Question about insider trading and the movie "Wall Street"

Factual Questions
1

Note to Mods: I know this is about a movie, but I am looking for a factual question about insider trading. Thanks.

I just recently watch the movie “Wall Street” for the first time. One of the first assignments that Bud Fox is given by Mr. Gekko is to follow Sir Wildman (who just arrived in the US) around town and figure out what he is doing. Bud Fox does this and can tell that Sir Wildman talked to his bankers and then got on a plane headed for Eire, PA (which happens to be the HQ of Anacott Steel). Fox and Gekko come to the conclusion that Sir Wildman is going to buy Annacott Steel.

Before Bud goes on this assignment he says “Follow him? Mr. Gekko I…(shaken)It’s not what I do. I could lose my license. If the SEC found out, I could go to jail. It’s inside information, isn’t it?” (quote from script)

Why is it insider information? Any bum off the streets of NYC could follow Sir Wildman around town and figure out where he is going. It’s not a crime to follow someone, nor is it a crime to try to guess what a big investor is about to buy. I don’t see anything that is “insider” about this. This information was accessible to anyone who wanted to collect it and it was not gained by any source of information that outsiders could not access.

Was this an error or was it really insider information?

2

The line you quote happens earlier, when Bud & Gekko are in his limo. He doesn’t ask him to follow Wildman around, he asks him if he has any old college buddies working in high places that they might be able to exploit.

Essentially its the key moment in the film when Gekko first gets Bud to sell his soul. The Wildman assignment happens later.

3

Not according to the script here. They are in the limo and Gekko asks him to follow Wildman. Fox thinks this following Wildman is insider information.

GEKKO
Revenge is a dish best served cold… well, it’s payback time, sport. (looking out suddenly) … see that building? I bought into it ten years ago. It was my first real estate deal. I sold it a couple of years later and made an $800,000 dollar profit. It was better than sex. At that time I thought that was all tne money in the world…(drinks) Now, it’s a day’s pay … I had a mole in Wildman’s employ. Gave me half the picture, then he got fired…

BUD
I don’t understand.

GEKKO
Wildman’s in town. He just became an American citizen. Something big’s about to go down. I want to know where he goes and who he sees. I want you, sport, to give me the missing half of the picture…

BUD
Follow him? Mr. Gekko I…(shaken) It’s not what I do. I could lose my license. If the SEC found out, I could go to jail. It’s inside information, isn’t it?

GEKKO
(scratches his head wryly) Inside information. Oh you mean like when a father tells his son about a court ruling on an airline? Or someone overhears me saying I’m gonna buy Teldar Paper? Or the chairman of the board of XYZ suddenly knows it’s time to blow out XYZ. You mean that? (a piercing look) I’m afraid sport, unless you got a father on the board of directors of another company, you and I are gonna have a hard time doing any business…

4

If you look at the full context, it seems pretty clear (to me, anyway) that part of the foundation of the assignment is based on insider information. Someone else can answer as to whether or not Bud would get in trouble for his part if all he did was follow the guy around (ISTM that there’s plausible deniability there), but it seems like the first half–the reason that Bud is being asked to follow Wildman–is based on insider information.

5

I wonder: what if Gekko had hired a private eye to do the job? A P.I. who has no knowledge of Gekko’s motives. I suppose Gekko is still guilty of whatever he’s up to. Is the P.I. guilty of anything?

6

Non-legal professessional WAG.

I’ve heard conflicting information on this. According to one viewpoint, it appears that Insider Trading inherently involves a breach of trust, in the sense that information that was given in confidence is misused or disclosed in breach of a secrecy/nondisclosure arrangement. I believe also that so-called “tipees” are liable if they knew or should have known that the person who made a stock suggestion to them had “stolen” information. (btw: I know that information cannot be “stolen” in a traditional sense - I’m using a metaphor here).

