Insider trading laws and corporate executives

[DaveUnknown]

Exec.s that count need to disclose all trades, usually on a predetermined (by the board?) schedule through various form types, 13F, 4, 5, etc.
Its people trading on “material information” that gets the scrutiny. What defines “material” is vague. That’s 90percent of the SEC’s job, to interpret/define what is material. Companies only disclose what they have to disclose. A pending merger announcement or acquisition could be material, or not. A pending merger or completed acquisition may not even be disclosed, depending on the “material” nature.

[Great_Antibob]

@Dewey_Finn

Would he have been guilty of insider trading, though? It seems to me that he traded on what people said in public, essentially.

It can be a gray area for sure, but, yeah, the bartender should be in the clear.

That said, if the executives deliberately tipped the bartender off in some kind of scheme to get a cut or to personally benefit (say they get free drinks or something), that could be enough to get at least a minor penalty.

[md-2000]

@Little_Nemo

I guess it seems strange to me. I can understand the concept of a law that forbids a corporate executive from passing on any information they receive as part of their job to another person. But the idea that a corporate executive is supposed to somehow pretend they themselves don’t have know the information they receive as part of their job seems bizarre.

How does it work in the real world? Does the SEC actually try to enforce universal compliance with these laws? Or do they accept that there will be some amount of violation and only step in when somebody gets too brazen?

The guy can trade any other stock not affected by the dealings of the corporation he works for or has business dealings with. But he must tread very lightly on trading the stock of the company he works for. As I mentioned, there were “no trade” periods for the weeks leading up to the quartely results, for example. The Martha Stewart example was bease on her friend receiving word that his company’s drug was not approved by the FDA, meaning when that information was released to the public the next day, stock dropped significanty.

It’s a price of the job. I suppose if Joe Blow works for Acme and sees “this company’s management have no clue!” and trades accordingly, then it’s not so much of violation. Presumably the guy working in the warehouse seeing shipments increase, can buy stock in anticipation (For example, he has no real data if higher sales will result in more profits, or if it’s a fire sale…) Generally, the SEC looks for anomalouss trades, from what I’ve read. If it’s hard to prove it was an unusual trade and there was inside knowledge involved, or it was a petty amount of money (The warehouse guy and his $20,000 of stock) then they likely don’t bother.

[Little_Nemo]

@md-2000

The Martha Stewart example was bease on her friend receiving word that his company’s drug was not approved by the FDA, meaning when that information was released to the public the next day, stock dropped significanty.

But the Martha Stewart example was different from what I’m talking about because Stewart didn’t work for ImClone.

[md-2000]

They could have charged her and the ImClone boss but they had no substantial evidence what the content of the phone call was. The logical inference was that it was a warning about the stock, but only with Martha could they connect “call” to “stock sale” implying insider info - and even then, she was not convicted.

[DaveUnknown]

Yes
She served jail time for lying and the obstruction charge.
“Stewart’s involvement would have never come to light had Doug Faneuil, Bacanovic’s assistant, not disclosed it to investigators.” So it wasn’t necessarily unusual activity.