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Is this illegal?

B

beacon

Member
So let's say I work at a company that often sends corporate gifts. And let's say I just looked at an order where the president of a very large, well known IT company just sent a gift to someone with the message:

"(name), I'm looking forward to having you join my executive team.
(first name) (last name),
President - (large IT company)"

Now, let's also say that the recipient of the gift is an executive at another very large, well known IT company, and I used that information to make appropriate changes to my stock portfolio...

Is that illegal? Would you use the info to your advantage?

Hypothetical scenario, of course...
 
Call up a local paper, tell someone there, THEN change your stock portfolio.

that should make things public...no more insider info 🙂
 
The information is both material (likely to have market impact) and non-public. Trading using it is illegal, but I don't know how you'd be caught, since 1) you're affliated with neither of the companies in question and 2) you probably don't have the capital to make a huge trade.
 
Originally posted by: Phoenix86
That's pretty much the definition of insider info. 🙂
Click to expand...



lol awwww but I found it fair and square!

Yeah, I figured it would be... anything good that happens MUST be illegal/bad for you 😛
 
Originally posted by: MoPHo
Call up a local paper, tell someone there, THEN change your stock portfolio.

that should make things public...no more insider info 🙂
Click to expand...


hahaha excellent idea.

you get half the profits
 
Originally posted by: beacon
So let's say I work at a company that often sends corporate gifts. And let's say I just looked at an order where the president of a very large, well known IT company just sent a gift to someone with the message:

"(name), I'm looking forward to having you join my executive team.
(first name) (last name),
President - (large IT company)"

Now, let's also say that the recipient of the gift is an executive at another very large, well known IT company, and I used that information to make appropriate changes to my stock portfolio...

Is that illegal? Would you use the info to your advantage?

Hypothetical scenario, of course...
Click to expand...

I believe that is the absolute definition of insider trading; it doesn't get more black & white than that...
 
Originally posted by: Flatscan
The information is both material (likely to have market impact) and non-public. Trading using it is illegal, but I don't know how you'd be caught, since 1) you're affliated with neither of the companies in question and 2) you probably don't have the capital to make a huge trade.
Click to expand...

But would you be able to sleep at night wondering if someone caught a sniff of what you did? I don't know much about how the SEC works, but I imagine that when things like this happen (Pres leaves one company for another, etc), people look at the trading around that timeframe. If you're a client of one of the companies, I don't imagine linking you would be that difficult at all.

I know I wouldn't want that looming over my head...
 
well as it's pretty unanimous that this would be illegal, I don't think naming names is too very wise.

sorry for the c0cktease - can't help you make any money today 😛
 
Originally posted by: jbourne77
I don't know much about how the SEC works, but I imagine that when things like this happen (Pres leaves one company for another, etc), people look at the trading around that timeframe. If you're a client of one of the companies, I don't imagine linking you would be that difficult at all.
Click to expand...
The employee coming over is merely an unspecified executive; the gift is being sent by the company president. The subsequent change in stock prices is likely to be small.

The volume of material information and volume of stock trades makes it such that the SEC almost certainly uses computerized analysis and statistics to identify suspect trades. If beacon were to buy a significant amount (a large percentage of its daily trading volume, probably dollar value in tens of thousands minimum) of Company A and short sell a significant amount of Company B in the same account, he would probably be flagged, especially if he closed the positions as soon as the information became public and the stock prices "popped". Decreasing the amounts traded, increasing the time delay in closing the positions, separating the buy and the short-sell into different accounts, or doing only one of the buy or short-sell are all ways to decrease the chances of being flagged, but they also decrease the gains recognized or increase the market risk assumed.

It's not the SEC doesn't care about smaller transactions, it's that they don't have the resources to care. Furthermore, they don't have to care in many cases - the gain recognized on a small piece of information like this will be mostly eaten by transaction costs.

Would I trade on this information? No.
Will the information affect the stock prices of the companies affected? Yes, probably, but only a little.
Would someone in beacon's position be caught for trading on this information? IMO, no, probably not, unless he is particularly careless or stupid.
Will it be worthwhile for someone in beacon's position to trade on this information? No, the potential downside outweighs the upside.
 
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