6 ms·

At what point does information such as this become "insider information" and illegal to share? These "eyes and ears" need to have their taxes audited...

mensetmanusman 3y ago
Information always leaks out, especially with the way every government document is immediately analyzed and parsed by the big players. The public record is quite public.
gizmo 3y ago
Never, because "insider information" is a legal concept that doesn't correspond with what people intuit it means. People wrongly think insider trading is when one party unfairly profits from having important information other investors don't have. Also, sharing "insider information" isn't illegal. In some narrow cases profiting off of "insider information" is illegal, but in most cases it's not.
- seunosewa 3y ago
  In which cases is it legal?
  - gizmo 3y ago
    Pretty much all cases? If you're an institutional investor you can just call the CEO or investor relations and ask them tough questions about their business. Sometimes you can figure out within minutes that the CEO is a bozo. You can visit their offices and talk to the employees. Are they smart and passionate and hard-working, or demoralized and looking to jump ship? You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If you write the right letter you can find out based on the kind of form letter you get in response. This information is clearly material (would move the stock if made public) and non-public (the SEC hasn't disclosed its investigation yet) and yet you're free to trade on this information because you derived it and because any investor would have gotten the same response if they had known exactly which magic words to use in their letter to the SEC. If the CFO leaks the numbers of the quarter and you trade based on that you risk jail time. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
    - splintercell 3y ago
      Is there any reason why based on the last example you would want to short?
      - mwigdahl 3y ago
        Because it implies that they're putting a lot of effort into making bad numbers look good for the report, and the assumption is that they'll either fail or the truth will come out at some point to make the short pay off.
    - gamblor956 3y ago
      A lot of what you said is wrong... Material does not mean "would move the market." It means there is a substantial likelihood that a reasonable shareholder would consider it important" in making an investment decision". https://www.sec.gov/rules/2000/08/selective-disclosure-and-insider-trading https://www.sec.gov/rules/2000/08/selective-disclosure-and-i... You can visit their offices and talk to the employees. If an employee tells you something that is nonpublic information, and you act on it, that would likely be considering insider trading by the SEC. There is a fair amount of case law supporting this point. Indeed, the fact that you acted on the employee's information is generally sufficient proof that the information was material; and this is in fact the most common insider trading scenario. You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If the target of the SEC is not aware of the investigation, the SEC will not disclose that information in response to a FOIA request. On the flipside, if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info. Such behavior would provide no useful information about the state of a company's financials. In the week leading up to earnings reports, the CFO and finance departments generally stay late making sure the financials are in proper shape, whether or not those financials are good or bad. This is standard practice at all publicly traded companies with proper controls, because there is a very short window of time between the end of the financial period and the time it must be reported for regulatory purposes.
- jszymborski 3y ago
  > unfairly profits from having important information other investors don't have. It all depends how you come to know the thing, no? If you can infer something from public information others haven't, then bully for you. I'm pretty sure that if that information is not public, then you're liable. IANAL though so I may be wrong.
