The company I work for is about to buy a bunch of equipment from a relatively small publicly traded company. I am certain that no one at that company knows we are soon to buy this equipment and likely only 15 or 20 people are at mine. The size of the order is likely to have a substantially impact on the companies prospects. Would it be legal for me to buy shares of this company? I have no influence over whether we are going to buy from them or from someone else, I just happen to be in the position to know about it before most everyone else. Whats the verdict? *Of course this is all hypothetical.
Your company is just going to call up one day and offer to cut a PO for enough equipment to significantly affect the other company's annual revenue? No salesperson knows this deal is in the works? No haggling over price, deliverables, etc. has occured? Sounds odd. Regardless, I'd consult an attorney who has expertise in securities. While you aren't an insider, it sounds like "material" information to me. I'll ask our CFO when I get a chance to see what he thinks, since we are a small, publicly traded equipment manufacturer. Say . . .
The short answer to your question is that if you have inside knowledge of any transaction that will materially affect the company's stock price, and you act on it (i.e., you buy or sell your company's stock using that knowledge), that is insider trading.
the insider trading laws cover any information that isnt public. Even if you literally have nothing to do with any company and just happen sit next to a big executive on either a plane or train, and you happen to hear him/her talking about an aquisition- the insider trading laws forbid you from acting on the information, ever. I remember a story about a waitress who didnt know anything about stocks other than they would go up if one company bought another, and she had no relation with any company. One day, at her job, she overheard 2 of her customers (who were execs) talking about how they were going to purchase of another, smaller publicly traded company (I cant remember the exact story). She heard them give the details, saying they were going to offer purchase XYZ corp for $x dollars. She went home, looked up the stock, told her brother about what she had heard and they bought a ton of the stock. That offer happens and the "stockwatch" guys arrested both the waitress, her brother, his wife and I think their broker (who was the ONLY one who should have known better).
It's illegal if you are a waitress or her brother, but it is smart business if you are a Wall Street brokerage firm insider.
KC, Technically the law to strong enough to prosecute anyone but some of those stories may be urban legend. Particularly if there is no relationship between the tipster and tippee. Unless the waitress slept with the exec, her brother just can't trust that enough to make decision. If he make decision on his own research then he would be off the hook. Literally millions of small investors acted on "tips" everyday and they do not go to jail. Most of the times they lost their shirt because the tips were not true. "Insider trading" can be prosecute if they establish the connection and evidence with tipster and prosecutor would like to come out and "get" some people to serve as example. To the OP, it is not good to do that due to the fact you are employee and leave internet trace like this . The case of microsoft xbox and Nvidia employee is an example. Links others verdict
One of the more well know cases was a printer who bought shares in a takeover target, because he got the job to print some of the legal documents. The companies had even taken precautions to "blank out" the name of the two companies involved, for insertion at the last moment. But he figured out from street addresses in the documents who they were. So even though he was employed by neither company, it was considerd insider trading. Another situation talked about was someone walking by the airport and noticing a couple of Dr. Pepper planes in Atlanta. Everyone knows Atlanta is Coca-Colas hometown. Put 2 and 2 together. Of course that deal fell through and wasn't completed. But many wonder whether that man of the street kind of knowledge would be considered "insider" or not. We don't have a good answer. I would be hesitant to trade on the information you have without getting specific legal advice from your own lawyer.
Life is too short to worry about these silly rules, you should send me all the spare cash you can get your hands on and let me buy the stock for you. I'll sell it when smallco's stock price goes up and give you the profit, minus my fee for risking getting busted. To make sure there is no paper trail, we won't document any of this. For every waitress getting caught story there are 1,000 others of people who didn't.
I can't believe I had never heard that about Switzer. Just when I think my opinion of that greasy piece of **** can't go any lower....
That Switzer story cannot be true. If sunbathing behind rich executives were enough to get you legal riches, Pete Carroll would not have to coach football any longer.
