Is This Insider Trading?
 

1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

Re: Is This Insider Trading?
 

Sounds like you have a short tip for us.

Re: Is This Insider Trading?
 

deleted by john kane as don't think it is wise to try to level sklansky, it will end out not working or backfiring.

Re: Is This Insider Trading?
 

as for what i think though:

1. most likely of the three, given it is non public info, but id say no given it is your judgement that competitor's stock will fall.

2. no. it is IBM president's thoughts, not facts.

3. again it may not happen, so no.

Re: Is This Insider Trading?
 

[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]

I read through the Insider Trading Wiki and feel I have good enough understanding to answer the questions.


1. I would say this is not illegal insider trading. You have no fiduciary relationship to the shareholders of your competitors stock and you are not in possession of any non-public information pertaining to your competitors stock.

2. Quote from Insider Trading wiki: Not all trading on information is illegal inside trading, however. For example, while dining at a restaurant, you hear the CEO of Company A at the next table telling the CFO that the company will be taken over, and then you buy the stock, you wouldn't be guilty of insider trading unless there was some closer connection between you, the company, or the company officers.

3. Agian, you have no fiduciary relationship to the shareholders of Wynn and therefore are able to trade legally.

Re: Is This Insider Trading?
 

Id say no for 2 and 3. At least its almost impossible to get caught.

I think its harder to get action shorting a company then one thinks. Ive tried for smaller companies which I didnt get any. Unless its huge, like IBM, its not easy in my short experience.

Re: Is This Insider Trading?
 

[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]

Answer from a former criminal defense attorney:

Number 1 is very interesting. As insider trading is currently defined, which requires trading in the stock for which you have the inside information, among other things, this would not qualify. However, insider trading is not well-defined, over the course of the last 30 years it has often been redefined to the detriment of criminal defendants (which isn't supposed to happen in our country, ex post facto), so I can envision a criminal, or SEC civil, action being brought asking for an expansion of insider trading to include this, and I suspect the SEC/US Attorney's Office would prevail because the rationale underlying the prohibition against insider trading would apply to these facts. I haven't specifically researched insider trading law in the last couple years, so perhaps this issue has already been adjudicated, but I'm pretty sure I would have read about somewhere it if it had.

Number 2 is identical to a classic insider trading case, SEC vs. Barry Switzer, of all people. Barry was in the stands at some sort of high school sporting event and overheard a conversation involving the principals of some company and then made money buying the stock. The court held that this was not insider trading, since insider trading requires wrongdoing by the insider -- either deliberately trading with knowledge of the inside information, or deliberately passing it on to someone else with the intent of having them trade. Liability for tippees, recipients of inside information, is purely derivative, meaning that the tipper must be guilty of something for the tippee to be guilty of something.

Number 3 would not qualify as insider trading for the same reason as number 2 -- information was overheard, not deliberately passed on. Also, the terrorists are not insiders of Wynn, so the reasons underlying why number 1 does not currently constitute insider trading would apply.

Of course, the "overhearing" defense will only be as successful as you are in convincing the fact-finder that it's true (actually, the other side would have to convince the fact finder that it's false, but especially in a civil SEC enforcement case where the burden of proof is a preponderance (> 50%), it's effectively the same thing).

Re: Is This Insider Trading?
 

I think Todd Terry is the expert, but let me point out that you might not even face real prosecution on #1, because the govt would loath losing a case like that and have a judge set a precedent. But they might threaten you and try to get you to plea bargain. That makes a public example for other would be copycats. Not sure a good criminal defense lawyer would recommend you plea though, he might laugh at the govt case and itch to set a precedent against their over-reaching.

Re: Is This Insider Trading?
 

[ QUOTE ]
I think Todd Terry is the expert, but let me point out that you might not even face real prosecution on #1, because the govt would loath losing a case like that and have a judge set a precedent. But they might threaten you and try to get you to plea bargain. That makes a public example for other would be copycats. Not sure a good criminal defense lawyer would recommend you plea though, he might laugh at the govt case and itch to set a precedent against their over-reaching.

[/ QUOTE ]

This is a good point in general. The Government often prefers to let the law remain murky rather than risking the setting of a precedent against them. Martha Stewart is a good example of this -- they had IMO a perfectly winnable case of insider trading against her and Baconovic, but chose not to pursue it. That being said, I'm fairly sure they would go after the person in Number 1, at least civilly. If they brought a criminal case, I would recommend fighting it all the way to the Supreme Court if necessary.