  - gizmo 3y ago
    That's totally wrong. If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly. Every public company has an Investor Relations department that talks to institutional investors every day. Investors wouldn't bother talking to IR if they could get the same information somewhere else. And these communications are not made public and shared with other investors.
    - n2d4 3y ago
      > MNPI with you directly. Abbreviating that is so misleading, it's incredibly hard to not see it as bad faith! MNPI means "material non-public information". You're saying "non-public information is fine but material non-public information is not", without making it as obvious. Yes, it has to be material. "Owes $30b in taxes" is ABSOLUTELY material. If on top of that you learn about it from IRS insider contacts, enjoy your time in prison. Please do read the Wikipedia article; it has a section on the US. https://en.wikipedia.org/wiki/Insider_trading https://en.wikipedia.org/wiki/Insider_trading > SEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.
      - gizmo 3y ago
        The entire point is that MNPI is a legal concept and information can be both nonpublic (i.e. private correspondence) and tradable for profit (i.e. material) and yet does not constitute MNPI. You're making the exact mistake that I've repeatedly tried to correct. There is no bad faith on my part.
xinayder 3y ago
Big investors have a pass for doing shady stuff. They can do insider trading (up to a point where it's not considered insider trading), they can break the SEC rules to artificially reduce the share price of a company so they can buy it or drive them to bankruptcy, but a normal person like me and you can't do these things, because we don't have the money to get around with it. Big market actors are just institutionalized corrupt people working for private companies. Change my mind.
- kylebenzle 3y ago
  You are correct, this is America where we do A LOT of things that are bad for us because they are profitable. I'm writing a long form article about this idea, how in America we do stuff like private prisons, allow pollution, the "family" court system and social media for kids even though some countries can easily fix these problems we refuse to address them because just TOO much money is being made (at least that's how the divorce industry was explained to me).
  - benreesman 3y ago
    “Corruption charges?! We have laws against it precisely so that we can do it! Corruption is why we win!” - Syriana
  - Modified3019 3y ago
    I’d definitely love to read it when it comes out.
    - kylebenzle 3y ago
      I'll be sure to post to HN :)
- kortilla 3y ago
  > They can do insider trading This is incorrect. https://www.natlawreview.com/article/sec-secures-largest-ever-settlement-insider-trading-case https://www.natlawreview.com/article/sec-secures-largest-eve... > they can break the SEC rules to artificially reduce the share price No, stock manipulation with falsification of bad information is also heavily prosecuted. Can you give specific examples where you think this happened? You might not be using the correct definition of “inside information” or “artificially reduce”.
kylebenzle 3y ago
Martha Stewart: Convicted in 2004 for insider trading related to the biopharmaceutical company ImClone Systems. Raj Rajaratnam: Founder of the Galleon Group, convicted in 2011 on 14 counts of conspiracy and securities fraud. Jeffrey Skilling: Former CEO of Enron, convicted in 2006 for insider trading among other charges. Michael Milken: Financier and investment banker known as the "Junk Bond King," convicted in 1990 for securities fraud, including insider trading.
- gadders 3y ago
  Point of order - Martha Stewart was convicted of obstruction of justice and lying to an investigator, not insider trading. This might not be the most authoritative website but it lines up with what is in wikipedia: https://www.yourdictionary.com/articles/martha-stewart-jail-scandal https://www.yourdictionary.com/articles/martha-stewart-jail-...
benreesman 3y ago
In the market you can buy and hold, exploit “grey” edge, be RenTec, or lose money.

