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  #11  
Old 11-24-2007, 07:56 PM
Soya Soya is offline
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Default 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.
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  #12  
Old 11-24-2007, 09:32 PM
pig4bill pig4bill is offline
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Default 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.
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  #13  
Old 11-24-2007, 09:35 PM
pig4bill pig4bill is offline
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Default 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.
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  #14  
Old 11-24-2007, 10:17 PM
Todd Terry Todd Terry is offline
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Default 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.
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  #15  
Old 11-24-2007, 10:39 PM
Jonathan Jonathan is offline
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Default 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
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  #16  
Old 11-24-2007, 10:57 PM
iversonian iversonian is offline
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Default 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.
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  #17  
Old 11-24-2007, 11:06 PM
Jonathan Jonathan is offline
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Default Re: Is This Insider Trading?

I posted my gut reaction before reading any of the other responses.
After reading them, I learned something.
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  #18  
Old 11-25-2007, 12:35 AM
Soya Soya is offline
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Default 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.
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  #19  
Old 11-25-2007, 03:54 AM
pig4bill pig4bill is offline
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Default Re: Is This Insider Trading?

So why didn't they bring that case?
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  #20  
Old 11-25-2007, 03:23 PM
Phone Booth Phone Booth is offline
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Default 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?
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