I don’t know if illegal insider trading had occurred in this case, but you can be assured that if there was illegal trading the crooks will be caught. Having been an insider myself we were preached about the high risks of such illegal trading and have seen instances of even subtle instances of insider trading having been tracked down by the SEC and the crooks punished with fines and jail time. We’re not just talking about the insiders but also their relatives, etc. So surely if this current case is really that flagrant (not obviously true IMO) the offenders have a lot to worry about.
The definition of an insider is not based on your relationship with the company, it has to do with whether you have material information that is not publicly available. If you are sitting next to a CFO on a train who is telling his CEO that the earnings announcement due out the next day will say that earnings are below target, you have just become an insider FAPIAP, and you cannot use that information to profit from a trade.
Here is an interesting editorial on the fine line between insider information and really juicy rumors.
I do not believe you are correct. This comes from the SEC website.
If you are sitting on a bus and overhear a conversation, you clearly do not have a fiduciary duty or other relationship of trust and confidence with the other parties.
No, I’m not saying it was widely known. I’m saying that if something big is going down, people hear and spread rumors often with little tangible information. It may only take a small amount of data (real or imagined) to cause a run on the stock.
Or, it could be insider trading. It’s hard to know at this point.
But your own cite includes “‘tippees’ of such officers, directors, and employees, who traded the securities after receiving such information.” The person executing an illegal insider trade does not have to be the person with fiduciary responsibility. At most I will concede that someone who comes by the information accidentally would be a gray area. I have no idea what case law is on that.
This is covered in a sublink to the SEC website.
I trade professionally for a firm and have decent access to rumors and news making ways around trading desks. Here are the time stamps and accompanying bulletins that I saw during the SGLP drop:
17-Jul-08 11:31 ET
Semgroup Energy: Hearing reason for drop is issues surrounding their parent company; SGLP is an energy MLP (gather transport terminal and store energy commodities)
17-Jul-08 11:40 ET
Semgroup Energy: Color on stock action (14.55 -8.19) -Update : SGLP is trading down ~30% on no apparent news. There is chatter that the weakness in SGLP is related to a rumor about an affiliated co, but we have no confirmation of this… For some background on SGLP, we note the co is an energy MLP that gathers, stores and transports energy commodities, including crude oil. The co does not take title to, or take marketing responsibility for, the crude oil that they gather, transport, terminal and store. They generate revenues by charging a fee for services provided at each transportation stage as crude oil is shipped from its origin at the wellhead to its destination. SemCrude, L.P. is SGLP’s primary customer and, pursuant to a Terminalling Agreement, pays SemGroup Energy Partners a fee based on the number of barrels they terminal or store for SemCrude.
18-Jul-08 00:01 ET
SemGroup Energy Partners announces its parent, SemGroup, LP, is experiencing liquidity issues (11.00 ) : Co has been informed by SemGroup, LP, SGLP’s parent, that SemGroup, LP is experiencing liquidity issues and is exploring various alternatives, including raising additional equity, debt capital or the filing of a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. “While SGLP’s parent is experiencing liquidity challenges, SGLP’s assets provide important terminalling and storage services to the energy industry. We own valuable assets in strategic locations and remain positioned to provide midstream services. Until our parent advises us of their course of action, we cannot fully evaluate and are not yet prepared to comment on how any such action taken by our parent might affect SGLP.” SGLP derives a substantial majority of its revenues pursuant to a Throughput Agreement and a Terminalling and Storage Agreement with SemGroup, L.P. and its subsidiaries. In addition, SGLP has entered into an Amended and Restated Omnibus Agreement and other agreements with SemGroup, L.P. that address, among other things, the provision of general and administrative and operating services to SGLP.
So, at the time the first rumor message hit my computer, SGLP had already made a move down from $$22 to $15. As I now scroll through the Yahoo Finance headlines, I don’t see any information until 8:10pm the night after the decline. I guess it’s possible that someone out there made a decision to cut a company in half based on a rumor. But, I find that just a tad hard to believe. There is A LOT of shady trading every day, but this one is pretty ridiculous.
As a side note, here’s a bonus - ticker symbol GAJ. Any opinions on what’s going on there?
Well first of all there is SEC policy and company policy. Most companies have stricter policies on insider trading than the SEC insists on because it’s easier for them, and easier for them to claim innocence.
Second just because something is obvious doesn’t mean you can PROVE it. There is no real way to prevent all kinds of insider trading, but you can lessen it and threaten people with jail to lessen the chance someone will act on it.
For instance if I say I wish my wife was dead, then she is found dead and the knife is found in my desk at my work, with her blood on it, doesn’t mean you PROVED anything.
Those defined as insiders are required to have their trades tracked, and some people follow them assuming they are using covered up information. But there are other ways of getting around this.
Here is a follow-up to this post. It seems that at least one person was charged with insider trading related to this case.