I’ve heard the example (or something similar) of someone out in public who catches a glimpse of Steve Jobs having a heart attack and then calls his broker to sell all his Apple stock before the matter reaches the presses - in the “misappropriation” theory, no insider trading occurred because anyone could have been nearby when Jobs took a fall, they just weren’t. A passerby is generally under no confidentiality as to what they see.

http://www.kiplinger.com/features/archives/2004/01/insider.html

7

The mole could conceivably give insider information, but following Wildman is not insider information in the SEC meaning of the term. It’s just speculation as to why Wildman is meeting with the other executive – maybe it’s a merger, maybe it’s not. Even if Bud overhears something, it’s not a violation.

The mole would have to have had access to business plans and passed them along to Gekko. If he saw a memo saying, “the deal is almost finalized,” for instance, that could be considered inside information.

Bud following the person around would probably not be a violation, since he didn’t see any actual information. Gekko, OTOH, could be nailed for telling him to follow the person around, not because of the order, but because it could be evidence that he had gotten the inside information from the mole. Gekko was stupid to mention the mole, since now Bud can testify that he had it.

The P.I. following the guy is in the clear, especially if he doesn’t buy or sell stock based on what he found.

Speculation and observation are allowed; what isn’t allowed is access to facts and plans before they’re made public.

8

In the new movie, Gekko says “Not only is greed good, it’s now legal”

  1. Greed is not illegal, nor was it in the 1980s.

  2. What he did with insider trading was illegal, but is not now legal.

What did he mean?

9

I think Gekko was working on plausible deniability. He mentioned other things - like having a mole inside a company, or Bud getting information from his father, or somebody overhearing a conversation - that would be insider information. And that was the context in which he told Bud to “get the missing half of the picture” about what Wildman was doing - he was telling Bud to do whatever it took, legal or illegal, to get the information. Bud was then able to obtain the information by legal means like following Wildman public movements.

10

When I used to work in the Big-4, insider trading is a HUGE deal. In fact, in most accounting or financial services firms you need to disclose all your financial holdings and may be forbidden to invest in certain client’s securities. You could get an angry automated email from Compliance.

Following Wildman in public and speculating on his intentions is NOT insider trading. There is no presumption of trust or exchange of non-pubic information between Wildman and Fox. Although in this particular case he could be acting as an accessory.

Acting on a father telling his son about a court ruling on an airline IS textbook inside information.

A stranger acting on overhearing Gekko saying I’m gonna buy Teldar Paper is probably NOT insider trading. But it MIGHT be. Sort of like if you accidentily came across privileged information knowing it was confidential and decided to act on it.

The chairman of the board of XYZ suddenly knowing it’s time to blow out XYZ IS also textbook insider trading.

Bud Fox sneaking into his friend’s law firm as a cleaning personprobably IS insider trading and most likely various types of fraud, tresspassing, theft and a host of other felonies.
SEC Web site

11

What RealityChuck, Little Nemo, and msmith537 said makes the most sense to me. Just about everything else that Fox and Gekko did was insider trading, but following Wildman was about the only legal thing they did.

The movie just made it sound like Fox thought that following Wildman was the “insider information” part, which didn’t make sense to me.

12

I’m pretty sure Fox was saying that following him around would be illegal, which is wrong. It’s not like Oliver Stone is a big stickler for accuracy though.

13

I “heard” that Oliver Stone’s father was a Wall Street salesman and the model for the old guy that loses his office to Bud Fox.

When I was in the biz, and admittedly this was back in the 90’s, inside information was a grey area. The grey area came from defining what was in the public domain. If I, as a young analyst, went to visit a company to research an investment report, what that company told me may or may not have been inside information. Wierd, huh?

Information released at a press conference or a widely distributed news release is definately public information. The information you get on a group analyst visit (couple of analysts from different brokerage houses) is *probably *considered public information. Information gained on an individual analyst visit from the company authorized spokesperson may *not *be considered public information. Plausible deniability for the investment bank and it sucks to be the analyst.

