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> Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to i

> Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to information to make better investing decisions than other companies are able to Insider trading laws apply to all companies, be them public or private. It is illegal to trade based on undisclosed material information the other party doesn't have - the law doesn't care whether the stock you're buying is private or on an exchange. Here's an example: suppose you have a startup that's been going a long time, and some employees want to sell their stock on a secondary market. To avoid this, the startup offers to buy back employee stock, using the most recent valuation of the company to price it. However, the CEO knows that since that valuation was carried out the company is doing much better than expected - and the real value of the stock is much higher. This isn't disclosed to their employees. This is classic insider trading, and the SEC has taken enforcement action against private companies for doing this sort of thing. FWIW, I don't think Facebook actually has a large amount of material data in this case - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party.

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ThrustVectoring 6y ago
> It is illegal to trade based on undisclosed material information the other party doesn't have Insider trading laws are designed to criminalize misuse of confidential information, they're not designed to create a fair playing field. > FWIW, I don't think Facebook actually has a large amount of material data in this scenario - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party. Facebook knows how much money widget-makers are spending to promote widget product pages on Amazon.
CalChris 6y ago
That's not insider trading when the startup buys back stock and has more information than the employee has. It might be something else but it isn't insider trading. Now if the CEO was buying the stock rather the startup, that would be insider trading. Insider trading is an individual crime. https://www.investor.gov/introduction-investing/investing-basics/glossary/insider-trading https://www.investor.gov/introduction-investing/investing-ba...
IgorPartola 6y ago
So by your logic nobody can trade stock with me before buying me a WSJ subscription?
smabie 6y ago
I don't think you understand what insider trading is. You can trade on information other people don't have all day long. In fact, that's what a good market is for. What you're not allowed to do is steal other people's information and use that to trade.

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ThrustVectoring 6y ago

> It is illegal to trade based on undisclosed material information the other party doesn't have Insider trading laws are designed to criminalize misuse of confidential information, they're not designed to create a fair playing field. > FWIW, I don't think Facebook actually has a large amount of material data in this scenario - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party. Facebook knows how much money widget-makers are spending to promote widget product pages on Amazon.

CalChris 6y ago

That's not insider trading when the startup buys back stock and has more information than the employee has. It might be something else but it isn't insider trading. Now if the CEO was buying the stock rather the startup, that would be insider trading. Insider trading is an individual crime. https://www.investor.gov/introduction-investing/investing-basics/glossary/insider-trading https://www.investor.gov/introduction-investing/investing-ba...

IgorPartola 6y ago

So by your logic nobody can trade stock with me before buying me a WSJ subscription?

smabie 6y ago

I don't think you understand what insider trading is. You can trade on information other people don't have all day long. In fact, that's what a good market is for. What you're not allowed to do is steal other people's information and use that to trade.