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

Before getting on your high horse about talking out of their asses, I never said she was convicted of insider trading. I said they went after her cause she allegedly traded on insider information. If she told the truth about selling the stock after she got word from the CEO, she would have had to pay a fine at a minimum. The jail time was added due to obstruction on violation of a criminal statute. What she did is a form of insider trading.

SO if quoting the smoking gun is your legal source then relax...

Insider trading is an insider trading off of pirvate information and also includes when a non-insider uses non-public information. So if broker hears about a bad earnings report before it is released and shorts the stock, they are in violation of a statute even if it is not a criminal one, it still involves giving back the ill gotten gains and possibly fines on top of it.

So this couple will be charged with a form of insider trading, just not under a criminal statute most likely unless a specific crinimal statue is violated. However under civil law, if jurisdiction attaches they will have to divest themselves of the profit made.

That is why I said the semnatics point earlier, it does not matter if it is a criminal or civil penalty, there is still a charge of insider trading, or better said, allegedly trading off of insider info, that the SEC is going to go after and that is the main point here.

Quote from wareco:

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.
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Okay, I won't reprint the whole article, but here is a good article (for what is an important topic that should interest all of us).

It addresses whether it is legal for an outsider to trade on inside information.

The misappropriation theory is what's at issue.

I am not stating my opinion.

Here is an excerpt, along with the link (and it argues AGAINST penalizing "acting on insider/outsider trading," which is not something even I have stated an opinion on).

Legal cites are imbedded in the article and linked.

http://www.mises.org/fullstory.asp?control=1032

Congress created a blank slate of securities law to be filled in by the SEC; in turn, the courts have rescued the SEC's opaque definition with their own flights of fancy. The courts invented the so-called "misappropriation theory" of insider trading....

In 1983, the Supreme Court, in a case involving a tip from a corporate insider to an outsider, while reversing sanctions against a broker, stated that:

"[A] tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information . . . when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach." Dirks v. SEC, 463 U.S. 646 (1983).

The misappropriation theory was formally adopted by the Supreme Court in United States v. O’Hagan , 117 S. Ct. 2199 (1997). This is an interesting line of reasoning and one which a legislature might well ponder while considering legislation. However, it has no basis in the statute or the regulation interpreting that statute (10b-5). It is not an interpretation of anything. It is a statement of a new, judicially created crime of outsider trading that has ruined lives and will do so again soon.

In addition to being without any statutory basis, the judicially created crime of outsider trading has numerous problems. Under the theory, it is improper for outsiders to use the information to buy or sell stocks, but it is not improper to release the information to the entire world--even though, in the case of bad news, the latter option (legal) will damage the existing shareholders more than the former (illegal).
 
Quote from ByLoSellHi:

"[A] tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information . . . when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach." Dirks v. SEC, 463 U.S. 646 (1983).
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Thanks for the article. Here though I think the key word is the "tippee" (the sublink to the case involved http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/000/96-842.html). For instance, using your example, a waiter who overhears an M&A activity at the table is not directly being "tipped" by an insider so he wouldn't be considered a "tippee". The following paragraph's definition of outsider is an extension of the word tippee and not necessarily includes the ever-mentioned general public who happens to accidentally stumbles upon the material non-public information

Still waiting for the poor waiter who broke the law. . .


Thanks all of you (esp. wareco & bylo) for the articles and lively arguments, I guess this is my Law & Order night. :)
 
Quote from JSL_Capital:

Thanks for the article. Here though I think the key word is the "tippee" (the sublink to the case involved http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/000/96-842.html). For instance, using your example, a waiter who overhears an M&A activity at the table is not directly being "tipped" by an insider so he wouldn't be considered a "tippee".

Still waiting for the poor waiter who broke the law. . .


Thanks all of you (esp. wareco & bylo) for the articles and lively arguments, I guess this is my Law & Order night. :)
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JSL, it depends on what the waiter, if the waiter is the tipee, knows.

If the tippee knows that the information is 'material' and trades on it, I believe that case law has held that the misappropriation theory may apply.

Obviously (we can all agree, I think) this , like many areas of the law, is convoluted.
 
"On The Money" on cnbc reported tonight that a board member of Dow Jones(I forgot his name), is related to the defendants. It will be interesting to see how this plays out.
 
how come days after this happened many didn't believe that many were buying based on insider information, you could see it in the options.
 
Supports everything I have been saying.... thanks.

Most non-lawyers here are making the mistake of only arguing criminal penalties and I clearly stated that civil penalties still attach for trading on inside info or using information before it is made publicly available, even if one did not commit a crime by definition.

There were the workers in the Newsweek mailroom caught trading on stocks which were going to be covered in the magazine since they knew the stocks would move higher once the magazine hits the stands. They were caught and paid some nice fines as well as all profits.

So arguing over criminal definitions is nice but I have not limited my statements to only criminal. If you trade on insider info or use information before it is made publicly available you are violating criminal and/or civil statutes.

Quote from wareco:

Optioncoach. Read this article from top to bottom, then get back to me.

http://www.meyersandheim.com/insider_trading.html
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Quote from ByLoSellHi:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9GBEHjrq7ig&refer=home

SEC Sues Couple for `Suspicious' Dow Jones Trades (Update5)

By David Scheer and David Glovin

May 8 (Bloomberg) -- The U.S. Securities and Exchange Commission sued a Hong Kong couple for using inside information to make $8.2 million from purchases of Dow Jones & Co. stock before News Corp.'s $5 billion bid for the company.


Options Spike

News Corp.'s offer for Dow Jones was also preceded by increased trading in call options, including the biggest surge in more than 18 months one day before the announcement, Bloomberg data show.
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How often do option spike like that happen?
 
Quote from optioncoach:

Supports everything I have been saying.... thanks.

Most non-lawyers here are making the mistake of only arguing criminal penalties and I clearly stated that civil penalties still attach for trading on inside info or using information before it is made publicly available, even if one did not commit a crime by definition.

There were the workers in the Newsweek mailroom caught trading on stocks which were going to be covered in the magazine since they knew the stocks would move higher once the magazine hits the stands. They were caught and paid some nice fines as well as all profits.

So arguing over criminal definitions is nice but I have not limited my statements to only criminal. If you trade on insider info or use information before it is made publicly available you are violating criminal and civil statutes.
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That's exactly what I said earlier - there may or may not be criminal liability. That's up to the DOJ.

This is a regulatory matter, in the hands of the SEC, at this point.

My earlier post.


Quote from ByLoSellHi:

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 though 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?
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