Nowadays, analyst reports in investment banks are published on a website and that is the first that the investment bank other departments should know about the report. Eg, everyone gets the same information at the same time. This is enforcement of the so-called Chinese Wall. And everyone in the biz knows the Chinese Wall is just a fiction.

Galleon Group LLC co-founder Raj Rajaratnam, IMHO based on what I’ve seen, is *clearly *guilty of insider trading. It’s not for a lot but they have him on taped calls getting information, that while it may have been in the public domain (but probably wasn’t in the case of the Goldman Sach’s deep throat), Rajaratnam was obviously using the inside information to confirm whatever public information that was dug out (and probably vice versa after the fact to justify the trades based on inside info) in case he ever got busted.

But to the OP, following a guy around to see who he meets should not be considered inside information. Inside information is based on illegal activities or deception. For example, if you are an investment bank analyst who gets a job at an Amazon warehouse to see how the Christmas rush is going without disclosing the day job, is most likely guilty of insider trading.

“Expert networks” exist for 2 reasons. First, get the view of someone that’s a pro in the field if things make sense and what do they think. Second, is to get inside information. Usually the expert networks peddled the latter rather than the former.

14

Also Bud Fox isn’t supposed to be a genius either.

15

A question on this topic.

In The Hunt For Red October by Tom Clancy, Jack Ryan got a tip from a friend who worked for a technical company. The friend told him about a new product the company had developed that was going to make the company a lot of profit.

Based on this, Ryan bought a bunch of the company’s stock before the new product was announced.

Now there was a little song and dance about how Ryan did some research into public information about the company to confirm what he had been told - but it was clear he only did this because his friend had previously tipped him off.

Wouldn’t that have been insider information? He was told private information from a company employee. Does the fact that he was then able to confirm the information was plausible via public information negate it being insider information originally?

16

proving insider trading is difficult. jack ryan was definately investing on inside info. he may have used several data points *including *the inside information.

if Rajaratnam is not convicted then there is no enforcement of insider trading. christ, they have taped calls of Former Goldman Sachs Group Inc. (GS) director Rajat Gupta calling Rajaratnam 5 minutes after the board of directors accepted Warren Buffets $5 billion dollar investment when the markets imploded.

17

<nitpick>
I see from Wikipedia that the character played by Terence Stamp was “Sir Lawrence Wildman”; in other words, “Wildman” is the character’s surname. It is incorrect to refer to someone as “Sir [surname]”. They are either “Sir [first name]” or “Sir [first name] [surname]” (or of course just “[surname]”).
</nitpick>

18

It’s been a very long time since I read that novel, but I thought that Jack Ryan did the research of public information more to establish a cover for the use of insider information than to confirm what he was told.

19

It’s been awhile since I read it as well. But my recollection is that while it seemed iffy to me as a reader, Ryan seemed to be patting himself on the back for not having used insider information rather than covering up its use.

20

“Insider trading”: the purchase or sale of securities while in possession of material, non-public information in breach of a duty arising out of a relationship of trust and confidence. That is a very general definition and there are a lot of legal nuances involved, but for the purposes of analyzing a movie, that definition is more than enough. And now to the show, folks. . .

  1. Where Wildman goes in public is not private or confidential, therefore not inside information.
  2. Confidential information stolen from a law firm about upcoming m&a activity is inside information. Buddy Boy committed plenty of other crimes there, too, most or all of which would cause him to lose his securities licenses.
  3. Advance knowledge of an FAA determination given to Bud by his father (in this case given to Bud’s father in confidence by his employer): Inside information.
  4. Colluding with the unions to torpedo Gekko’s takeover of BlueStar, while colluding with Wildman to take over the company, and all the while trading BlueStar stock: Inside information. Even if Bud did NOT trade BlueStar while helping to manipulate the takeover deal, he would have committed securities fraud.