Since law prohibits people in possession of insider nonpublic info from trading on the basis of the advantage of that info, is it possible for this to be used as a sabotaging technique?
I.e., Kevin has insider info and wants to temporarily suppress David from being able to sell or buy stock, so he deliberate passes on insider info to David (unsolicited and unwanted by David) which then means David is legally barred from trading on that company’s stock for some time?
More likely the feds already have you on insider-trading charges and are going to try to use you to trap additional suspects.
What prevents David from going to the SEC and reporting Kevin for illegal tipping? Kevin might be able to stop David from trading, but he should think seriously about the potential consequences for attempting this method.
Couldn’t they nail him for illegally manipulating the stock market or something like that-whatever law makes it illegal for CEOs to leak BS to the press to pump up the stock price? This would be a similar thing, I’d think, in that preventing David from trading might well have a material impact on the stock price depending on how large of trades David was planning on doing.
Exactly - I assume not just trading is illegal, but also passing on information that could be used for insider trading.
IANAL but I used to work for a Wall St. firm. What would/should happen is Kevin sends David an email with insider info, David reports it to management, and then David’s firm sues the ever-living piss out of Kevin’s company for lost revenues. Then Kevin gets fired, is both civilly and criminally liable, and the harm to him and his company outweighs the harm to David.
My client took this very, very seriously - not necessarily because they were scrupulously honest, but because it might cost them money. Or, more properly, MONEY.
Regards,
Shodan
Exactly. The crime is tipping, which is what Kevin would be doing, regardless of his motive.
Oh great. Another tipping thread. :rolleyes:
so…
where are the cows?
:rolleyes:
How long would David be prohibited from trading in this scenario? Depends on the info, I’m sure, but probably shorter than Kevin’s jail term.
Until the information either became public or was no longer of any value. Insider trading involves material nonpublic information - Information that could affect the price of the stock and that is not known to the general public. If those attributes no longer apply, then people who know the information are free to trade.
How hard would it be to do this in a legal or semi-legal way? Kevin is presumably an employee or owner of Company X (or else he wouldn’t have insider information). Can he call up David, and ‘accidentally’ reveal something that’s material non-public information and then tell David “Oops, but you can’t trade on that info, now”?
Or does Kevin need David to agree to receive inside information (and thereby being bound by insider trading rules)? In which case, Kevin needs to somehow trick David into agreeing, at which point David’s up the creek, right?
According to the training courses I went thru every year (I was a programmer, but everybody had to go thru them) it doesn’t matter if it is “accidental” or not - Kevin’s ass is grass and Compliance is the lawnmower.
And yes, David is equally up the creek if he agrees to receive insider information. I don’t know how David could be “tricked” into agreeing.
The first thing to remember about Wall St. is that they are there to make money. The second thing to remember is that there is no second thing. If you look like you are going to threaten our business, then you better be a fucking superstar who is worth the very substantial risk of costing us more than it would to kick you to the curb and/or Club Fed. Otherwise you wind up having some very uncomfortable conversations with people in expensive suits, and it usually doesn’t help you even a little bit.
Sure, there are ethical and legal lapses, and companies get fined all the time. But they don’t like it, and they try to avoid it whenever possible. And if it is possible to avoid it by firing a trader, then there is going to a trader with a hole in his resume rather sooner than possible.
Regards,
Shodan
The biggest burdens are always on the person revealing the information, and anyone who receives it and then uses it. It is possible to accidentally receive insider information (for example by overhearing a conversation or because an email was sent to the wrong address). If it is clear that the information was received accidentally, and that you didn’t try to use it, you would not typically face penalties. Your best course would be to report it immediately, which is why I suggested that Kevin should think seriously about whether David would go to the SEC.
Where I work, in additional to strict rules about carefully checking email addresses and sharing information only with those who need to know, there is a requirement that you immediately disclose if you have unintentionally received insider information.
If you’re interested in reading more about this kind of wink and nudge tipping activity, I recommend the story of the Galleon Group insider trading cases, which is told fully in the excellent book The Billionaire’s Apprentice.
Nobody seems to have answered the OP: If you get unsolicited and unwanted material non-public information, are you then barred from acting on that information, and/or barred from trading in that stock at all?
Kevin realizes that David has found out some negative (but not insider) information about X-Co, and wants to prevent David from shorting X-Co (at least temporarily). So Kevin calls up David and ‘accidentally’ reveals negative insider information. Kevin ‘realizes’ it, warns David that it’s material non-public information, and then dutifully reports the conversation to the SEC, apologizing for the ‘mistake’.
David would be barred from trading on the information, so it is possible that Kevin might get away with it in that case.
Two issues for Kevin: Will the SEC believe that it was accidental? Maybe, but they might also fine him, if not specifically for violating policy, then for not having proper controls in place. His company might end up having to institute new tougher rules or compliance training. Companies are fined all the time for these types of violations.
Also, if his company does have appropriate rules in place, Kevin could be punished or fired for violating them.
And you might get away with it once, but it’s a one time thing. Do it again, and the SEC is going to be on to you.
Assuming David has no formal connection with Kevin or X.Co could it be considered that by giving the information to David, Kevin has made it public
Also is there anything preventing David from going public with the information as a way of getting back at Kevin, even if he can’t use the information once he goes public I presume anyone else could
Reported