4 ms·

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and confidence”.

hash872 3y ago
But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?
- cko 3y ago
  Sounds like he failed in his fiance duties.
- djbusby 3y ago
  The family has the obligation. When you're trading one of the questions is if you, or your family, has rank at public companies. That would make the link from the guy, to wife, to company.
  - lowbloodsugar 3y ago
    Unless your wife is the leader of the house.
    - kasey_junk 3y ago
      The Nancy Pelosi case is extremely interesting from a market manipulation point of view! It’s one of the strongest arguments for extreme restrictions on Congress trading. Trumps behavior in office is a similarly strong argument for extreme restrictions on Presidential trading. But it’s not strictly about insider trading. Pelosi (or trump or Pelosis’ husband) are not traditionally insiders. The testimony they receive is by its nature public. That we’ve allowed lots of things that shouldn’t be secret doesn’t change that. That elected officials can be corrupted by their power isn’t an insider trading issue, it’s a corruption one.
      - lowbloodsugar 3y ago
        Sure. But the issue is when they have insider information on how a vote is going to go, when the vote impacts stock prices. She has material information that the public does not.
        kasey_junk 3y ago
        But she's not an insider. The common belief is that insider trading laws are about having data that the market doesn't know. In the US that's just not the basis for the law. In the US there is no expectation that everyone has the same information when trading. The expectation is that people who have a duty to the shareholders are not trading on any non public material information. If you don't have a duty to the shareholders, it doesn't matter how you trade. Is that the appropriate standard to hold congress people to? I don't know, personally i think, no. But its not obvious that its incorrect from a legal point of view. What fiduciary duty does Nancy Pelosi have to some fund her husband owns? I'm good with a definition that says "once you become a congress person you have fiduciary duty to everyone" but thats not the law now.
        lowbloodsugar 3y ago
        So if I’m a billionaire, I can say I’m going to buy a company, to build up its stock price, and then short it and publicly walk away? That’s fine because I don’t have a duty to that company’s shareholders? I mean sure, can only do it once, but that’s legal?
        kasey_junk 3y ago
        :shrug: it’s not insider trading (by historical norms) that doesn’t make it legal. There are other laws that you might be breaking.
- wongarsu 3y ago
  There's a sliding scale of accountability from "I did it", "My wife did it", "My fiance did it", "my significant other did it", "my neighbour did it" to "some person I don't know did it". A fiance is still close enough that they are captured by lots of regulation, because collusion/cooperation between partners is so common.
  - jandrese 3y ago
    I feel like the SEC must have already taken into account the possibility of a "Strangers on a Train" situation where an insider tracks down an anonymous third party to commit the crime with the expectation of being paid back a percentage at some later date.
    - kevinmchugh 3y ago
      There are convictions for golf buddies swapping tips. In the perfect strangers situation, the tip receiver has no incentive to ever pay back the tipper. There's no legal recourse
      - jandrese 3y ago
        Except the guy knows where you live and has already shown a willingness to break the law in ways where he thinks he won't be caught. If the top receiver suddenly finds himself dead there is nothing pointing back towards the original inside trader. This is the stuff of tawdry crime thrillers, but it's certainly not so far out of the realm of possibility that the SEC can just ignore it.
- cmcaleer 3y ago
  https://www.sec.gov/litigation/litreleases/lr-24375 https://www.sec.gov/litigation/litreleases/lr-24375 The case for those wondering.
- bombcar 3y ago
  Many financial laws consider spouses to be "identical" from the point of view of law. Since your wife would benefit from you acting insider knowledge she has, it applies.
- foota 3y ago
  is this not a breach of "other relationship of trust and confidence"?
- jabroni_salad 3y ago
  As a someone in scope of FINRA, yes actually. Your immediate nuclear family owes your company that duty and you have to grant your company's watchdog the ability to monitor your family member's investments for restricted trades. See also: I am not allowed to use robinhood at all because their referral program can reward you with a restricted security. Nobody was grandfathered and every RH user at my firm was told to xfer out or find a new job. I also can't use any roboadvisor. For us peons, independence is a serious matter. It's just the rich and powerful that get to flaunt it.
jahewson 3y ago
This is not correct. If the tip came from an insider, it’s insider trading no matter who acts on it. See for example Martha Stewart who traded on an illegal tip from her stockbroker.
- kasey_junk 3y ago
  https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?params=/context/busi_fac_pubs/article/1002/&path_info=MarthaStewartInsiderTrading.pdf https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?param... most of the Stewart case was about her actions post the tip. If she’d had just said “my broker told me to sell” she’d likely be good to go (who knows). But she didn’t. She obscured and made it obvious with her actions that she was trying to steal from other shareholders (by acting on information she should not have).
- mcguire 3y ago
  An intentional tip, right? Not an "overheard conversation".
  - jiveturkey 3y ago
    Has to be. If you are monitoring the travel activity of cisco and splunk execs and happen to see them go to a fancy dinner after weeks of office meetings, there is no way that is insider trading. That's the same thing as overhearing a phone call in a cab.
- CrazyStat 3y ago
  Stewart was convicted and jailed for obstruction of justice and lying to investigators, not for insider trading.
- namdnay 3y ago
  To continue the “theft from shareholders” analogy, acting on a deliberate tip is fencing stolen goods
andylynch 3y ago
Caveat that other jurisdictions do take a broader view (from memory, France is one that comes to mind where overhearing something confidential and trading on it is unlawful).
- kasey_junk 3y ago
  Yes! Very explicitly I mention the US because our insider trading laws are based on a different theory than European laws (for instance)
- compsciphd 3y ago
  I believe the SEC went after capital one analysts who used information capital one has via credit card usages at stores to trade against companies not capital one. While one might say that the info that capital one had was proprietary (as they deffinitely use it for other things), its hard to view it ast hurting people one has a fiduciary duty to, but I believe they still won the conviction.
  - kevinmchugh 3y ago
    Were the analysts acting independently or on behalf of capital one? Because on its face it's capital one's information to trade with (other laws not withstanding)
    - compsciphd 3y ago
      yes they were acting on behalf of capital one, I'm just saying why its just not fidicuary duty to shareholders of traded company.
tjrgergw 3y ago
But.... if you're trading options you're not stealing from the shareholders, right? The person on the other side is also trading options, not a shareholder.
- kasey_junk 3y ago
  Yeah. This is a philosophical point that the law contemplates. Your option’s position is a theoretical position against the shareholders. I’m not convinced us insider trading laws are particularly logical or valuable (like most economists I think we shouldn’t have them) but you can usually back out the SEC position by figuring out how a shareholder was harmed.
  - tjrgergw 3y ago
    > like most economists I think we shouldn’t have them Isn't that basically just scamming? I can tell you I have a box full of gold, sell it to you, and then it's not. You think this is ok?

