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.