Is it insider trading if I bought Boeing puts while inside the wrecked airplane?(law.stackexchange.com) |
Is it insider trading if I bought Boeing puts while inside the wrecked airplane?(law.stackexchange.com) |
[1]: https://www.theonion.com [2]: https://www.mcsweeneys.net
("news", since I'm not in that industry and don't know if they only react to official media, unofficial media - aka blogs etc, tweets, etc)
Even if you worked for Boeing, it is public news as soon as it happened. You just happen to know it the fastest. Pure alpha
Also, this information that the passengers had in advance could have been worth millions in the right hands. If you had information like this, how could you quickly find parties interested in buying this information or giving you a share of potential gains?
(special shoutout to Money Stuff)
It is a "victimless crime" in the same sense as selling someone a house is, fully knowing that a pipe in the basement is going to burst 6-12 months later and not disclosing it to the buyer (which would've made the house value go down, if the buyer knew it).
That "someone who would have happily bought it at the same price or possibly a higher price" is someone who wouldn't have done it, knowing what the insider knows, they would've waited. And the same is true for "insider knowledge that is related to something good about the company that's going to happen soon and pump the share price", you wouldn't sell your shares for as cheap as they are if you knew what the insider knows.
If you are the prevented from selling a particular house without disclosing some fault in the house, the buyer is prevented from buying that particular house. On the other hand, if I am aware of some fault in Apple Inc. and am prohibited or prevented from selling my AAPL shares, the buyers whom I would have sold to will not only still buy AAPL shares from someone else, they will likely pay a higher price for them!
Again, if the law required corporations to publicly reveal, as soon as possible, any and all insider information that may potentially influence the company’s market valuation, that would be one thing. Instead, not only are they not required to do that, but the information is not even allowed to leak out onto the markets in the form of insider sales which would depress the stock price and tip off investors that, even if they don’t know exactly what it is, that something is wrong with the company.
I don't know the actual dates for Apple (as I only have friends working there, I haven't worked there myself, and I didn't quite care to ask for the exact length of trading blackout windows). But I know for a fact myself that at Google you get a trading blackout window that starts around 3-4 weeks before the quarterly earnings announcements and ends around a week or so after. And you are not allowed to trade GOOG options at all while an emlpoyee, not even outside of those trading blackout windows. There are additional blackout windows as well, but that's beside the point, and I don't remember them off the top of my head. And that's just for a run-off-the-mill software engineer working on an internal infra product that isn't some super-top-secret thing.
See, e.g.
https://www.law.cornell.edu/wex/misappropriation_theory_of_i...
The link you referenced also clarifies this point, but it is different from what is written in your comment.
Note: this doesn't change the fact that the answer in this particular case is no, it's not insider trading. You are, as parent mentioned, just the first to know the news.
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.
I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank.
In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value.
P.S. nothing against BMW, just an example.
Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence.
Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?
Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?
Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company.
Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing
EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question
Ok so what if you are a Boeing executive or engineer on said flight?
This is where insider trading rules just don’t make sense. Here’s a good example. You can buy credit card data from Bloomberg that will give you near accurate information on revenue. For earnings, you can pay to see if a company will meet expectations and trade off that information. If you work for the company, it’s insider trading. If you work for the credit card companies and get the same info and trade on it, it is also insider trading.
Maybe we should make insider trading, trading off information that isn’t public.
This is stupid. It disincentivizes people who make a living externally auditing/investigating companies
I once saw somebody say something to the effect that in every Hacker News thread, there is always a highly upvoted comment that sounds completely plausible, well argued, made by somebody who appears highly qualified to answer, and that is completely incorrect.
I don’t think it’s always true, but it often is.
> If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information.
Specifically this part. One of the first things you learn when doing mandatory insider trading training is you can easily run afoul of the law if you act on non-public info you overheard, or happened to see by accident, even if it has to do with some company with which you are not affiliated. A common example is you’re in a coffee shop and see an upcoming earnings report on someone else’s laptop screen, then trade based on that information.
