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That’s not quite correct, it depends on the nature of the disclosure. Someone receiving information from an insider needs be independent of personal, financial

by Retric 3y ago

That’s not quite correct, it depends on the nature of the disclosure. Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.

jeffbee 3y ago
This exact scenario happened to me. I was flying United business class SFO to EWR and the guy next to me was writing a Powerpoint slide in 9000-point bold type "BUY XYZ CORP FOR 880 MILLION" and when I got to work a few hours later our counsel advised me that it was not at all improper to trade on that information, which we did.
- flipbrad 3y ago
  The absolute first thing I ever do when publicly working on a doc like that (if I absolutely must) is Ctrl+r any trademarks, swapping them for [#x].
  - jeffbee 3y ago
    Seems good. But I also feel like if you're the kind of person who can command the disposition of a billion dollars, just stop writing slides. Stand up in front of the board and say what you came to say and then sit back down.
- evan_ 3y ago
  Well, I’ve figured out how I’m spending my spring break- buy a ton of cheap stock in some random startup, dress head-to-toe in Microsoft swag, and then spend a few days hanging out in various SFO lounges working on fake PowerPoints declaring intent to buy the startup
  - jeffbee 3y ago
    Sounds fun. You'll also need to hack your photograph into the "about us" page of a major corporation, though.
- modeless 3y ago
  ... but did you make money on it?
- Shocka1 3y ago
  ", which we did." This warmed my heart greatly.
arthurcolle 3y ago
> So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. I am under the impression that this would also be illegal, because trading on the basis of MNPI is itself illegal, irrespective of insider/outsider status.
- Mtinie 3y ago
  In the specific hypothetical case mentioned, wouldn’t that constitute “public” information if it was overheard in a non-controlled location?
  - ojosilva 3y ago
    Overhearing could fall under the "misappropriation theory" of insider trading. If you run into "confidential" (material non-public) information about the security, you still would be committing fraud. [1] But then the passenger could claim that they did not the person next to them was Elon Musk, and that when Elon said over the phone "whoever shorts Tesla stock now will become a billionaire next month" they thought it was some random guy giving his 2c on the trade. [1] https://www.law.cornell.edu/wex/misappropriation_theory_of_insider_trading https://www.law.cornell.edu/wex/misappropriation_theory_of_i... > Before U.S. v. O’Hagan, 521 U.S. 642 (1997), individuals could only be liable for insider trading under the classical theory of insider trading. In U.S. v. O’Hagan, the U.S. Supreme Court faced a scenario where a partner at a large law firm purchased stock futures in a company conducting a tender offer based on inside information that he gleaned from other partners at the firm working on the deal. Although the partner had no fiduciary duty to the companies in whose stock he traded, the Supreme Court found him liable under Rule 10 b-5 on the grounds that he used confidential information to trade securities. The Court reasoned that such insider trading is fraudulent because it is akin to embezzlement; that is, the owner of the confidential information has exclusive use of such information, and the trader misappropriates that information by trading on it and not disclosing the use of the information to the owner of the information.
    - Retric 3y ago
      That partner had privileged access to that confidential information and as such wasn’t an unrelated 3rd party. Where the ‘theft’ line of reasoning is an issue for unrelated 3rd parties is hacking: https://www.justice.gov/usao-edny/pr/former-hedge-fund-manager-sentenced-60-months-imprisonment-and-ordered-pay-144-million https://www.justice.gov/usao-edny/pr/former-hedge-fund-manag...

by Retric 3y ago

jeffbee 3y ago

This exact scenario happened to me. I was flying United business class SFO to EWR and the guy next to me was writing a Powerpoint slide in 9000-point bold type "BUY XYZ CORP FOR 880 MILLION" and when I got to work a few hours later our counsel advised me that it was not at all improper to trade on that information, which we did.

flipbrad 3y ago
The absolute first thing I ever do when publicly working on a doc like that (if I absolutely must) is Ctrl+r any trademarks, swapping them for [#x].
- jeffbee 3y ago
  Seems good. But I also feel like if you're the kind of person who can command the disposition of a billion dollars, just stop writing slides. Stand up in front of the board and say what you came to say and then sit back down.
evan_ 3y ago
Well, I’ve figured out how I’m spending my spring break- buy a ton of cheap stock in some random startup, dress head-to-toe in Microsoft swag, and then spend a few days hanging out in various SFO lounges working on fake PowerPoints declaring intent to buy the startup
- jeffbee 3y ago
  Sounds fun. You'll also need to hack your photograph into the "about us" page of a major corporation, though.
modeless 3y ago
... but did you make money on it?
Shocka1 3y ago
", which we did." This warmed my heart greatly.

arthurcolle 3y ago

> So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. I am under the impression that this would also be illegal, because trading on the basis of MNPI is itself illegal, irrespective of insider/outsider status.

Mtinie 3y ago
In the specific hypothetical case mentioned, wouldn’t that constitute “public” information if it was overheard in a non-controlled location?
- ojosilva 3y ago
  Overhearing could fall under the "misappropriation theory" of insider trading. If you run into "confidential" (material non-public) information about the security, you still would be committing fraud. [1] But then the passenger could claim that they did not the person next to them was Elon Musk, and that when Elon said over the phone "whoever shorts Tesla stock now will become a billionaire next month" they thought it was some random guy giving his 2c on the trade. [1] https://www.law.cornell.edu/wex/misappropriation_theory_of_insider_trading https://www.law.cornell.edu/wex/misappropriation_theory_of_i... > Before U.S. v. O’Hagan, 521 U.S. 642 (1997), individuals could only be liable for insider trading under the classical theory of insider trading. In U.S. v. O’Hagan, the U.S. Supreme Court faced a scenario where a partner at a large law firm purchased stock futures in a company conducting a tender offer based on inside information that he gleaned from other partners at the firm working on the deal. Although the partner had no fiduciary duty to the companies in whose stock he traded, the Supreme Court found him liable under Rule 10 b-5 on the grounds that he used confidential information to trade securities. The Court reasoned that such insider trading is fraudulent because it is akin to embezzlement; that is, the owner of the confidential information has exclusive use of such information, and the trader misappropriates that information by trading on it and not disclosing the use of the information to the owner of the information.
  - Retric 3y ago
    That partner had privileged access to that confidential information and as such wasn’t an unrelated 3rd party. Where the ‘theft’ line of reasoning is an issue for unrelated 3rd parties is hacking: https://www.justice.gov/usao-edny/pr/former-hedge-fund-manager-sentenced-60-months-imprisonment-and-ordered-pay-144-million https://www.justice.gov/usao-edny/pr/former-hedge-fund-manag...