Re: Is This Insider Trading?
 

[ QUOTE ]

Martha Stewart is a good example of this -- they had IMO a perfectly winnable case of insider trading against her and Baconovic, but chose not to pursue it.

[/ QUOTE ]

I'm surprised you say this. I've been told that not only was her actions not insider trading in that she had no fiduciary obligations and didn't have any material non-public information, she just knew the CEO was selling (and that she was a former stockbroker who should have known this). So instead they went after her for blatantly lying to investigators. Why do you view it differently?

Re: Is This Insider Trading?
 

As others have pointed out, 2 & 3 are not insider trading, but I think there is a strong case that situation 1 violates Rule 10b-5. You have a fiduciary duty to the shareholders of your company and that duty prevents you from profiting from material, non-public information. If you use that information for you own gain in connection with the purchase or sale of a security, you have defrauded the principal's out of its right to exclusive use of that information in a way that triggers 10b-5. This is known as the misappropriation theory of insider trading and, even though it is vague and a real stretch of the language of 10b-5, it is used with regularity.
I actually know of a situation that mirrors hypo 1--we looked for cases and couldn't find any. Nevertheless, we counseled that there was a real danger of liability for misappropriation.
In this situation the SEC or DOJ would almost certainly file a complaint and, unless you had a lot of resources, one would do well to plea to any reasonable offer.

Re: Is This Insider Trading?
 

[ QUOTE ]
I think Todd Terry is the expert, but let me point out that you might not even face real prosecution on #1, because the govt would loath losing a case like that and have a judge set a precedent. But they might threaten you and try to get you to plea bargain. That makes a public example for other would be copycats. Not sure a good criminal defense lawyer would recommend you plea though, he might laugh at the govt case and itch to set a precedent against their over-reaching.

[/ QUOTE ]

Yup, and the Feds know how to play dirty. They would throw you in jail, seize your assets so you can't make bail, harass your business associates to ruin your reputation, and basically drag out the case to wipe you out financially. They can ruin your life without even having a trial.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]

Martha Stewart is a good example of this -- they had IMO a perfectly winnable case of insider trading against her and Baconovic, but chose not to pursue it.

[/ QUOTE ]

I'm surprised you say this. I've been told that not only was her actions not insider trading in that she had no fiduciary obligations and didn't have any material non-public information, she just knew the CEO was selling (and that she was a former stockbroker who should have known this). So instead they went after her for blatantly lying to investigators. Why do you view it differently?

[/ QUOTE ]

Because juries are stupid? A couple of the idiot jurors went on tv right after the Martha Stewart trial. They thought they convicted her of insider trading.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]

Martha Stewart is a good example of this -- they had IMO a perfectly winnable case of insider trading against her and Baconovic, but chose not to pursue it.

[/ QUOTE ]

I'm surprised you say this. I've been told that not only was her actions not insider trading in that she had no fiduciary obligations and didn't have any material non-public information, she just knew the CEO was selling (and that she was a former stockbroker who should have known this). So instead they went after her for blatantly lying to investigators. Why do you view it differently?

[/ QUOTE ]

Scenario #1 - Baconovic told Stewart only that Waksal was selling, and Waksal did not tell Bacanovic to tell Stewart. Bacanovic had a fiduciary duty to Waksal, violated it by telling Stewart, Stewart knew he violated it because she's a former broker. Misappropriation theory insider trading.

Scenario #2 - It's not a coincidence that Bacanovic told Stewart, a good friend of Waksal, immediately after speaking to Waksal, Waksal must have instructed Bacanovic to tell Stewart. If Stewart didn't have actual knowledge that Waksal was selling based on inside information, she was willfully blind to that fact (especially as a former stockbroker). Classic tipper/tippee insider trading through an intermediary.

In presenting either or both scenarios, and in the absence of a witness as to exactly which happened I'd present both (if Waksal didn't tell Bacanovic to pass the information along, she's guilty under #1, if he did, she's guilty under #2) use her after-the-fact lies as as consciousness of guilt evidence. Not a slam dunk, but a very winnable case.

Re: Is This Insider Trading?
 