OK, it would be illegal. We actually have a great securities law prof at UT (Robert Prentice) and I just finished up his class, so I hope I know this one. There are 4 groups of people who have a duty to "disclose or abstain." If you're a member of any of those groups, you can't trade on your information. 1. Company insiders - People who actually work for the company whose shares are traded. Normally officers, but it can be anybody. 2. Temporary insiders - Your auditor, someone searching for land you can buy for a new factory, etc. 3. Misappropriators (THIS WOULD BE YOU) - People who have received the information from a source to which they owe a fiduciary duty. Normally the example here is a lawyer who sees papers someone else is working on at the firm. In your case, you owe a fiduciary duty to your company, so this is where they could nail you. 4. Tippees - This one is the most complicated. They are only liable if the tipper does it for personal gain. So, if a CEO is getting his hair cut and talks to his barber, the barber could trade because the CEO didn't do it for personal gain (that one actually happened and the SEC lost its case). Normally, this is where that waitress would fit in, except for.... Rule 14e-3 - If the information is about a tender offer, then you can't trade no matter the circumstances. That's the only way a total bystander can get nailed for overhearing something. So, to sum it up, you'd probably be a misappropriator and guilty of insider trading.
Tippees - This one is the most complicated. They are only liable if the tipper does it for personal gain" So he can't do it, because he has a duty. But he could post it here, let us profit and as long as he has no material gain, we are okay?
actually, insider trading laws in the US also have the concept of a breach of confidentiality. So if you are a waitress and hear an exec talking about something, since there is no dutry of confideniality being broken, it technically would not be insider trading under 10B-5.
Battleship, as I understand it we'd probably all be OK in that instance. Agent007, you're right about the waitress except for the one exception I mentioned. If the information is about a tender offer, the categories are meaningless and you just can't trade on that information, no matter the source.
Bob, I think the key would be the nature of the disclosure. If he said "hey guys, you should make this trade because I know X," then they'd almost certainly make all of us liable. If, on the other hand, he just said "hey, my company is making a huge purchase for X company, what do you guys think?" then we could trade on it. Edit: Actually, I'm sticking with my original response. I think we'd be OK. Dirks is the key case. Tippees can only be liable if the tipper broke the law. That's only true if the tipper did it for personal gain. Bob, where are you getting that standard?
Bob, I'll have to look up the case, but I think the situation I described (him telling us that there was a big PO) would be analogous to a CEO talking to his barber. That case has already been adjudicated, and the SEC lost. I'll look up the citation when I get back to Austin on Monday. As I understand the personal gain standard, it's normally held that if it's for the gain of another, it has to be a fairly close acquaintance (which is why a barber can trade but your college roommate probably couldn't). I think the Hornfans community would fall into the former category.
Bob, you'd certainly get slammed by your employer for disclosing the information. The SEC might also come after you, but given what I know I think they would lose. Maxwell was the defendent in the barber case but I'm having a hard time finding the link to decision. The holding of the decision basically said that there was no real benefit to the tipper in such a disclosure. Even an improved relationship wasn't a benefit (because why does it matter how well you get along with your barber). I think that the OP telling us would be exactly the same sort of thing. Breach of his duty to his employer? Certainly. Insider trading? Doesn't seem like it to me, but I would have no confidence doing it myself. I've done some reading on this issue since the question was posed, and there is now a debate about whether the personal gain standard should be applied to misappropriators. Here's a paper that talks about the debate, I've only read the abstract, but it might be worth some time if I'm bored tomorrow. I know it seems like such a slam-dunk that him telling us would be insider trading, but I'm not sure that the past decisions back that up.
Creed, I found the case... 341 F.Supp.2d 941. The court distinguished these facts and a case where someone told his dentist (SEC v. Sargent, 229 F3d 68). In that one, there had been multiple referrals to the dentist, the tipper's sister-in-law owed the tippee money, ... definitely more of a financial relationship. I can see your side of it, in the sense that you could say, I have no idea who these people are. But that also seems reckless to me -- you do have a fiduciary duty to the employer (which easily could sue you). Cases like the one you cited would seem to me to be exceptions to the rule, rather than a signal that it's OK to tell people with which you have no personal relationship about MNPI. I have one or two contacts whom I can ask... I'll try to check with them....
