Comments on: Financial Reform

By: motorlu panjur

motorlu panjur — Sat, 28 May 2011 09:43:15 +0000

I challenge you to point me to the source for your comment:

“For example, someone who noticed a factory fire via an airplane window was convicted of insider trading for trading on this info before it was publicly announced.”

That is not the law.

Point me to the source of your comment.

By: perde

perde — Sat, 28 May 2011 09:42:46 +0000

The logic is very simple: the rules apply for everybody, **EXCEPT** for the corrupt individuals who invented them.

By: Mike

Mike — Thu, 15 Jul 2010 17:57:37 +0000

Dang, I need to change my user name. I looked to see who this was from and it was me! (Not really. I’ll be mwengler in future posts.)

Hey Mike, what hits do you get when you google it, because I get nothing.

By: Mike

Mike — Thu, 15 Jul 2010 17:55:48 +0000

Sure. And the response will be “OK, then you can legally do a futures market for monopoly money or reputational points, just not for anything that can be used to buy stuff.”

By: Mark Astarita

Mark Astarita — Tue, 13 Jul 2010 12:32:37 +0000

Making the guy in the plane a corporate insider does make for an interesting change in the hypothetical, and perhaps closer to insider trading. I suppose the theory would be that the corporate insider would understand how significant the impact of the fire was to the bottom line of his company, whereas an outsider would not.

Then there is the concept of public disclosure. The fact that a couple of hundred people on the plane saw the fire, plus those on the ground, puts another twist on the facts – was the information public at the time of the purchase?

Here is another one. Suppose Lebron James had decided to go to the Knicks, and the day before his announcement, he buys up shares of MSG, the public company that owns the Knicks. Insider trading? I say no since he is an outsider, not a corporate insider.

Same concept with Congress. They are not exempt from the insider trading laws. Insider trading law does NOT ban trading on information that comes from outside the company – like pending legislation. I’m not saying it’s right, and perhaps we should force Congress to use blind trusts for their investments, but it is not insider trading.

Mark (www.seclaw.com)

By: CBrinton

CBrinton — Tue, 13 Jul 2010 02:13:08 +0000

I suspect a hypothetical illustration may have been garbled in transmission to give O’Sullivan’s story (which Hanson then further embroidered by rendering as an actual case).

I’m no securities lawyer, but it’s my understanding that corporate insiders can be prohibited from trading on information that has not been broadly publicized regarding the companies in which they are insiders _even if they obtain the information in ways completely unrelated to their insider status_ (e.g. by witnessing a fire from a plane).

So if an officer or major stockholder of the tire company saw the fire, that person might have an obligation to make sure the information had been publicized before trading on it.

But no such obligation could arise for an ordinary citizen who owned some shares in the company.

Missing out on the bit about the importance of insider status could give both O’Sullivan’s and Hanson’s anecdotes.

I could also be mistaken about the relevant law myself, in which case I welcome correction.

By: lemmy caution

lemmy caution — Tue, 13 Jul 2010 01:11:46 +0000

Thanks for tracking this down. My Google skills were failing me. That financial adviser and Robin are wrong.

By: Floccina

Floccina — Mon, 12 Jul 2010 21:06:26 +0000

Garrett Jones should be Garett Jones. Odd spelling. Your spelling made me search not work.

By: Mark Astarita

Mark Astarita — Mon, 12 Jul 2010 12:31:12 +0000

As a securities attorney who has defended many insider trading cases and investigations I too was curious as to the source of the “factory fire” story. While the insider trading laws have been expanded beyond all bounds of common sense, the “factory fire” story is not insider trading by any stretch of the imagination. Google didn’t help, but a comment here led to the John O’Sullivan article.

In the article Mr. O’Sullivan, complaining about the broad expanse of insider trading regulation said “One financial expert told me not long ago that I would be guilty of it if I saw a factory on fire from my plane as it landed in Des Moines, inquired about it, learned that the factory was owned by a company in which I had stock, and promptly telephoned my broker to sell before the news reached Wall Street.”

It’s not a case, it’s not even an actual fact pattern – it is a hypothetical told by an unknown “financial expert” to a reporter.

And an incorrect conclusion as well.

By: Douglas Knight

Douglas Knight — Mon, 12 Jul 2010 02:20:28 +0000

If the disclosure forms are true and the congressmen are trading on their knowledge of legislation, then their staff should be privy to much of the same information and be able to trade as well. I doubt that they disclose their trades, though. But if the forms are frauds, rewritten by the brokers to bribe the congressmen, then the staff should be much poorer.

Also, it should be possible to connect the trades to relevant bills. Do many congressmen trade the same stocks? Are the gains concentrated there?