1. The information has to be specific - Yes - you should sell Boeing
2. Would a reasonable investor take this information into account when making a decision to trade - Yes - this seems quite clear
3. The information must be non public - IIRC disclosure to a large group of people - in this case the perhaps 200ish people on the plane knowing it had a problem would probably count as the information being public and thus this test is not met and you are free to trade - I think the bar is around 30 people
I knew all those hours spent in compliance training would come in handy one day!
https://www.bloomberg.com/opinion/articles/2019-03-29/deals-... Archive https://archive.ph/Imf75
here in the US, quoting statutes on this topic is not useful because we also don’t have a specific statute, we have a couple of general fraud statutes that the regulator has contorted itself to fit scenarios in
During the film, the terrorist financier Le Chiffre uses a Ugandan warlord's money to short-sell stock in Skyfleet, thus betting the money on the company's failure. The banker plans to bring about said failure by destroying the company's prototype airliner. After his original bomb-maker is killed by James Bond in Madagascar, another is hired to complete the job. The bomb-maker infiltrates Miami International Airport and steals a fuel tanker; attaching a keyring-sized bomb to the vehicle. As he attempts to blow up the prototype with the truck he is intercepted by 007 and a fight ensues on-board. Eventually the terrorist is forced from his vehicle and Bond narrowly prevents the truck from colliding with the plane. With his plan foiled, Le Chiffre is left with a major financial loss and is forced to set up a high-stakes poker tournament at Casino Royale in Montenegro.
And take a long pull from that inhaler of his.
Just like the hedge funds that pay for satellite images of all of the WalMart parking lots in the country and count the cars to estimate year over year sales. It's information they have that no one else does, but they didn't get it from an insider.
Buying puts inside the plane may very well contravene that law, because there's only a couple of hundred people who theoretically had access to that information. Once it was radioed back to ATC, then it's actually available to the public (irrespective of who is actually listening, much like your satellite imagery).
I'm not saying that's the law in the USA (or that it's still even the law in Australia), but "that's how the law should operate" isn't the same as "that's how the law does operate".
I’m not sure that not being a tippee means you’re completely in the clear, since you have material information. But it’s presumably not non-public information since hundreds of people know it, and thousands more are finding out by the minute.
Is that actually true? I could believe it if he were speaking in a cryptographic code, but even an obscure language has more than one speaker so he shouldn't be revealing corporate secrets where he can be overheard even if he's speaking a foreign language.
The answer being no, because as a consumer you have no duty of confidentiality.
[1] https://www.dlapiperintelligence.com/goingglobal/intellectua...
And you’ll get charged a fee for the privilege.
It’s an advantage only a few people have, and you paid something in order to be put in that position.
It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.
….which actually kinda seems doable
> On August 15, 2006, it was revealed that Halutz sold off his investment portfolio three hours after two Israeli soldiers were captured by Hezbollah during the Zar'it-Shtula incident, leading to the war. While this action on the part of the chief of staff is technically legal and is only restricted (through blind trusteeship) from cabinet members, the State Comptroller Micha Lindenstrauss has called to expand it to the chief of staff and to other senior officials. Several Knesset members called for Halutz to offer his resignation and some members of the General Staff Forum commented that his resignation appeared inevitable
https://en.wikipedia.org/wiki/Dan_Halutz#Investment_portfoli...
But so can anyone really. People watching all this have no control over the door actually falling off.
Insiders have the ability to shift the course of the company. So the reason why we have this law is so that insiders don’t short their own stocks and then run the company into the ground, making guaranteed profits from that at the expense everyone else.
I'm a bit surprised that question is being asked. Fundamental investing is all about understanding things about a company that nobody else knows. This is an age old approach to investing. If you happen to stumble on that information, it doesn't make it insider trading.
Where is crosses the line is if you're an insider and effectively breach your duty to the company or as a fiduciary. You're effectively stealing from the company. A passenger on an airline cannot steal information.
Clearly not. The question is only raised because airplane failures are much more rare than software failures.
If you independently discovered it, any other member of the public could have discovered it (assuming they had the skills and time).
If you're employed with the airline, trade your insider informations instead of using it yourself. There are TOR websites to do so.
The irony is of course is the adage, "Hate the service? Buy the stock" because it's so valuable people use it in spite of it sucking. Nobody ever thinks, 'this is terrible, how do I get long?' or, 'this is so awesome it can't possibly last, how to get short?', but that's how some traders make a living.
Would it be insider information to tell your broker to sell evrything before the plane lands?
It’s information about your company not known by the (wider) public but it’s also not information that it’s your job to protect or that you have any special access to? So if I understand correctly, it wouldn’t be insider trading in that case either?