hash872 3y ago

But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?

cko 3y ago
Sounds like he failed in his fiance duties.
djbusby 3y ago
The family has the obligation. When you're trading one of the questions is if you, or your family, has rank at public companies. That would make the link from the guy, to wife, to company.
- lowbloodsugar 3y ago
  Unless your wife is the leader of the house.
  - kasey_junk 3y ago
    The Nancy Pelosi case is extremely interesting from a market manipulation point of view! It’s one of the strongest arguments for extreme restrictions on Congress trading. Trumps behavior in office is a similarly strong argument for extreme restrictions on Presidential trading. But it’s not strictly about insider trading. Pelosi (or trump or Pelosis’ husband) are not traditionally insiders. The testimony they receive is by its nature public. That we’ve allowed lots of things that shouldn’t be secret doesn’t change that. That elected officials can be corrupted by their power isn’t an insider trading issue, it’s a corruption one.
    - lowbloodsugar 3y ago
      Sure. But the issue is when they have insider information on how a vote is going to go, when the vote impacts stock prices. She has material information that the public does not.
      - kasey_junk 3y ago
        But she's not an insider. The common belief is that insider trading laws are about having data that the market doesn't know. In the US that's just not the basis for the law. In the US there is no expectation that everyone has the same information when trading. The expectation is that people who have a duty to the shareholders are not trading on any non public material information. If you don't have a duty to the shareholders, it doesn't matter how you trade. Is that the appropriate standard to hold congress people to? I don't know, personally i think, no. But its not obvious that its incorrect from a legal point of view. What fiduciary duty does Nancy Pelosi have to some fund her husband owns? I'm good with a definition that says "once you become a congress person you have fiduciary duty to everyone" but thats not the law now.
        lowbloodsugar 3y ago
        So if I’m a billionaire, I can say I’m going to buy a company, to build up its stock price, and then short it and publicly walk away? That’s fine because I don’t have a duty to that company’s shareholders? I mean sure, can only do it once, but that’s legal?
        kasey_junk 3y ago
        :shrug: it’s not insider trading (by historical norms) that doesn’t make it legal. There are other laws that you might be breaking.
wongarsu 3y ago
There's a sliding scale of accountability from "I did it", "My wife did it", "My fiance did it", "my significant other did it", "my neighbour did it" to "some person I don't know did it". A fiance is still close enough that they are captured by lots of regulation, because collusion/cooperation between partners is so common.
- jandrese 3y ago
  I feel like the SEC must have already taken into account the possibility of a "Strangers on a Train" situation where an insider tracks down an anonymous third party to commit the crime with the expectation of being paid back a percentage at some later date.
  - kevinmchugh 3y ago
    There are convictions for golf buddies swapping tips. In the perfect strangers situation, the tip receiver has no incentive to ever pay back the tipper. There's no legal recourse
    - jandrese 3y ago
      Except the guy knows where you live and has already shown a willingness to break the law in ways where he thinks he won't be caught. If the top receiver suddenly finds himself dead there is nothing pointing back towards the original inside trader. This is the stuff of tawdry crime thrillers, but it's certainly not so far out of the realm of possibility that the SEC can just ignore it.
cmcaleer 3y ago
https://www.sec.gov/litigation/litreleases/lr-24375 https://www.sec.gov/litigation/litreleases/lr-24375 The case for those wondering.
bombcar 3y ago
Many financial laws consider spouses to be "identical" from the point of view of law. Since your wife would benefit from you acting insider knowledge she has, it applies.
foota 3y ago
is this not a breach of "other relationship of trust and confidence"?
jabroni_salad 3y ago
As a someone in scope of FINRA, yes actually. Your immediate nuclear family owes your company that duty and you have to grant your company's watchdog the ability to monitor your family member's investments for restricted trades. See also: I am not allowed to use robinhood at all because their referral program can reward you with a restricted security. Nobody was grandfathered and every RH user at my firm was told to xfer out or find a new job. I also can't use any roboadvisor. For us peons, independence is a serious matter. It's just the rich and powerful that get to flaunt it.

