In my last posting, I discussed some issues surrounding insider trading. Here's more:
First, I violated my own view that "insider" trading isn't really the right term. While there have certainly been many instances of trading by "insiders" (i.e., corporate executives and other employees), many cases - and certainly the more notorious ones - are those where "trusted" outside advisors - investment bankers, lawyers, etc. - traded or leaked it to others who traded. So maybe we should stick to "trading on inside information," unless someone can come up with a better term.
Second, whenever we read or discuss this topic, we should remember that it's an area where, I regret to say, the SEC made a couple of mistakes. Specifically, it went after Ray Dirks and Vincent Chiarella, in both cases individuals who probably shouldn't have been prosecuted, regardless of whether or not they were nice guys or behaved well. Without going into all the details, their cases led to such mysteries as the "misappropriation" theory and having to analyze whether the tipper/tippee had a fiduciary duty with respect to the inside information. I remember the good old days when Stanley Sporkin was Director of the SEC's Division of Enforcement, when he said that if you are in a plane flying over a company's plant and see that it's on fire, you'd be engaging in insider trading if you called your broker with a sell order when you landed. This view was surely too extreme on the other side, but it at least had the virtue of clarity.
And on a personal note...
In case you're interested, my buddy Broc Romanek has posted a podcast in which he interviews me on the topic of speaking to the media. You can find that podcast here.
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