Whatever is ok for congressman could not be ok for you.
Interestingly here I reckon even if illegal it is a bad look to go after a survivor of this.
https://www.reddit.com/r/wallstreetbets/comments/1935frs/is_...
But regarding Air Traffic controllers, it appears they are barred from owning airline stock https://www.law.cornell.edu/cfr/text/5/6001.104 (b)
In particular note that the requirement is about lacking financial interests at all, not merely about avoiding trading.
It’s a big ask though. Where do you draw the line?
So either that, or I can get Pelosi ETF.
IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?
As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to price the results into the stock. In other word, you couldn't trade based on the results you knew were coming a microsecond after the results hit the wire. (The HFTs would probably beat you anyway but I digress.)
It varies by justification. In the UK it is illegal to monitor communications not intended for you ( Wireless Communications Act 1949 ).
Being in the crew of the plane might get more messy at least when done with airline. Boeing less so.
The pilot, flight attendants, air traffic control, EMTs, etc. They have no direction association with Boeing, yet you could make an argument it was part of their responsibilities.
On the other hand, if your employer gives you X-brand wrenches, which frequently fall apart in your hands during routine operation, that seems like actionable information on which you would be justified to act.
I think even a Boeing employee would not be guilty. The event happened in public and it should make no difference since the non employee next to them would not be trading on insider info either. The information did not come from inside the company.
But there is a very high expense ratio.
https://www.bloomberg.com/opinion/articles/2023-11-02/the-ba...
(Journalism Section)
https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summa...
They spend months doing research and if it’s promising they first build their short positions, then publish the research. Often just being targeted by these famous short sellers will crash the stock. But it’s not insider trading because their research was independently sourced.
https://www.theverge.com/2013/10/3/4798542/whats-faster-than...
Especially these days with computer algorithms, the idea that it might take a couple of days to price in an earnings report is pretty silly probably. (And if an employee knows a lot of dirty laundry behind the public numbers, an extra day or two probably doesn't make much of a difference anyway.)
> in this particular case is no, it's not insider trading
You seem to be saying it could be, but that wouldn't mean the answer was "completely wrong" (your words)
Why? Trading implies making stock trades based on non-public information. This has little to do with auditing and investigating, since that information is not necessarily public.
There's probably far easier and more lucrative ways for clever criminals to execute on though.
Doesn't it matter how you came across that data? If you were at a coffee shop and happened to overhear a bunch of Boeing engineers talking about how they were replacing bolts with hot melt glue I thought you could you trade on that. If they explicitly told you that they were replacing the bolts with hot melt glue, then you wouldn't be able to.
Further, I struggle to understand how one could learn information which is non-public without "theft" of that information. It would seem that, by definition, if the organization begins sharing that information with individuals who have no confidentiality obligation, they have now made that information public.
What does tend to happen often is that others assume "public" means "written in the news" and that is certainly not the case. There are plenty of things that are knowable by the public but not obvious, and it's perfectly fine to trade on that.
> Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.
But, yes, all of these shorthand definitions are designed for the general public's consumption, and skip over specific nuances - including the SEC's definition. The sentence read above would seem to permit a person with a fiduciary duty to share information with someone who does not have one, and for that person to trade based on the information. However, we know this is not permitted.
In any case, I think my comment still stands. I specifically called out in my parenthetical in the original comment that the information would need to be knowable only by those with a fiduciary or confidentiality obligation to the company. This seems to cover your comment and sibling's concern.
Example: logs of search queries that suddenly trend with adverse information about companies. Those logs are not public, in fact you need to buy them, but they have real signal (thus material and nonpublic), and are perfectly legal to buy and use. Satellite photos to estimate material stacking up outside a factory, or how many cars are in the parking lots of retail stores. Mobile data that has been statistically tied to foot traffic in stores. Credit card purchase data (not public! very material! perfectly ok!) I could go on forever
Go ask a lawyer this is a big space
EDIT: Yes exactly, ITS HAS TO BE CONFIDENTIAL TO THE COMPANY AND THUS TAKEN FROM THE COMPANY LIKE I SAID ABOVE. Your explanation implicated all the cases I described. You haven't seen how explicitly rich are the sources that I mentioned above, they are very very definitely information about the companies that are traded
Regardless of the level of fidelity, if you got that information from an unaffiliated third party entity who captured it in the delivery of their own services, it is not "only available to those with a fiduciary responsibility or confidentiality obligation to the company"
It sounds like we are saying the same thing and you don't feel my original comment was clear enough. That's fine feedback. But there's no substantive disagreement. The points you listed above are all fine to trade on.