mensetmanusman 3y ago

Information always leaks out, especially with the way every government document is immediately analyzed and parsed by the big players. The public record is quite public.

gizmo 3y ago

Never, because "insider information" is a legal concept that doesn't correspond with what people intuit it means. People wrongly think insider trading is when one party unfairly profits from having important information other investors don't have. Also, sharing "insider information" isn't illegal. In some narrow cases profiting off of "insider information" is illegal, but in most cases it's not.

seunosewa 3y ago
In which cases is it legal?
- gizmo 3y ago
  Pretty much all cases? If you're an institutional investor you can just call the CEO or investor relations and ask them tough questions about their business. Sometimes you can figure out within minutes that the CEO is a bozo. You can visit their offices and talk to the employees. Are they smart and passionate and hard-working, or demoralized and looking to jump ship? You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If you write the right letter you can find out based on the kind of form letter you get in response. This information is clearly material (would move the stock if made public) and non-public (the SEC hasn't disclosed its investigation yet) and yet you're free to trade on this information because you derived it and because any investor would have gotten the same response if they had known exactly which magic words to use in their letter to the SEC. If the CFO leaks the numbers of the quarter and you trade based on that you risk jail time. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
  - splintercell 3y ago
    Is there any reason why based on the last example you would want to short?
    - mwigdahl 3y ago
      Because it implies that they're putting a lot of effort into making bad numbers look good for the report, and the assumption is that they'll either fail or the truth will come out at some point to make the short pay off.
  - gamblor956 3y ago
    A lot of what you said is wrong... Material does not mean "would move the market." It means there is a substantial likelihood that a reasonable shareholder would consider it important" in making an investment decision". https://www.sec.gov/rules/2000/08/selective-disclosure-and-insider-trading https://www.sec.gov/rules/2000/08/selective-disclosure-and-i... You can visit their offices and talk to the employees. If an employee tells you something that is nonpublic information, and you act on it, that would likely be considering insider trading by the SEC. There is a fair amount of case law supporting this point. Indeed, the fact that you acted on the employee's information is generally sufficient proof that the information was material; and this is in fact the most common insider trading scenario. You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If the target of the SEC is not aware of the investigation, the SEC will not disclose that information in response to a FOIA request. On the flipside, if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info. Such behavior would provide no useful information about the state of a company's financials. In the week leading up to earnings reports, the CFO and finance departments generally stay late making sure the financials are in proper shape, whether or not those financials are good or bad. This is standard practice at all publicly traded companies with proper controls, because there is a very short window of time between the end of the financial period and the time it must be reported for regulatory purposes.
jszymborski 3y ago
> unfairly profits from having important information other investors don't have. It all depends how you come to know the thing, no? If you can infer something from public information others haven't, then bully for you. I'm pretty sure that if that information is not public, then you're liable. IANAL though so I may be wrong.
- gizmo 3y ago
  That's totally wrong. If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly. Every public company has an Investor Relations department that talks to institutional investors every day. Investors wouldn't bother talking to IR if they could get the same information somewhere else. And these communications are not made public and shared with other investors.
  - n2d4 3y ago
    > MNPI with you directly. Abbreviating that is so misleading, it's incredibly hard to not see it as bad faith! MNPI means "material non-public information". You're saying "non-public information is fine but material non-public information is not", without making it as obvious. Yes, it has to be material. "Owes $30b in taxes" is ABSOLUTELY material. If on top of that you learn about it from IRS insider contacts, enjoy your time in prison. Please do read the Wikipedia article; it has a section on the US. https://en.wikipedia.org/wiki/Insider_trading https://en.wikipedia.org/wiki/Insider_trading > SEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.
    - gizmo 3y ago
      The entire point is that MNPI is a legal concept and information can be both nonpublic (i.e. private correspondence) and tradable for profit (i.e. material) and yet does not constitute MNPI. You're making the exact mistake that I've repeatedly tried to correct. There is no bad faith on my part.

xinayder 3y ago

Big investors have a pass for doing shady stuff. They can do insider trading (up to a point where it's not considered insider trading), they can break the SEC rules to artificially reduce the share price of a company so they can buy it or drive them to bankruptcy, but a normal person like me and you can't do these things, because we don't have the money to get around with it. Big market actors are just institutionalized corrupt people working for private companies. Change my mind.

kylebenzle 3y ago
You are correct, this is America where we do A LOT of things that are bad for us because they are profitable. I'm writing a long form article about this idea, how in America we do stuff like private prisons, allow pollution, the "family" court system and social media for kids even though some countries can easily fix these problems we refuse to address them because just TOO much money is being made (at least that's how the divorce industry was explained to me).
- benreesman 3y ago
  “Corruption charges?! We have laws against it precisely so that we can do it! Corruption is why we win!” - Syriana
- Modified3019 3y ago
  I’d definitely love to read it when it comes out.
  - kylebenzle 3y ago
    I'll be sure to post to HN :)
kortilla 3y ago
> They can do insider trading This is incorrect. https://www.natlawreview.com/article/sec-secures-largest-ever-settlement-insider-trading-case https://www.natlawreview.com/article/sec-secures-largest-eve... > they can break the SEC rules to artificially reduce the share price No, stock manipulation with falsification of bad information is also heavily prosecuted. Can you give specific examples where you think this happened? You might not be using the correct definition of “inside information” or “artificially reduce”.

kylebenzle 3y ago

Martha Stewart: Convicted in 2004 for insider trading related to the biopharmaceutical company ImClone Systems. Raj Rajaratnam: Founder of the Galleon Group, convicted in 2011 on 14 counts of conspiracy and securities fraud. Jeffrey Skilling: Former CEO of Enron, convicted in 2006 for insider trading among other charges. Michael Milken: Financier and investment banker known as the "Junk Bond King," convicted in 1990 for securities fraud, including insider trading.

gadders 3y ago
Point of order - Martha Stewart was convicted of obstruction of justice and lying to an investigator, not insider trading. This might not be the most authoritative website but it lines up with what is in wikipedia: https://www.yourdictionary.com/articles/martha-stewart-jail-scandal https://www.yourdictionary.com/articles/martha-stewart-jail-...

benreesman 3y ago

In the market you can buy and hold, exploit “grey” edge, be RenTec, or lose money.