Insider Trading Question

Factual Questions
1

I don’t know if this belongs in GQ or IMHO - I’m going to unleash it here.

I know, I know about legal advice from a message board. My own attorney won’t touch a securities question, and the last time I talked to a securities attorney, he billed me several hundred dollars for buying him a couple of margaritas at happy hour while providing no tangible counsel. That being said, I don’t think I’m in a questionable spot, but I’d like to hear y’alls’ opinions.

I own several thousand shares in a small company (~$150MM market cap). My stockbroker has been calling me daily to urge me to sell it off, his reasoning being that, as they’re currently at an historic high and they just sold an additional stock offerring, he smells a mini-Enron coming up.

I have resisted his calls to sell. I’ve held the stock for about a year, and it’s currently up ~35% over what I paid to acquire it. That alone might encourage one to hold on to it, despite the admonitions. And I suppose I should give him a stop-loss order at about 110% of acquisition cost.

But, the real reason I’m holding on to the stock is based on what could probably be described as insider information. The company is partnered with my own employer on a project of which I am privy to much proprietary information, and I suspect this endeavor’s success will slap a Saturn V on this company’s ass (can we say ‘ass’?).

Of course, I can’t tell my stockbroker any of this.

This aspect of our partnership was not apparent to anybody when we inked our deal, nor was it known, even internally, when I acquired the stock. I held off buying the stock until this little company had proferred a press release advising the public of their venture with us, and then bought the stock before any efforts to evaluate the original objective had been made.

My understanding is that most insider information busts are based on efforts like Martha’s, where stock is sold to avoid losses based on not-yet-publicly available information that will likely damage a stock.

So, I’m not buying any additional stock and I’ve held the stock since before anyone knew of this aspect of our deal (there exists no internal documentation predating my acquisition of stock, and I’m in a position to know).

I think I just made a lucky bet, but I am resisting my stockbroker’s call to sell based on information unavailable to the public.

Basically, it boils down to being passive versus active, methinks.

I think I’m in the clear. Thoughts?

2

I’m a lawyer, and my strong advice here is that you should obtain competent counsel to advise you regarding the particular facts of your situation.

The information you’ve given isn’t enough to form an opinion, and as you know, I don’t and won’t represent you on this, but from what you have posted, depending on the actual facts, there is a risk that if you make a securities transaction you may violate insider trading laws.

3

Stockbrokers call clients frequently with advice to sell, or buy, they could care less, they make money either way.

This is all IMHO of course, so here goes.

Since you have held this stock for a long time, and under the conditions you bought it, I would say you are in the clear. What you “know” is still speculative in nature. What Martha knew was cold hard facts.

4

I think that you are in the clear too. Insider trading charges are almost always triggered by making transactions, not holding on to something that you already have. Also, employees of publicly traded companies commonly own stock of their own company and have access to the same type of information that you do. There is nothing wrong with that. I also think that your stockbroker is irrelevant to all of this. He is just trying to drum up business. For all you know, he could be the one with the accurate insider information on the company and that is why he is telling to sell.

BTW, what is the name of this company? If a Saturn rocket is about to launch, I want to stow away in the capsule before any notices.

5

Sorry, Shag, I can’t tell here. But you and cc both seem to validate my non-lawerly assessment that I’m probably in the clear.

Billdo. we’ve met and you’re both a fine man and, apparently, competent counsel. And I know and recognize that you are not my counsel. Nevertheless, I’ll restate that my question was about not making a securities transaction when urged to by an industry professional.

6

IANAL, but let’s go to the SEC for some enlightenment. Here’s their statement about Insider Trading

Do you have a fiduciary duty to the company who’s stock you purchased? No. Do you have a “relationship of trust and confidence”? Perhaps. Let’s look at Rule 10b5-2

Speculation on my part… if the info you acted on was non-public and intended to be strictly confidential, you may have breached a “relationship of trust and confidence” by buying the stock.

7

Sorry, I’m just giggling at the thought of somebody getting slapped in the ass with this. :smiley:

8

IANAL either*, but you aren’t buying or selling stock. Sure, you’re an insider, but how could you be accused of insider trading when you aren’t trading?

I think that an argument could be made that holding the stock is the responsible thing to do, since trading would have a greater influence on the market. Do the stop loss and let it ride. If it does take off, then sell after it settles at the new high.
*[sub]Additional caveat, I might be able to make a bad pick on a savings account, but this seems like more of an ethics issue.[/sub]

9

Well, I got it backwards then. Insider trading regulations are based on prohibiting transactions while in possession of non-public information. If you simply hold securities, rather than purchase or sell, you should generally be clear. Before you actually make a transaction, you should consult counsel.

10

This had nothing to do with the actual question of whether or not you’re a dirtly-little-scoff-law or not. but:

Remember the of stock market adage, “Pigs get fat and hogs get slaughtered.”
As to the actual OP question, doesn’t seem like a problem to me. If it were illegal then folks with inside information would be required to sell before announcing good news, or something.