From: mpd@netcom.com (Mike Duvos)
Date: Mon, 3 Jun 1996 06:43:27 +0800
To: cypherpunks@toad.com
Subject: Insider Trading and Inside Information
Message-ID: <199606021915.MAA26734@netcom14.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain


tcmay@got.net (Timothy C. May) writes:

 > And, how can someone who acts on overheard information--as
 > in the elevator example Sandy cited--be charged with any
 > crime? Unless they are "insiders," covered by SEC rules
 > about trading, they are free to act on essentially anything
 > they hear. "He who hesitates to act on inside information is
 > lost."

 > (To elaborate on this: I was never classified as an
 > "insider" during my time at Intel, and I certainly bought
 > and sold the stock based on what products and news I knew
 > was coming out or what rumors I'd heard. Only a select group
 > of executives and staff in the specific departments
 > generating earnings announcements, auditing, etc., were
 > covered. And senior executives are covered by various rules
 > about trading stocks. And family members and friends may be
 > covered, if they learn of "inside" (in the SEC sense)
 > information.

The SEC, in cooperation with the courts, has been gradually
shifting the definitions of "insider" and "inside information" to
more all-encompassing ones.

It used to be that an insider was an officer of the company, or
someone with a fiduciary relationship to the firm, such as a
auditor or investment banker with which the firm did business.
Inside information was also similarly limited to a narrow
collection of material subject to regulatory restrictions on its
disclosure.

Nowdays "inside information" has been expanded to include
anything that the general public is not privy to, and "insiders"
can be almost anyone as well.

Indeed, the current definitions can subject to criminal sanctions
low level employees trading their company's stock on the basis of
rumors, or newspaper columnists trading in anticipation of
reaction to their published speculations.  It's not even safe to
trade on what formerly would have been known as "hot tips" any
more, unless the average person in the street had a mechanism to
access the information.

The legal theory behind all this is that anyone, no matter who
they are, trading on any publicly unavailable information, no
matter what it is, might be perceived as profiting at the expense
of the zillions of ordinary investors, whose continued playing of
the Stock Lottery^H^H^H^H^H^H^H Market the govermment and big
business definitely want to encourage.  Not to mention the huge
public support for the prosecution of anyone who the public
thinks has "gotten away with something" that Joe Six-Pack didn't
have the opportunity to do, and made a few bucks in the process.

If this trend continues, I won't even be able to take an Intel
janitor to lunch, and trade the stock based on his impression
that Andy Grove looked particularly happy while having his office
cleaned, without risking an "insider trading violation" should
the stock go up.

A new and interesting manifestation of the "Surveilance State."

--
     Mike Duvos         $    PGP 2.6 Public Key available     $
     mpd@netcom.com     $    via Finger.                      $