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Execs Make Millions via Timely Trades of Competitors’ Stock

51 points by tysone 4y ago

scaramuch 4y ago
[dead]
refurb 4y ago
But executives at companies can also have extensive access to nonpublic information about rivals, partners or vendors through their business. Buying or selling stock based on that knowledge can run afoul of insider-trading law, according to experts. Insider trading requires some "consideration" given in exchange for the information. Matt Levine has covered that the SEC takes a pretty broad view of "consideration" and it can include things like "friendship". But if, you hear rumors from multiple people in your network about your competitor having trouble and you trade on it, that's not insider trading. That's just early access to information.
- hurril 4y ago
  Acting on non-public information is considered insider trading in Sweden. No friendships required for it to be so.
  - filoleg 4y ago
    Genuinely curious about how it works in Sweden, so I have a question. Imagine a swedish person overhearing a conversation at a restaurant (in Sweden) between two people (insiders to a particular public company that is also located in Sweden) sitting at a different table. That conversation contained non-public material information about the company those two people work for. The swedish person who overheard the insider conversation makes a successful trade that makes them profit (using that information). Would this count as insider trading in Sweden? Afaik (which I could be mistaken about), it wouldn't in the US.
    - hurril 4y ago
      I honestly don't know but I've had it explained to me that it is the acting on said information that would be considered an offence. Either way: if someone were to do this with an ordinary Joe amount of money, nothing would happen. But say you took out a second mortgage and moved $1M - then that could probably be considered suspect. Who knows what that means.
  - gumby 4y ago
    That is the case in the USA as well; the comment author was saying that maintaining friendship is considered an example of a received benefit in exchange for a tip. It's an arguable point, but does make some sense (plus arguing with the SEC is...hard!) also, a side comment: > But if, you hear rumors from multiple people in your network ... I think this is pretty clearly not, in and of itself, evidence of insider trading, just an example of trading in a sector you follow closely. However the first example in the article is one where the two companies had an alliance, and in that case a simple origin like "heard from various people in my network" would not help you. I have been part of an alliance of several large semiconductor manufacturers and ever meeting began with a reiteration of the Hart-Scott-Rodino (HSR) Act criteria and what kinds of topics and conversations were forbidden.
  - jjtheblunt 4y ago
    Same in the US; it's very carefully taught in big tech companies. Now I'm trying to find citations about this use of "consideration", wonder if it's a Canadian term not US term.
- BoiledCabbage 4y ago
  Can someone explain why consideration is required? What would be the negative repercussions of removing that requirement? It seems unnecessary to me.
  - anigbrowl 4y ago
    Perhaps because consideration is a prerequisite of contract formation, and the employment contract is traditionally the basis of the 'insider' designation.
  - deleted 4y ago
    [deleted]
- __derek__ 4y ago
  If the insider interacts with that network and learns the information as part of doing their job, then they could be trading on information they stole from their own company's shareholders.
  - refurb 4y ago
    I mean sure, but if you trade on insider information that you didn't know was insider information (just rumor mill), my understanding is you haven't committed insider trading.
    - __derek__ 4y ago
      I read yesterday's Money Stuff last night and was amused to see Matt Levine write the same thing: > Another explanation is: They are in an industry, they hear nonpublic rumors about that industry, they compete on deals, they gossip with bankers and consultants, they know things, and they can often come upon material nonpublic information about their competitors. This one is interesting. “Insider trading,” I like to say, “is not about fairness, but about theft.” If you are an executive of a company (or its banker or lawyer or CEO’s therapist or whatever) and you learn things about your company and you trade the stock before the news is public, you are in some sense stealing information that belongs to the company and using it for yourself; you had a duty to the company not to do that. But if you learn information about your competitor, do you have the same duty? I think the answer is “maybe,” and it depends on things like how you learned the information and what your company’s trading policy says. I guess I've read enough Money Stuff. [1]: https://www.bloomberg.com/opinion/articles/2023-03-16/credit-suisse-puts-on-a-brave-face https://www.bloomberg.com/opinion/articles/2023-03-16/credit...

