November 29, 2018

Insider Trading: Don’t Do It!

We’re in a strange business when it comes to insider trading. Over the years, I’ve had interesting – and sometimes humorous – brushes with it. Here are a few thoughts:

1. We Often Don’t Have As Much MNPI As Folks Think – Even if you’re a deal lawyer, you often won’t have material nonpublic information except in those narrow windows when a deal is being first negotiated. When I was young, I was with a friend at a reggae bar and he told some local that he worked for the SEC. This happened in San Diego (which isn’t relevant but felt I should share). The guy then proceeded to harass my friend, begging for some “inside information.” We quickly left. When you work in Corp Fin, you very rarely gain access to MNPI. Be wary of any stories that begin “we were at a reggae bar.”

2. Don’t Accept MNPI – You might have friends in this field that might be wearing their ‘ethics hat’ crooked. I once had an acquaintance – who was in-house – who unsolicited offered some MNPI. Out of the blue. I politely declined. There are many SEC enforcement actions against lawyers in our field who trade on MNPI. Tippee liability still exists.

3. The SEC Knows Who’s Trading Your Stock – When I first went in-house, I got a call from SEC Enforcement because my new employer had just announced a deal and there was suspicious trading right before the announcement. The call was just to confirm that the folks doing the suspect trading had no connection with our company (they didn’t).

It always amazes me that folks engaging in trading on MNPI don’t think they’ll get caught – but yet a quick glance at their phone records reveals a call with the original tipper, followed by a big trade – a trade far greater in size than they’ve ever made before. Circumstances that just can’t be explained away. Dummies. How do you explain why you’re texting using a Nigerian dialect to discuss a certain trade?

4. Maybe Insider Trading Shouldn’t Be Illegal? – Then again, I’ll admit that it just doesn’t feel right that insider trading is illegal (the ‘victimless crime’ angle). We are conditioned to know it’s illegal because of our occupation – but for those not in our community, all they know is that obtaining inside information is the only way to get ahead. A hot tip about a job opportunity. Buying a house that hasn’t come on the market yet. Goes on & on. Only in our field is insider trading something that isn’t tolerated. Insider trading in stocks isn’t illegal in some countries fyi.

Do All Pro Athletes Engage in Insider Trading?

With the SEC’s recent announcement that a former CEO tipped off a former pro baseball player – Doug DeCinces – it reminded me of the numerous other sports figures that have been caught by the SEC for insider trading over the years. Just a few months ago, a NFL player got nabbed. And there are many more instances.

So I ask the question – do pro athletes have more of a propensity to be involved in insider trading than our average citizen? Or is it that the SEC just likes to bring these high-profile cases as a deterrent? My guess is that it’s both. On the one hand, sports figures might have more people trying to kiss their behinds and nothing says “I really want you to like me” like the sharing of some material nonpublic information. And the SEC has never hid the fact that a high-profile case always trumps a low-profile one as they are juggling scarce resources.

I would be remiss not to mention that Doug Decinces is a former Rochester Red Wing. This is my way of kissing John’s behind since he hails from that god-forsaken cold place…

Poll: Your Views on Insider Trading?

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Broc Romanek