The gp's wording is a little confusing but he's just trying to explain the transitive logic of non-public information transferring from a "true insider" to an outsider is also "insider trading" and thus illegal. Think of it as the provenance of information coming from an insider.
E.g. Martha Stewart is an "outsider" and not an insider of drug company ImClone but she was found guilty of insider trading because she did get confidential information from insiders at the Merrill Lynch brokerage that handled stock trades for the ImClone CEO: https://www.sec.gov/news/press/2003-69.htm
Your scenario of a mechanic repairing cars, or somebody counting the number of cars in various Walmart parking lots, or a hacker that discovers a serious website vulnerability that may cause embarrassment and stock price drop ... none of those situations have a corporate insider in that information disclosure loop.
Minor correction: she was not convicted of insider trading. That charge was dismissed. She was only convicted of lying to investigators.
The judge dismissed a charge of "securities fraud", which claimed that she had defrauded investors in her own company by making false statements to the public.
The jury convicted her of "false statements", obstruction, and conspiracy.
Can Apple buy stock in a chip manufacture before they sign a deal with them?
Can they short them before not renewing a contract?
Another way of asking, is trading other companies based on insider knowledge from your company legal?
I was trying to avoid the use of "insider," because people tend to assume that means employees or directors, but that is not the case. Outside organizations who have, as an example, signed an NDA with the organization may learn of material non-public information, and trading on that could constitute insider trading.
Right, but information available to those with a confidentiality obligation can still be traded on if acquired legally. That's the crucial point. It's not enough for it to be non-public and material, you must also be in breach of a fiduciary duty (or acting in concert with somebody who is). For example, if a Boeing CEO was at a coffee shop discussing an upcoming acquisition at the table next to you, you'd be able to trade on it, even though it was confidential information not available to the general public and obviously material to Boeing's stock price.
IANAL, but if she traded a picosecond after tweeting: no. If she has zillions of followers and traded a year later: yes, because ’the public’ could be aware of the content of the tweet. A judge will have to decide on in-betweens. When doing that they likely will take into account how open Twitter/X is.
> If I saw the tweet and trade is that legal?
Again, IANAL, but I would think so, if she has ‘enough’ followers.
Regardless of when you learned it, the quality of BMW's cars (in this example) became public information when they started selling them to the public.
Now, however, if an internal employee told the technician that BMW had removed all QA checks from their line, and (s)he should expect quality to fall precipitously in the years ahead, that would be different.
https://www.compliancebuilding.com/2014/02/06/working-on-the...
Roadroad workers notice a bunch of visitors in suits, boss asked them to put together an inventory of property.
So they thought the company was going to be sold and profited on it.
SEC charged them, courts found them not guilty of insider trading.
Now, if you learned from someone inside that they were going to do a recall but had not announced it yet, on the other hand...
That being said, I am sure that insider trading is widespread (e.g. above example). The thing is that is it not easy to detect unless you are already on the radar.
"Non public" usually means an information that's internal to the company, not necessarily something that can't be gathered independently
Google's menu for the week in their offices is "non public" but not material information
The scenario you mentioned is generally understood to be permissible, but it's not exactly clear to me why. Perhaps that the information became "public" (whether intentional or not) when discussing it in a public forum such as a coffee shop?
This warmed my heart greatly.
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.
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_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.
"I heard a rumour that their defect rate is very high for this new product."
Information that isn't meant to be public might still send up circulating sure to mistakes etc. How would you determine whether trading based on it would be legal or not?
Hearing and trading on a specific statement by an insider at a public company, as an outsider, is insider trading. It's not that complicated
"yes" in Europe, "no" in the US
You can be fully versed in insider trading law, receive some information that you reasonably assume isn't protected, trade on it, and that's not insider trading.
If that weren't the case, every single person who traded a stock after some MNPI was inadvertently broadcast/published would be guilty of insider trading.
https://en.wikipedia.org/wiki/Insider_trading#Legal_differen...
> The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known. This is a much broader scope than under U.S. law. The key differences from U.S. law are that no relationship to either the issuer of the security or the tipster is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information
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-manag...