51 points by tysone 4y ago

[dead]

But executives at companies can also have extensive access to nonpublic information about rivals, partners or vendors through their business. Buying or selling stock based on that knowledge can run afoul of insider-trading law, according to experts. Insider trading requires some "consideration" given in exchange for the information. Matt Levine has covered that the SEC takes a pretty broad view of "consideration" and it can include things like "friendship". But if, you hear rumors from multiple people in your network about your competitor having trouble and you trade on it, that's not insider trading. That's just early access to information.

hurril 4y ago
Acting on non-public information is considered insider trading in Sweden. No friendships required for it to be so.
- filoleg 4y ago
  Genuinely curious about how it works in Sweden, so I have a question. Imagine a swedish person overhearing a conversation at a restaurant (in Sweden) between two people (insiders to a particular public company that is also located in Sweden) sitting at a different table. That conversation contained non-public material information about the company those two people work for. The swedish person who overheard the insider conversation makes a successful trade that makes them profit (using that information). Would this count as insider trading in Sweden? Afaik (which I could be mistaken about), it wouldn't in the US.
  - hurril 4y ago
    I honestly don't know but I've had it explained to me that it is the acting on said information that would be considered an offence. Either way: if someone were to do this with an ordinary Joe amount of money, nothing would happen. But say you took out a second mortgage and moved $1M - then that could probably be considered suspect. Who knows what that means.
- gumby 4y ago
  That is the case in the USA as well; the comment author was saying that maintaining friendship is considered an example of a received benefit in exchange for a tip. It's an arguable point, but does make some sense (plus arguing with the SEC is...hard!) also, a side comment: > But if, you hear rumors from multiple people in your network ... I think this is pretty clearly not, in and of itself, evidence of insider trading, just an example of trading in a sector you follow closely. However the first example in the article is one where the two companies had an alliance, and in that case a simple origin like "heard from various people in my network" would not help you. I have been part of an alliance of several large semiconductor manufacturers and ever meeting began with a reiteration of the Hart-Scott-Rodino (HSR) Act criteria and what kinds of topics and conversations were forbidden.
- jjtheblunt 4y ago
  Same in the US; it's very carefully taught in big tech companies. Now I'm trying to find citations about this use of "consideration", wonder if it's a Canadian term not US term.
BoiledCabbage 4y ago
Can someone explain why consideration is required? What would be the negative repercussions of removing that requirement? It seems unnecessary to me.
- anigbrowl 4y ago
  Perhaps because consideration is a prerequisite of contract formation, and the employment contract is traditionally the basis of the 'insider' designation.
- deleted 4y ago
  [deleted]
__derek__ 4y ago
If the insider interacts with that network and learns the information as part of doing their job, then they could be trading on information they stole from their own company's shareholders.
- refurb 4y ago
  I mean sure, but if you trade on insider information that you didn't know was insider information (just rumor mill), my understanding is you haven't committed insider trading.
  - __derek__ 4y ago
    I read yesterday's Money Stuff last night and was amused to see Matt Levine write the same thing: > Another explanation is: They are in an industry, they hear nonpublic rumors about that industry, they compete on deals, they gossip with bankers and consultants, they know things, and they can often come upon material nonpublic information about their competitors. This one is interesting. “Insider trading,” I like to say, “is not about fairness, but about theft.” If you are an executive of a company (or its banker or lawyer or CEO’s therapist or whatever) and you learn things about your company and you trade the stock before the news is public, you are in some sense stealing information that belongs to the company and using it for yourself; you had a duty to the company not to do that. But if you learn information about your competitor, do you have the same duty? I think the answer is “maybe,” and it depends on things like how you learned the information and what your company’s trading policy says. I guess I've read enough Money Stuff. [1]: https://www.bloomberg.com/opinion/articles/2023-03-16/credit-suisse-puts-on-a-brave-face https://www.bloomberg.com/opinion/articles/2023-03-16/credit...