[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]

1.Yes
2. Yes
3. Yes

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]

1.Yes
2. Yes
3. Yes

[/ QUOTE ]

Yeah, let me just ignore everything else that's been said in this thread and go with Jonathan's answers. He seems to know what he's talking about.

Re: Is This Insider Trading?
 

I posted my gut reaction before reading any of the other responses.
After reading them, I learned something.

Re: Is This Insider Trading?
 

[ QUOTE ]

Scenario #1 - Baconovic told Stewart only that Waksal was selling, and Waksal did not tell Bacanovic to tell Stewart. Bacanovic had a fiduciary duty to Waksal, violated it by telling Stewart, Stewart knew he violated it because she's a former broker. Misappropriation theory insider trading.

Scenario #2 - It's not a coincidence that Bacanovic told Stewart, a good friend of Waksal, immediately after speaking to Waksal, Waksal must have instructed Bacanovic to tell Stewart. If Stewart didn't have actual knowledge that Waksal was selling based on inside information, she was willfully blind to that fact (especially as a former stockbroker). Classic tipper/tippee insider trading through an intermediary.

In presenting either or both scenarios, and in the absence of a witness as to exactly which happened I'd present both (if Waksal didn't tell Bacanovic to pass the information along, she's guilty under #1, if he did, she's guilty under #2) use her after-the-fact lies as as consciousness of guilt evidence. Not a slam dunk, but a very winnable case.

[/ QUOTE ]
It's not clear what Bacanovic conveyed to Stewart. He left her a voicemail, which, according to her, stated that there was heavy trading in ImClone. She called back and spoke to Bacanovic's assistant and, at the end of that phone call, directed the trade. It's a plausible story that the assistant confirmed the heavy selling of ImClone and she decided to sell. It is also plausible that one of them told her of the insider selling, but there is certainly some room for reasonable doubt. It would be a big risk to try the case, but it was winnable.

Re: Is This Insider Trading?
 

So why didn't they bring that case?

Re: Is This Insider Trading?
 

[ QUOTE ]
As others have pointed out, 2 & 3 are not insider trading, but I think there is a strong case that situation 1 violates Rule 10b-5. You have a fiduciary duty to the shareholders of your company and that duty prevents you from profiting from material, non-public information. If you use that information for you own gain in connection with the purchase or sale of a security, you have defrauded the principal's out of its right to exclusive use of that information in a way that triggers 10b-5. This is known as the misappropriation theory of insider trading and, even though it is vague and a real stretch of the language of 10b-5, it is used with regularity.
I actually know of a situation that mirrors hypo 1--we looked for cases and couldn't find any. Nevertheless, we counseled that there was a real danger of liability for misappropriation.
In this situation the SEC or DOJ would almost certainly file a complaint and, unless you had a lot of resources, one would do well to plea to any reasonable offer.

[/ QUOTE ]

What if "my" company was a proprietorship? What if this "insider" information is thoughts in your head? Say you own a large private corporation and you're the single largest customer of some publicly held supplier. For whatever reason, you decide that you will terminate that relationship. Is it insider trading to short that supplier's stock? What about in the reverse case where you buy ahead of the decision to give a contract to some company?

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]

1.Yes
2. Yes
3. Yes

[/ QUOTE ]

Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

Re: Is This Insider Trading?
 

[ QUOTE ]


Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

[/ QUOTE ]

If the CFA program says that, then I believe it isn't trying to teach you what the law is, it's trying to guide you to ethical behavior. The actual law is very murky on what is illegal and prosecutors/SEC like it that way. This whole discussion is partly driven by the ambiguity of insider trading laws.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]


Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

[/ QUOTE ]

If the CFA program says that, then I believe it isn't trying to teach you what the law is, it's trying to guide you to ethical behavior. The actual law is very murky on what is illegal and prosecutors/SEC like it that way. This whole discussion is partly driven by the ambiguity of insider trading laws.

[/ QUOTE ]

the correct CFA answers for 2 and 3 would definitely be no. for 1, i'm not sure.

Re: Is This Insider Trading?
 

Exactly. Clearly it's not "information" for cases 2 and 3.

Re: Is This Insider Trading?
 

[ QUOTE ]
So why didn't they bring that case?

[/ QUOTE ]
It was a much easier case to get her for lying to the investigators. It is a common prosecutor tactic to go after a target for perjury or lying to federal investigators rather than for a murky underlying offense. The Barry Bonds indictment is an example of this.

