# Insider trading question **URL:** \ **Category:** Factual Questions\ **Created:** [December 16, 2000, 9:09pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940 "2000-12-16T21:09:54Z")\ **Posts on this page:** 9\ **Page:** 1
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [December 16, 2000, 9:09pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940/1 "2000-12-16T21:09:54Z")
Say the NYSE-traded company for whom I work is going to drill a very high potential exploratory well. The potential is such that if it works it will most likely cause our stock to jump in value in a very short time. If it’s a dry hole it probably won’t affect our stock at all. So if I purchase stock in the company after we’ve filed the permit for the well, meaning that the fact we’re going to drill this well is then public knowledge, but before we actually drill it, so I therefore don’t know myself whether it’s a success or not, and, if it _is_ successful, sell my stock a few days after the press releases, am I clear of any insider trading violation? ---
**Author:** ![Alantus](https://avatars.discourse-cdn.com/v4/letter/a/a6a055/32.png) [@Alantus](https://boards.straightdope.com/u/Alantus)\ **Post date:** [December 16, 2000, 9:21pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940/2 "2000-12-16T21:21:41Z")
Ah yes, the good old SEC got you worried. Now I am no expert in the field but the way I understand it, you would have no problems with insider trading laws unless you have knowledge that the general public does not. If your knowledge of the potential of this well and the probability of it being a success is greater than the knowledge I could find in a day then you might have a problem. If your knowledge of the potential and probability of success is much the same as the knowledge of the general public, then your gambling just as much I would be. Keep in mind its been several years since I have taken a business law class, but the above statement does follow good logic, for whatever that is worth when dealing with the SEC. Alantus ---
**Author:** ![SmackFu](https://avatars.discourse-cdn.com/v4/letter/s/53a042/32.png) [@SmackFu](https://boards.straightdope.com/u/SmackFu)\ **Post date:** [December 16, 2000, 9:47pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940/3 "2000-12-16T21:47:28Z")
From the [SEC](http://www.sec.gov/consumer/keyword/tinsider.html): > [@](#): > > Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. And just to be sure, I looked up the [law](http://www.law.uc.edu/CCL/34Act/sec20A.html) in question, and that’s the wording they use as well: “purchasing or selling a security while in possession of material, nonpublic information” So I guess the question is whether the information you possess that is nonpublic is “material”. In this case, it doesn’t sound like it, since you have no greater knowledge of the success or failure than anyone else. (right?) So I think you’re clear. ---
**Author:** ![SmackFu](https://avatars.discourse-cdn.com/v4/letter/s/53a042/32.png) [@SmackFu](https://boards.straightdope.com/u/SmackFu)\ **Post date:** [December 16, 2000, 9:53pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940/4 "2000-12-16T21:53:20Z")
Here’s one more quote: > [@](#): > > The regulation does not define the terms “material” and “nonpublic,” but relies on existing definitions of these terms established in the case law. Information is material if “there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision. To fulfill the materiality requirement, there must be a substantial likelihood that a fact “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Information is nonpublic if it has not been disseminated in a manner making it available to investors generally. So it’s really just a judgement call in the end. ---
**Author:** ![sethdallob](https://avatars.discourse-cdn.com/v4/letter/s/e36b37/32.png) [@sethdallob](https://boards.straightdope.com/u/sethdallob)\ **Post date:** [December 16, 2000, 10:14pm UTC](https://boards.straightdope.com/t/insider-trading-question/45940/5 "2000-12-16T22:14:53Z")
I’m a registered rep (and looking to change firms, btw), and I think that you will be okay. If you bought or sold the stock with the knowledge that the firm was going to drill \before\ they filed for the permit, then you would be guilty. Since the information is public, you are in the clear, IMHO. Of course, I need to disclaim that this is my opinion on a personal, not a professional basis. ---
**Author:** ![RealityChuck](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/realitychuck/32/195_2.png) [@RealityChuck](https://boards.straightdope.com/u/RealityChuck)\ **Post date:** [December 17, 2000, 1:55am UTC](https://boards.straightdope.com/t/insider-trading-question/45940/6 "2000-12-17T01:55:06Z")
If the news of the drilling is public knowledge, then it’s not insider trading. If you bought the stock BEFORE it becomes public knowledge, you can get into trouble. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [December 17, 2000, 2:18am UTC](https://boards.straightdope.com/t/insider-trading-question/45940/7 "2000-12-17T02:18:05Z")
Thanks for the input, folks. I explained my rational for thinking I’m probably in the clear in the OP (don’t buy stock until it’s public knowledge that we’re drilling the well; buy stock before results are known to anyone anywhere). A second thought occurs. We drill lots of wells and are mostly successful and I don’t entertain thoughts of stock plays for them. I do possess a specialized knowledge that someone outside the industry who doesn’t track this stuff pretty closely does not that tells me that this particular effort might result in a _very_ good gas field. And I know from experience it may well be a dry hole. Some of that specialized knowledge might well be the result of having access to data that is not publicly available, but anyone else in the industry, i.e., without access to the data we alone have, is going to be aware that, should the endeavor work, it will likely be a _muy bueno_ discovery. Much data is available, to anyone who pays for it, that would help one arrive at the same conclusion. How does _that_ affect the situation? ---
**Author:** ![bizerta](https://avatars.discourse-cdn.com/v4/letter/b/3be4f8/32.png) [@bizerta](https://boards.straightdope.com/u/bizerta)\ **Post date:** [December 17, 2000, 2:19am UTC](https://boards.straightdope.com/t/insider-trading-question/45940/8 "2000-12-17T02:19:30Z")
Inside trading is a two-way street: Don’t try an buy the stock on the QT. If you make it well known that you’re a proud employee and want to be a stockholder too, you company will either approve or tell you that you can’t. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [December 17, 2000, 2:34am UTC](https://boards.straightdope.com/t/insider-trading-question/45940/9 "2000-12-17T02:34:34Z")
> [@](#): > > Don’t try an buy the stock on the QT. I’m not sure what you mean. This is a publicly traded company; I don’t need to consult anybody within the company about any trading I might do in company stock.