Making Insider Trading Legal

> If one can backup and use a fuzzy enough lens, one can just ask "how should society calculate the total benefits here" but the problem is this begs the question of whether it's proper for the state to just ask these questions.

But in the case of insider trading, there is no such person. Lambdapie identifies that there is a cost (yes!), but that cost only exists at a fuzzier level than "the person stolen from". Trying to examine at a finer level doesn't make sense.

Let's take a stylized version of a recent insider-trading case:

- A company ("Conglomacorp") employs someone ("Big Mouth") to dispense inside information to investors. Usually he does this by sitting in his office and answering phone calls. (This is common, and definitely legal.)

- A particular investor ("Shylock") develops a friendship with Big Mouth, and regularly goes to dinner with him. At dinner, Big Mouth tells this investor company information.

- Shylock trades in Conglomacorp stock.

- It's stipulated that if the information that Shylock received had been dispensed during work hours, there wouldn't have been any legal problems. But he is prosecuted on the theory that, since it was dispensed at dinner, outside of work hours, he should have been aware that trading on it was illegitimate.

How does this case fit in with your ideas of insider trading? It's certainly not the case that "[the inside information is] not available to people outside the tipping network at any price". You have to be a big enough investor that the investor relations desk has time for you, but that's open to anyone.

However, if you bought a used watch at a reasonable price with some plausible documentation, this is where things has changed somewhat.

Before, if you had bought the watch in "good faith", i.e. there was no obvious reason for you to suspect it was stolen when you bought it, you were entitled to keep the watch even if it was later found out it was indeed stolen. Even if they later found the previous owner, he wasn't allowed to have it back. He had to go after the thief to get compensation (even if the thief is unknown).

That last thing is what changed. If they find out the watch is indeed stolen, you have to give it back to the previous owner, even if you bought it in "good faith". But you have not committed a crime, you will simply have to give back the goods to the right owner. Now it is you as a buyer that has to go after the thief for compensation (because he scammed you by selling stolen goods).

None of that is illegal. Unless you're a micromanager you wouldn't ask why they think that - that's their job.

"It’s not that it will be impossible to bring insider-trading cases from now on; it’s that, at a hedge fund, all of the legal liability will now rest with the analysts and traders on the front lines of information gathering—with the initial knowing recipients of a tip. (Incidentally, if you’re a junior portfolio manager, this might be a good time to ask your boss for a raise?"

1. This means anyone, such as a home trader, hires a worker who receives insider financial tips from and passes that information on to me. I can then make the trade, and profit. I am legally protected, as long as the employee didn't tell me about the origins of the tip? The only person liable would be the employee?

"With billions of dollars to be made in betting on the market, whether or not you see cause for alarm in any of this will likely depend on just how scrupulous or unscrupulous you think the average investor is."

Of course the average investor is unscrupulous. For as long as I can remember, the successful investors used insider information to make money on investments. Growing up they openly exchanged tips at church functions. Hell, the only real money my father made in the market was off an insider tip. My father didn't even know it was inside information. He just trusted his new father in-law.

My point is ever successful trader, I tangentially knew, used insider information to make a profit.

My second question to the lawyer. The boys at Google/Bing can see every every IP. They can map every IP to an address, and most likely a name. They probally know exactly who's who in all financial institutions throughout the world.

Could Google/Bing hire an analyst to scrape the data/information are pass that information to a higher up. The "Higher ups" could then make stock trades on this in data. (yes--I know Google only scrapes information in emails for "advertising" data.) 2. Could, if a search engine was combining IP to a name, address, and maybe where an stock trader works. Could The search engine put all that info. together and use that information to buy stocks? They might even call it big data mining for financial gain?

Or, would this senerio be invasion of privacy, and wiretapping?

(I have two questions poorly laid out in this mess of a paragraph. Sorry. I will number the sentences with my final question, as 1, and 2.)