Re: Is This Insider Trading?
 

[ QUOTE ]

What if "my" company was a proprietorship? What if this "insider" information is thoughts in your head? Say you own a large private corporation and you're the single largest customer of some publicly held supplier. For whatever reason, you decide that you will terminate that relationship. Is it insider trading to short that supplier's stock? What about in the reverse case where you buy ahead of the decision to give a contract to some company?

[/ QUOTE ]
If you have a significant relationship with an issuer that gives you access to material, non-public information you can be considered a "temporary insider" that has a duty not to trade on the information. This covers people like accountants, lawyers, and major suppliers.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
So why didn't they bring that case?

[/ QUOTE ]
It was a much easier case to get her for lying to the investigators. It is a common prosecutor tactic to go after a target for perjury or lying to federal investigators rather than for a murky underlying offense. The Barry Bonds indictment is an example of this.

[/ QUOTE ]

Or it could be that they had no evidence to speak of, which was the consensus of the pundits at the time.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
So why didn't they bring that case?

[/ QUOTE ]
It was a much easier case to get her for lying to the investigators. It is a common prosecutor tactic to go after a target for perjury or lying to federal investigators rather than for a murky underlying offense. The Barry Bonds indictment is an example of this.

[/ QUOTE ]

Or it could be that they had no evidence to speak of, which was the consensus of the pundits at the time.

[/ QUOTE ]
The feds flipped the broker's assistant and he would have testified that he told Martha that insiders were selling. This is certainly evidence, but it is far from rock solid given his motives.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]

What if "my" company was a proprietorship? What if this "insider" information is thoughts in your head? Say you own a large private corporation and you're the single largest customer of some publicly held supplier. For whatever reason, you decide that you will terminate that relationship. Is it insider trading to short that supplier's stock? What about in the reverse case where you buy ahead of the decision to give a contract to some company?

[/ QUOTE ]
If you have a significant relationship with an issuer that gives you access to material, non-public information you can be considered a "temporary insider" that has a duty not to trade on the information. This covers people like accountants, lawyers, and major suppliers.

[/ QUOTE ]

What about cases where you buy ahead of forming a relationship? And how can anyone actually prove that you traded on the insider information, if that information happens to be your own decision?

Re: Is This Insider Trading?
 

[ QUOTE ]

What about cases where you buy ahead of forming a relationship? And how can anyone actually prove that you traded on the insider information, if that information happens to be your own decision?

[/ QUOTE ]
It would probably depend on how far in advance you purchase in advance of forming the relationship and how significant the relationship is, but I don't know of any cases that test this specific issue.
The second issue has a clear answer and is known as the "use" or "possession" question. Courts had split on whether the government needed to show that you actually used the inside information in making the trade or instead just show that you had inside information when you traded. The SEC solved the problem by adopting the possession rule, so if you have inside info and you trade you are in violation of 10b-5. It's nice to be the government.

Re: Is This Insider Trading?
 

[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]


you are using material nonpublic information to make bets on the market. are you dumb, this is all so cut and dry insider trading.... you understand that the idea behind insider trading is that you abuse the system and take advantage of NONPUBLIC information.

Re: Is This Insider Trading?
 

[ QUOTE ]

you are using material nonpublic information to make bets on the market. are you dumb, this is all so cut and dry insider trading.... you understand that the idea behind insider trading is that you abuse the system and take advantage of NONPUBLIC information.

[/ QUOTE ]

except 2 and 3 are not considered "material". 3 isn't even close.

Re: Is This Insider Trading?
 

Others have nailed the points in question pretty good in this thread. I think the real question that remains is this, what did you hear at the poker table? Specifics are required in this situtation to determine if it is insider trading or not (Usually, if you just overhear a conversation it is not insider trading). Unless one of your examples are an exact match to your situation, then it's a definite grey area. PM if needed.

Best Regards,

Shoe

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]

you are using material nonpublic information to make bets on the market. are you dumb, this is all so cut and dry insider trading.... you understand that the idea behind insider trading is that you abuse the system and take advantage of NONPUBLIC information.

[/ QUOTE ]

except 2 and 3 are not considered "material". 3 isn't even close.

