Suppose that I, a private citizen, chance to come into possession of sensitive and properly confidential corporate information through no action of my own; I overhear a conversation at Starbucks, or get accidentally CCed on an important email, or something similar. However it happens, I discover that Company X is about make an announcement that will cause its stock price to drop precipitously. I happen to own 1,000 shares of Company stock that I bought at $25 a share a year ago; it is currently valued at $75 a share, but may well drop to junk status once this announcement is made.
If I dump my shares, have I committed insider trading?
According to the Wikipedia, it would appear not. And really that does seem to make the most sense, just as otherwise you would need to take thousands of people to court if some information was leaked to a newspaper and everyone traded on it before it was official.
Here is what the SEC says about insider trading. You may very well be trading illegally on that information.
As a practical matter, the SEC isn’t going to be concerned with a 1000 share transaction. If you decided you want to short millions of shares based on this information, that might be a problem.
I’m not a lawyer, but I’ve been studying for my NASD license.
I’m not convinced that Wikipedia is right on this; while certainly the violation of the fiduciary duty is part of the reason insider trading is prohibited, it’s not the only reason. The other consequence to insider trading is that an innocent purchaser is going to get screwed when the OP dumps his shares, even though the purchaser has no opportunity to have the gleaned full information, no matter how diligent he is. Of course, the SEC typically takes a hard line on what is a violation, and their interpretation of the securities acts is not always upheld in court. Plus, these cases are tried in front of juries, who have sometimes been unwilling to follow the Commission on the close cases. (A couple years ago I wrote a short article about that, actually.)
Note that there are some areas that have even more expansive definitions of what is a violation. For example, if you get secret information about a tender offer, it’s probably illegal to trade on it even if you got it thru purely innocent means.
IANAL, but your cite does not read like this. The original poster is talking about something overhearing a conversation. “Tipping” as used here means the information was deliberately given to him.
The closest example I am aware of that looks perhaps innocent like this, but was deemed insider trading, were the various printer employees of financial disclosure doncuments who were found guilty.