Re: Is This Insider Trading?
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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.
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for those of you saying #3 is insider trading, what if you go play blackjack at the wynn with your gambling addict friend, who loses, and on your way out he says something like "[censored] man, i hate this place, i'm gonna blow this [censored] up". you short wynn when you get home. if this isn't insider trading, where do you draw the line?
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With the example you give, the line is drawn at the definition of MATERIAL. And in such cases the law nearly always refers to 'in the opinion of a reasonable person with expert knowledge in finance/relevant area'.
Its obvious to say, but it must be both NON PUBLIC and MATEIRAL.
In both David's #3 and that example the information is certainly non public. David's #3 says he overhears every day for a week, and CLEARLY believes the story since he notifies the FBI, which means that as a reasonable person he felt it was MATERIAL. In your example, no reasonable person could, given the information, believe a man having a bad day was actually going to blow up a huge casino, it is NOT material. So your example is clearly not inside trading.
The trick comes in defining what is material for a 'reasonable person'. But these two examples obviously fall either side of this hard-to-define line.
And as for the CFA 'always' including a more extreme wrong (but reasonable) option etc, this is true if by 'always' you mean 'occasionally' !
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