insider trading. I'm not sure why we sell it like once a month or every three month.
wang_li 8y ago
This could be easily resolved by making all insider trades happen at the worst price during the preceding and succeeding quarters. Or two quarters before and after the trade. Just make sure that the pricing and the criminal charge for failing to disclose windows overlap. I realize that there is a buyer or seller for every trade and this could be harmful to them, so perhaps just fine the insider for the difference between the worst prior/successive price and the price on the day of the trade.
- jacques_chester 8y ago
  You can make money on a fall as well as a rise.
  - wang_li 8y ago
    That's why I said worst rather than lowest or highest. Depending on the nature of the trade the price to use may be the lowest price in the window or the highest price in the window.

by dpflan 8y ago

rando444 8y ago

What if you sit on the information long enough that you can plan your trades ahead of time before the information becomes public? cough Intel cough

chollida1 8y ago

> So you can follow the rules and have sales on a schedule and not be labeled "insider trading", but restrict disclosure of information that would affect the price prior to the scheduled sales. So there needs to be a mandatory disclosure deadline once something is discovered. Partially correct. Your trades will still be tagged as a trade by an insider, I can see all Mark's trades on my bloomberg terminal. But you are correct that currently you don't need to stop your scheduled trades if good or bad news is bout to be reported and there isn't a firm rule about when you need to report bad news, ie you could delay the release of bad news until after your preplaneed sale and as long as you had a reason other than "for your own benefit" as the reason why you delayed the release of bad news you would almost certainly be in the clear. Any "pre planned" trades that were originated after the news was known to you would almost certainly get you investigated by the SEC. TL/DR there is a big distinction between "Insider Trades" and "insider trading". The former is any trade by an "insider", which is a term with meaning by the SEC and the later is illegal and what Matt Levine has made a career writing about.

tyre 8y ago

If events are disclosed in a timely manner then shareholders can sue for securities fraud. Matt Levine—a columnist at Bloomberg who is both smart and hilarious; his Money Stuff newsletter is excellent—has a recurring theme of “everything is securities fraud.” The theory: anything that effects the stock price of the company and isn’t disclosed as soon as possible is securities fraud. Company doesn’t disclose a security breach? Securities fraud. Board buries a sexual harassment settlement with the CEO? Securities fraud. If you buy stock after the event but before the event is disclosed, you were trading when the company had material information that could effect the stock price. That’s securities fraud. Levine is both joking and not that really _anything_ could be prosecuted under this, and the SEC has seemed to make some prosecutions under this theory that feel more like, “what you did was shitty and maybe not exactly illegal or we don’t have exact evidence so we’ll prosecute you under this super broad statute.” Wire fraud seems to be applied in a similar manner. (I’m not a lawyer and this is not legal advice, just some things I’ve read and now you’re reading on the internet from a random commentor. The above is how I understand it.)

elliekelly 8y ago
Securities lawyer here. And... I kind of agree. With respect to insider trading at least. The laws are both complicated and unclear. Recent cases are taking things to the point where it might soon be difficult for senior executives to own stock without a blind trust. Historically insider trading has required some sort of affirmative _action_ (buying or selling) but there's been a trend recently (as alleged here) of alleging insider trading for inaction. You didn't sell as planned, you didn't disclose in time, etc. It could really put management in a difficult spot. Other than the insider trading conundrum though it might seem like everything is securities fraud because we're too used to executives putting their own interests ahead of (or at least in line with) their shareholders*. That's a problem because their fiduciary duty says that company/shareholder interests have to come above all else. Edit: Meant "shareholders" interests not "own" interests.
- vec 8y ago
  Just playing devil's advocate a bit, but what would be the downside of just drawing a bright line that owning stock in your employer is inherently a conflict of interest?

hn_throwaway_99 8y ago

Yes, when I set up a 10b5-1 plan I recall reading some research that announcement of market-moving news was adjusted based on the presence of pre-scheduled trades (statistically speaking, looking at a large number of companies over time).

ergocoder 8y ago

This doesn't seem like a difficult problem to solve. We can just sell equal amount of stock every single day. Then, there's no way to do insider trading. I'm not sure why we sell it like once a month or every three month.

wang_li 8y ago

This could be easily resolved by making all insider trades happen at the worst price during the preceding and succeeding quarters. Or two quarters before and after the trade. Just make sure that the pricing and the criminal charge for failing to disclose windows overlap. I realize that there is a buyer or seller for every trade and this could be harmful to them, so perhaps just fine the insider for the difference between the worst prior/successive price and the price on the day of the trade.

jacques_chester 8y ago
You can make money on a fall as well as a rise.
- wang_li 8y ago
  That's why I said worst rather than lowest or highest. Depending on the nature of the trade the price to use may be the lowest price in the window or the highest price in the window.