SEC Sues Hong Kong Couple Who Made 8.2 Million From Dow Jones Stock (on Buyout Bid)

[wareco]

BLSH, you need to read a little further down the article you posted:

"These types of cases generally involve bystanders overhearing conversations of corporate insiders and then trading on the information learned. Because the bystander has no duty to the corporation or anyone else, he may trade on the information without running afoul of the prohibitions against insider trading. Essentially, the bystander does not become a corporate "insider" merely by overhearing non-public information."

http://www.meyersandheim.com/insider_trading.html

As a further clarification, there is this:

"However, between these two extremes of a bystander with no duty to the corporation and a corporate officer with a clear duty to the corporation stood a whole group of people such as printers, lawyers and others who were involved in non-public transactions that did not necessarily have a duty to the company whose securities they traded. To address this group of people the courts developed the misappropriation theory. The misappropriation theory covers people who posses inside information and who are prohibited from trading on such information because they owe a duty to a third party and not the corporation whose securities are traded."

 

[JSL_Capital]

Quote from wareco:

BLSH, you need to read a little further down the article you posted:

"These types of cases generally involve bystanders overhearing conversations of corporate insiders and then trading on the information learned. Because the bystander has no duty to the corporation or anyone else, he may trade on the information without running afoul of the prohibitions against insider trading. Essentially, the bystander does not become a corporate "insider" merely by overhearing non-public information."

http://www.meyersandheim.com/insider_trading.html

As a further clarification, there is this:

"However, between these two extremes of a bystander with no duty to the corporation and a corporate officer with a clear duty to the corporation stood a whole group of people such as printers, lawyers and others who were involved in non-public transactions that did not necessarily have a duty to the company whose securities they traded. To address this group of people the courts developed the misappropriation theory. The misappropriation theory covers people who posses inside information and who are prohibited from trading on such information because they owe a duty to a third party and not the corporation whose securities are traded."

Thank you!

 

[thrunner]

The SEC has jurisdiction in Hong Kong?
The worst that can happened to them is probably that Merrill refused to free the funds. I doubt there is any possibility of a criminal prosecution.
Goldman Sachs was shorting heavily in the S&P pits on Feb 26 afternoon before the debacle on Feb 27 and their gain was probably in many tens to hundreds of millions. I doubt there was any hint of prosecution for GSC traders.
If the professionals do it, it is hedging, if the amateurs do it, it is insider trading.

 

[blue_seraphim]

from where they are, they should have just bought cfd of the underlying assert....

 

[El OchoCinco]

Ahh I did not say she was convicted of insider trading, but she was prosecuted because she was trading on insider info.

people here can argue over semantics all day but if you get insider information and trade on it, you can be fined and perhaps imprisoned. Who gives a rat's ass on what the name of the charge is.

Quote from Dr. Zhivodka:

OC...if I remember right she wasn't convicted of insider trading. She was convicted of Obstruction. Yet I suppose it was effectively the same thing. Bitch still ended up in the slam.

 

[El OchoCinco]

irrelevant, they went after her cause she traded off of inside info.

The only reason they went after her is they believe she got inside info. It is silly to say the insider is in trouble but not anyone using the info.

Quote from JSL_Capital:

- That information wasn't accidentally obtained. Those two had a good rappport so it could be established that some sort of quid pro quo relationship existed.

- If you followed the case closely, she was convicted and went to jail for lying about it (obstruction) rather than the trade itself.

 

[ByLoSellHi]

Quote from wareco:

BLSH, you need to read a little further down the article you posted:

"These types of cases generally involve bystanders overhearing conversations of corporate insiders and then trading on the information learned. Because the bystander has no duty to the corporation or anyone else, he may trade on the information without running afoul of the prohibitions against insider trading. Essentially, the bystander does not become a corporate "insider" merely by overhearing non-public information."

http://www.meyersandheim.com/insider_trading.html

As a further clarification, there is this:

"However, between these two extremes of a bystander with no duty to the corporation and a corporate officer with a clear duty to the corporation stood a whole group of people such as printers, lawyers and others who were involved in non-public transactions that did not necessarily have a duty to the company whose securities they traded. To address this group of people the courts developed the misappropriation theory. The misappropriation theory covers people who posses inside information and who are prohibited from trading on such information because they owe a duty to a third party and not the corporation whose securities are traded."

I have a separate link with this from investopedia quoted above.

When I have time, I will find the codified law.

But yes, the misappropriation theory treats what would be a "bystander" as an insider, once the bystander comes into possession of the inside information that was divulged.

Their duty is not owed to the corporation, but to fellow shareholders.

This theory has been tested in the courts and upheld, whether it was a waiter or Martha Stewart that was trading on the info.

As far as whether the SEC has jurisdiction, they don't always have personal jurisdiction, being a regulatory agency, but they definitely have in rem, or property jurisdiction, over the money that was gleaned from the misappropriation (as far as violation of law, that is a different matter, and involves state and federal prosecutors and criminal code).

Think about it: Merrill Lynch has frozen the Hong Kong account, as the proceeds were derived from the U.S. equity markets, even the account resides in Hong Kong.

How else could they manage that if they didn't have the regulatory authority and in rem jurisdiction over the money, wherever it resides?

 

[AAAintheBeltway]

I'm confident the SEC will prevail in this case. It is almost impossible for a defendant to win a civil insider trading case against the agency. That's why most people settle immediately. I'm not sure if the US Courts have jurisdiction over foreigners who never set foot in the US and commit an insider trading violation, but they certainly have jurisdiction over Merrill and they have the money.

 

[JSL_Capital]

Quote from optioncoach:

irrelevant, they went after her cause she traded off of inside info.

The only reason they went after her is they believe she got inside info. It is silly to say the insider is in trouble but not anyone using the info.

- Semantics, unfortunately, is very important in the field Law. It's what convicts and frees the accused. I don't see why the above distinction in the M.S. case isn't important to you. The gov. went after her like a hound dog, couldn't really convict her on the insider trading, but her lying about it made up for it. Big difference (at least to some of us).

- Nobody here went silly (like you say) said "the insider is in trouble but not anyone using the info. " if you read everyone's posts carefully. Nobody here is arguing for the accused. It's just that the law is constructed in such a way that proving and convicting non-insiders of market manipulation is a lot harder than most people think.

 

[wareco]

Quote from optioncoach:

Ahh I did not say she was convicted of insider trading, but she was prosecuted because she was trading on insider info.

people here can argue over semantics all day but if you get insider information and trade on it, you can be fined and perhaps imprisoned. Who gives a rat's ass on what the name of the charge is.

Jesus! The number of people here talking out their ass is amazing.

http://www.thesmokinggun.com/archive/marthaindict1.html

Do you see the words insider trading mentioned anywhere in the indictment? JSL got it right again. As usual.