jahewson 3y ago

This is not correct. If the tip came from an insider, it’s insider trading no matter who acts on it. See for example Martha Stewart who traded on an illegal tip from her stockbroker.

kasey_junk 3y ago
https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?params=/context/busi_fac_pubs/article/1002/&path_info=MarthaStewartInsiderTrading.pdf https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?param... most of the Stewart case was about her actions post the tip. If she’d had just said “my broker told me to sell” she’d likely be good to go (who knows). But she didn’t. She obscured and made it obvious with her actions that she was trying to steal from other shareholders (by acting on information she should not have).
mcguire 3y ago
An intentional tip, right? Not an "overheard conversation".
- jiveturkey 3y ago
  Has to be. If you are monitoring the travel activity of cisco and splunk execs and happen to see them go to a fancy dinner after weeks of office meetings, there is no way that is insider trading. That's the same thing as overhearing a phone call in a cab.
CrazyStat 3y ago
Stewart was convicted and jailed for obstruction of justice and lying to investigators, not for insider trading.
namdnay 3y ago
To continue the “theft from shareholders” analogy, acting on a deliberate tip is fencing stolen goods

andylynch 3y ago

Caveat that other jurisdictions do take a broader view (from memory, France is one that comes to mind where overhearing something confidential and trading on it is unlawful).

kasey_junk 3y ago
Yes! Very explicitly I mention the US because our insider trading laws are based on a different theory than European laws (for instance)
compsciphd 3y ago
I believe the SEC went after capital one analysts who used information capital one has via credit card usages at stores to trade against companies not capital one. While one might say that the info that capital one had was proprietary (as they deffinitely use it for other things), its hard to view it ast hurting people one has a fiduciary duty to, but I believe they still won the conviction.
- kevinmchugh 3y ago
  Were the analysts acting independently or on behalf of capital one? Because on its face it's capital one's information to trade with (other laws not withstanding)
  - compsciphd 3y ago
    yes they were acting on behalf of capital one, I'm just saying why its just not fidicuary duty to shareholders of traded company.

tjrgergw 3y ago

But.... if you're trading options you're not stealing from the shareholders, right? The person on the other side is also trading options, not a shareholder.

kasey_junk 3y ago
Yeah. This is a philosophical point that the law contemplates. Your option’s position is a theoretical position against the shareholders. I’m not convinced us insider trading laws are particularly logical or valuable (like most economists I think we shouldn’t have them) but you can usually back out the SEC position by figuring out how a shareholder was harmed.
- tjrgergw 3y ago
  > like most economists I think we shouldn’t have them Isn't that basically just scamming? I can tell you I have a box full of gold, sell it to you, and then it's not. You think this is ok?