An accounting professor I once had called trades like this “speed dialing the SEC from your Bloomberg”.
Even if it’s legit, this trader is going to be spending a lot of time giving depositions over the next few months.
Insider trade on Splunk acquisition?
211–220 of 371 posts
Re: Insider trade on Splunk acquisition?
#212Earlier quoted context omitted.
The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…
But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?
is this not a breach of "other relationship of trust and confidence"?
Re: Insider trade on Splunk acquisition?
#213Earlier quoted context omitted.
The family has the obligation. When you're trading one of the questions is if you, or your family, has rank at public companies. That would make the link from the guy, to wife, to company.
Unless your wife is the leader of the house.
The Nancy Pelosi case is extremely interesting from a market manipulation point of view! It’s one of the strongest arguments for extreme restrictions on Congress trading. Trumps behavior in office is a similarly strong argument for extreme restrictions on Presidential trading.
But it’s not strictly about insider trading. Pelosi (or trump or Pelosis’ husband) are not traditionally insiders. The testimony they receive is by its nature public. That we’ve allowed lots of things that shouldn’t be secret doesn’t change that. That elected officials can be corrupted by their power isn’t an insider trading issue, it’s a corruption one.
Re: Insider trade on Splunk acquisition?
#214Earlier quoted context omitted.
It's still not public information (e.g. "Material Nonpublic Information"). You can't trade on it. See 17 CFR § 240.10b5-1 "Trading “on the basis of” material nonpublic information in insider trading cases", particularly section (b) "Awareness of material nonpublic information." https://www.law.cornell.edu/cfr/text/17/240.10b5-1
No this is not correct. If someone spreads a rumor and you don’t know that the information is from an authoritative source it’s not MNPI. It’s speculation. If someone anonymously posts on Twitter that Splunk is going to get acquired by Cisco and you immediately buy options, and you don’t know who this Twitter account is, then it’s speculation. Also it’s no longer non-public information if someone posts it on Twitter.
"if someone posts it on Twitter."
Yes, if you trade on public information, then it's not material non public information.
Re: Insider trade on Splunk acquisition?
#215I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…
Matt Levine covers this fairly extensively
I believe someone in Europe overheard info on a train and was successfully prosecuted. The US has not historically prosecuted trading on inside information that wasn't obtained illegally
So if you research that's fine. If you overhear something that might be fine (I don't think anyone has been seriously convicted yet but I could be wrong)
It can't be enough to say the trade was statistically unlikely because your independent research might legitimately let you make an unlikely trade. This particular trade was very unlikely though.
Re: Insider trade on Splunk acquisition?
#216Maybe it was just a member of Congress and thus no crime was committed
Re: Insider trade on Splunk acquisition?
#217Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to close sometime this week (you're not working on the deal, you just heard through the grapevine that it's happening). Is that considered insider trading?
I've never heard of a publicly traded company that allows employees to buy/sell options on their stock, and I'm willing to bet that the fine print at most places includes companies you're soon to acquire/be acquired from.
> you just heard through the grapevine that it's happening
Is that "grapevine" public? If not, it is by definition material non-public information.
In general in finance if you think you've found some clever exploit in the system that you're surprised no one else is taking advantage of, it's a good idea to double and triple check that it is in fact a legal exploit. Especially if you stand to gain millions off of something that seems easy to do.
Re: Insider trade on Splunk acquisition?
#218Earlier quoted context omitted.
Fair markets are efficient markets. Regulators try to keep the markets fair and efficient. If a market is unfair, participants are scared away, which leads to more inefficiency and potentially a collapse of the market.
Insider trading also makes markets more efficient. So I don’t think your argument is as strong as you think. I also think it’s weird we don’t apply this consistently. I can buy many assets with “non public information”, just not those the SEC regulates. So it’s not really about markets at all, but specifically about fairness for shareholders (or something by like that?)
It is by definition not efficient because some participants have more information available to them than others.
Re: Insider trade on Splunk acquisition?
#219Obviously I don't condone insider trading, but it's nice to see someone go all in and make some real money. If you're going to risk jail time, you might as well do it for life-changing amounts of cash. Contrast this with Stephen Buyer who's going to trial and may well end up in jail for a piddly few $100k.
Wouldn't they be required to give profits back if convicted? Because otherwise lots of people would've taken this sort of calculated risk already.
Yes. And the larger the amount, the longer the sentence - federal government has a point a system that dictates this.
So erm, yeah, don’t do this.
Re: Insider trade on Splunk acquisition?
#220I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…
The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…
Caveat that other jurisdictions do take a broader view (from memory, France is one that comes to mind where overhearing something confidential and trading on it is unlawful).