[/ QUOTE ]


you are crazy to think that you are allowed to overhear information about earnings from someone who knows inside information and act on it.... im not a legal guy but i know that these rules are ultimately driven by intent and 2 is a clear situation of intent to cheat and I am pretty sure hearing something verbal constitutes material nonpublic information....

situation 3 is a little weird but imo this is clearly also cheating.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

you are using material nonpublic information to make bets on the market. are you dumb, this is all so cut and dry insider trading.... you understand that the idea behind insider trading is that you abuse the system and take advantage of NONPUBLIC information.

[/ QUOTE ]

except 2 and 3 are not considered "material". 3 isn't even close.

[/ QUOTE ]


you are crazy to think that you are allowed to overhear information about earnings from someone who knows inside information and act on it.... im not a legal guy but i know that these rules are ultimately driven by intent and 2 is a clear situation of intent to cheat and I am pretty sure hearing something verbal constitutes material nonpublic information....

situation 3 is a little weird but imo this is clearly also cheating.

[/ QUOTE ]

having reread 2, it's a little unclear, but if all you know is that he's discussing earnings and he looks/acts upset (which is how i originally interpreted), that's perfectly fine. if you actually overhear something material, thats another story.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]


Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

[/ QUOTE ]

If the CFA program says that, then I believe it isn't trying to teach you what the law is, it's trying to guide you to ethical behavior. The actual law is very murky on what is illegal and prosecutors/SEC like it that way. This whole discussion is partly driven by the ambiguity of insider trading laws.

[/ QUOTE ]

the correct CFA answers for 2 and 3 would definitely be no. for 1, i'm not sure.

[/ QUOTE ]

Seriously, think again. Overhearing, reading accidentily, etc, all count as knowing. It doesnt matter if it was your intention or not to be in posession of this stuff. And 'lamenting the bad earnings' could it be any more material than this?

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]


Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

[/ QUOTE ]

If the CFA program says that, then I believe it isn't trying to teach you what the law is, it's trying to guide you to ethical behavior. The actual law is very murky on what is illegal and prosecutors/SEC like it that way. This whole discussion is partly driven by the ambiguity of insider trading laws.

[/ QUOTE ]

yeah you hit the hammer on the head there. CFA rules are in nearly all circumstances more extreme than the law.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
1. Favorable clinical trials at my company haven't been announced yet. So I can't buy the stock. But I short a competitor's stock.

2. I'm at a pay phone and I overhear the president of IBM lamenting the surprisingly bad earnings for this quarter as he speaks to the chairman on the neigboring phone. I short IBM.

3. I hear two apparent terrorists in the neigboring booth at a restaurant talk about throwing a bomb into the Wynn casino every day for a week. I notify the FBI but I also short the stock.

[/ QUOTE ]


you are using material nonpublic information to make bets on the market. are you dumb, this is all so cut and dry insider trading.... you understand that the idea behind insider trading is that you abuse the system and take advantage of NONPUBLIC information.

[/ QUOTE ]

So how come most of the people on this thread are saying 2 and 3 are almost certainly NOT insider trading? Since they have more knowledge of the subject than me, and since I am dumb for not realizing that all three cases are clearly insider trading, then the only possible answer to my question is, "they are imbeciles".

Re: Is This Insider Trading?
 

1) Yes
2) Yes
3) Yes

in every circumstance you are privy to information that is not public knowledge. when you act on this information you are committing insider trading.

Re: Is This Insider Trading?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]


Im doing CFA level 3 and i believe the CFA answers would be yes, yes, yes as well.

For anyone whose interested, the cfa definition is to the best of my memory "if you ACT with the intention of profit with the use of MATERIAL, NON PUBLIC information" its bad.

In all these cases, the information is surely both material and non public.

[/ QUOTE ]

If the CFA program says that, then I believe it isn't trying to teach you what the law is, it's trying to guide you to ethical behavior. The actual law is very murky on what is illegal and prosecutors/SEC like it that way. This whole discussion is partly driven by the ambiguity of insider trading laws.

[/ QUOTE ]

yeah you hit the hammer on the head there. CFA rules are in nearly all circumstances more extreme than the law.

[/ QUOTE ]

the CFA ethics section always has "reasonable" answer options that are more "extreme" than the correct answer. #3 is a great example of the type of question where the "common sense" answer - where you think it's pretty clear what the "ethical" thing to do would be - is not correct.

#2 isn't clear enough because sklansky wasn't clear about what he actually heard, but given the way its worded there isn't necessarily any material information there.