Insider Trading: Dear “Guy Speaking Behind Me In the Loud Voice…”
When I discuss insider trading, either in my Corporations class or my Securities Regulation class, I usually talk about a hypothetical that involves a person who has traded on the basis of material, non-public information that he/she has received fortuitously (by overhearing the CEO of Microsoft talking on his cell phone in the grocery store, for example). If a person is lucky enough to stumble upon material, non-public information accidentally, and she has not received that information in breach of a duty or from someone who is breaching a duty in order to give her a benefit, the lucky person can trade securities on the basis of that material, non-public information without violating Section 10(b) of the Securities Exchange Act of 1934. We do not call that person a “tippee,” in violation of Section 10(b) and the insider trading regualtions. Rather, we call that person “lucky!”
I have always worried that my hypotheticals about the “lucky” person who overhears a phone conversation by the CEO on his cell phone in the grocery store (or in the ball park) might seem a bit far-fetched to the students, who can hardly believe that a CEO or a General Counsel or someone similar would speak carelessly on a cell phone in a public place. But my hypotheticals are actually always based in fact, based on my experience at the SEC, in practice, in consulting, or just by reading cases/newspapers.
Now I can add my own first-hand tippee experience to the mix: As I sit here in Laguardia airport, politely typing on my computer, there is a fellow standing about 25 feet behind me, pacing back and forth, discussing a joint venture and related matters that are clearly both material and non-public. He is talking loud enough for me to easily hear him and the juicy details he is discussing, and, were I so inclined (and less ethical (or perhaps more money-focused)), I would be taking notes, so that I could quickly go call my broker and buy (or sell) some stock. Instead, I am blogging.
Based on his side of the confidential conversation, I understand how important Robby (name concealed for obvious reasons) is to consummating the pending deal, and I understand the fact that he will want to feel out whether they really have cash flow issues before they ink the deal in December. I appreciate that the machinations of the Obama administration might impact the value of the deal, and I do appreciate the fact that they want to close the deal before the year end. Brazil is a hot market. I get that. Thanks for sharing.
Excuse me while I go call my broker….
(Tongue-in-cheek on that last point, by the way.)