At what point does information such as this become "insider information" and illegal to share? These "eyes and ears" need to have their taxes audited...
Big investors have a pass for doing shady stuff. They can do insider trading (up to a point where it's not considered insider trading), they can break the SEC rules to artificially reduce the share price of a company so they can buy it or drive them to bankruptcy, but a normal person like me and you can't do these things, because we don't have the money to get around with it.
Big market actors are just institutionalized corrupt people working for private companies. Change my mind.
You are correct, this is America where we do A LOT of things that are bad for us because they are profitable.
I'm writing a long form article about this idea, how in America we do stuff like private prisons, allow pollution, the "family" court system and social media for kids even though some countries can easily fix these problems we refuse to address them because just TOO much money is being made (at least that's how the divorce industry was explained to me).
> they can break the SEC rules to artificially reduce the share price
No, stock manipulation with falsification of bad information is also heavily prosecuted.
Can you give specific examples where you think this happened? You might not be using the correct definition of “inside information” or “artificially reduce”.
A recent one: Unity CEO sold a huge amount of shares a week before they announced the pricing change on Unity.
Pfizer top-people bought a huge amount of shares before their vaccine was publicly approved and they sold it the moment the public was made aware that there was a vaccine for COVID-19 approved by the FDA
Microsoft bought a lot of Activision Blizzard shares a few days before they announced they would buy the company.
Having this thin line separating what's allowed and what isn't is not ideal. If you have privileged information, for example, that your product will be approved, something that isn't public knowledge, it should be considered insider trading.
> A recent one: Unity CEO sold a huge amount of shares a week before they announced the pricing change on Unity.
It had to be an already scheduled sale or he will get busted. That doesn’t fly with the SEC.
> Pfizer top-people bought a huge amount of shares before their vaccine was publicly approved and they sold it the moment the public was made aware that there was a vaccine for COVID-19 approved by the FDA
By shares with expectation of approval is fine. They didn’t know it was approved.
> Microsoft bought a lot of Activision Blizzard shares a few days before they announced they would buy the company.
Do you realize how stupid this statement is? You buy a company by buying shares. Building up a stake before tendering an offer is the normal process.
> If you have privileged information, for example, that your product will be approved, something that isn't public knowledge, it should be considered insider trading.
That is insider trading and would be prosecuted if that’s what happened.
Never, because "insider information" is a legal concept that doesn't correspond with what people intuit it means. People wrongly think insider trading is when one party unfairly profits from having important information other investors don't have.
Also, sharing "insider information" isn't illegal. In some narrow cases profiting off of "insider information" is illegal, but in most cases it's not.
If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly.
Every public company has an Investor Relations department that talks to institutional investors every day. Investors wouldn't bother talking to IR if they could get the same information somewhere else. And these communications are not made public and shared with other investors.
Abbreviating that is so misleading, it's incredibly hard to not see it as bad faith! MNPI means "material non-public information". You're saying "non-public information is fine but material non-public information is not", without making it as obvious.
Yes, it has to be material. "Owes $30b in taxes" is ABSOLUTELY material. If on top of that you learn about it from IRS insider contacts, enjoy your time in prison.
> SEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.
The entire point is that MNPI is a legal concept and information can be both nonpublic (i.e. private correspondence) and tradable for profit (i.e. material) and yet does not constitute MNPI.
You're making the exact mistake that I've repeatedly tried to correct. There is no bad faith on my part.
Your personal opinion on what "material" means might differ from the court's (and also differs from mine, at least how you phrased it), but I can assure you, a $30bil tax bill is DEFINITELY material.
It's a "legal concept" in the same way that every word used in a lawbook is a legal concept; the US is based on case law, and there is a large amount of precedent for this definition in particular. Again, refer to the Wikipedia for some examples.
I see this mistake a lot among programmers (also myself at some point). They (we) naturally think law is like a rulebook where you go through a decision tree and then arrive at a perfect conclusion, but the truth is that it's up to the courts to decide on the specifics. And they might disagree on those things with you, and with each other, but in the egregious cases disagreements are rare.
If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly
This is pretty much the literal definition of insider trading, but feel free to follow this advice if you plan on having a long discussion with the SEC while they audit all of your trades for the past decade.
And these communications are not made public and shared with other investors.
This is false. IR departments will only discuss information that is already made available to investors, through press releases or public compliance filings (such as SEC filings). They absolutely will not provide nonpublic material information just because someone asks, and in the event they do so, it's literally their job to provide an investor communication so that the information is publicly available.
Unfortunately it’s generally more complex than that, at least in US law - simply having material nonpublic information isn’t enough. It really matters how you got the information.
For example, when Hindenburg Research did a ton of research and discovered that Nikola was basically totally fraudulent, they traded extremely relevant information that wasn’t publicly available. Not insider trading.
Similarly, if Warren Buffet invests in a company, he knows that its stock is very likely to go up (just as a result of the halo effect around him). He doesn’t have to disclose that he plans to buy, though.
If you're an institutional investor you can just call the CEO or investor relations and ask them tough questions about their business. Sometimes you can figure out within minutes that the CEO is a bozo.
You can visit their offices and talk to the employees. Are they smart and passionate and hard-working, or demoralized and looking to jump ship?
You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If you write the right letter you can find out based on the kind of form letter you get in response. This information is clearly material (would move the stock if made public) and non-public (the SEC hasn't disclosed its investigation yet) and yet you're free to trade on this information because you derived it and because any investor would have gotten the same response if they had known exactly which magic words to use in their letter to the SEC.
If the CFO leaks the numbers of the quarter and you trade based on that you risk jail time. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
You can visit their offices and talk to the employees.
If an employee tells you something that is nonpublic information, and you act on it, that would likely be considering insider trading by the SEC. There is a fair amount of case law supporting this point. Indeed, the fact that you acted on the employee's information is generally sufficient proof that the information was material; and this is in fact the most common insider trading scenario.
You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC?
If the target of the SEC is not aware of the investigation, the SEC will not disclose that information in response to a FOIA request. On the flipside, if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market.
If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
Such behavior would provide no useful information about the state of a company's financials. In the week leading up to earnings reports, the CFO and finance departments generally stay late making sure the financials are in proper shape, whether or not those financials are good or bad. This is standard practice at all publicly traded companies with proper controls, because there is a very short window of time between the end of the financial period and the time it must be reported for regulatory purposes.
> if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market
In 2016 the SDNY ruled that issuers do not have a general duty to disclose the existence of an SEC investigation or a Wells Notice. Because "the securities laws do not impose an obligation on a company to predict the outcome of investigations".
> the SEC will not disclose that information in response to a FOIA request
Not /intentionally/, of course.
> Such behavior would provide no useful information about the state of a company's financials
Some hedge funds have done very very well for themselves by making inferences from parking lot data. You don't need to be right 100% or 75% of the time for the strategy to work, you know.
Because it implies that they're putting a lot of effort into making bad numbers look good for the report, and the assumption is that they'll either fail or the truth will come out at some point to make the short pay off.
Martha Stewart: Convicted in 2004 for insider trading related to the biopharmaceutical company ImClone Systems.
Raj Rajaratnam: Founder of the Galleon Group, convicted in 2011 on 14 counts of conspiracy and securities fraud.
Jeffrey Skilling: Former CEO of Enron, convicted in 2006 for insider trading among other charges.
Michael Milken: Financier and investment banker known as the "Junk Bond King," convicted in 1990 for securities fraud, including insider trading.
Big market actors are just institutionalized corrupt people working for private companies. Change my mind.