Re: Saw this on CNN: Anonymous Stock tips over IRC as bad???

At 4:30 PM 6/2/96, Martin Minow wrote:
>>
>>One of the oldest tricks for running a stock up (or down) is
>>to put rumor teams on elevators in the financial district of
>>major cities.
>
>It would be more efficient to talk about the rumor on a cellular
>phone.  Probably make a nice sting scenario, too.

An interesting example, but I'm having a hard time figuring out who has
committed a crime, even by SEC rules.

Namely, are the people "talking up" a stock committing a crime? Even if the
SEC forbids this (under defined circumstances and for defined persons, as
most of us are not covered by any such laws), how can talking over a
"putatively secure" cell phone be construed as talking up a stock?

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. But ordinary people, even employees of a company, are not
considered to be "insiders" and hence are not covered by insider trading
laws.)

So, the only way I can imagine the cell phone case leading to an insider
trading charge is if the cell phone users _knew_ that the cell phones were
not secure, and _planned_ to have their conversations overheard. The people
doing the intercepting could be charged under one of the laws covering
unauthorized interception of cell phone conversations, but probably not for
insider trading.

--Tim May

Boycott "Big Brother Inside" software!
We got computers, we're tapping phone lines, we know that that ain't allowed.
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
tcmay@got.net  408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Licensed Ontologist         | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."

Timothy C. May writes:
> Namely, are the people "talking up" a stock committing a crime?

Possibly.

> 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.

No, I'm afraid they aren't. Under the rules, if you have nonpublic
information, even if you are not a corporate officer, you are an
insider for purposes of "insider trading" and your trades are illegal.

Don't go to Tim for advice on steering clear of the SEC's enforcement
people.

> (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.

Only they were covered by the rules that require registration of all
trades, you mean. You are completely confusing two uses of the word
"insider".

> But ordinary people, even employees of a company, are not
> considered to be "insiders" and hence are not covered by insider trading
> laws.)

Follow Tim's advice and wind up in jail. I can give people specific
cases if they like.

Securities laws are extremely complex, extraordinarily broad, and
subject to extremely flexible interpretation. I would suggest not
attempting to skate a fine line near them -- the ice is very thin.

Perry

Perry E. Metzger writes:

> 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.
> 
> No, I'm afraid they aren't. Under the rules, if you have nonpublic
> information, even if you are not a corporate officer, you are an
> insider for purposes of "insider trading" and your trades are illegal.

> > (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.
> 
> Only they were covered by the rules that require registration of all
> trades, you mean. You are completely confusing two uses of the word
> "insider".

IANAL, but I think you must be wrong about this, Perry.  If this were
the case then, as an employee of company XYZ, I would never be permitted
to buy XYZ stock (which is clearly not the case) since I *always* have
information that others outside the company do not (about staff changes,
product plans and such).  I suspect the deciding factor must have to do
with the ability to execute actions which have substantial direct effects
on the stock price (i.e. buying a company, declaring dividends, having a
massive downsizing, etc.).


-- Jeff

Jeff Barber writes:
> IANAL, but I think you must be wrong about this, Perry.

Nope, I'm not.

> If this were the case then, as an employee of company XYZ, I would
> never be permitted to buy XYZ stock (which is clearly not the case)
> since I *always* have information that others outside the company do
> not (about staff changes, product plans and such).

Funny, that, ain't it.

Well, yes, as I noted, the law is very broad, and selectively
enforced. However, yes indeed -- if you know that Secure Ware is
introducing SuperBozo 2000 next week by virtue of your employment, and
you know it will drive up the stock price, and SuperBozo 2000 is a
deep dark secret, and you load up on shares in the expectation of
making money from that rise, you are indeed cruising for a visit from
the friendly boys at Stock Watch.

> I suspect the deciding factor must have to do
> with the ability to execute actions which have substantial direct effects
> on the stock price (i.e. buying a company, declaring dividends, having a
> massive downsizing, etc.).

There is no real deciding factor other than what a jury will buy. The
law is very broad and extremely vague. It is selectively enforced. A
lot of what is and isn't a violation is based entirely on
prosectorial discretion.

Welcome to the world of securities regulation, where you live under a
government of men, not of laws, and SEC edicts, er, no-action letters
are needed before you sneeze because everything you do every day is
probably a crime somehow.

Perry

On Mon, 3 Jun 1996, Jeff Barber wrote:

> Perry E. Metzger writes:
> 
> > 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.
> > 
> > No, I'm afraid they aren't. Under the rules, if you have nonpublic
> > information, even if you are not a corporate officer, you are an
> > insider for purposes of "insider trading" and your trades are illegal.
> 
> > > (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.
> > 
> > Only they were covered by the rules that require registration of all
> > trades, you mean. You are completely confusing two uses of the word
> > "insider".
> 
> IANAL, but I think you must be wrong about this, Perry.  If this were
> the case then, as an employee of company XYZ, I would never be permitted
> to buy XYZ stock (which is clearly not the case) since I *always* have
> information that others outside the company do not (about staff changes,
> product plans and such).  I suspect the deciding factor must have to do
> with the ability to execute actions which have substantial direct effects
> on the stock price (i.e. buying a company, declaring dividends, having a
> massive downsizing, etc.).

Incorrect.
The deciding factor is the court's determiniation of whether the 
information was "material non-public information."  As the question of 
materiality is vague, subjective and subject to whim, even a low level 
employee is risking time and fines.  Often materiality has exactly zero 
to do with what effect it may have on stock price.

There is a simple solution to avoiding liability.  Don't trade in your 
own company's stock.

You make the case that it is somehow shocking to think that an employee 
wouldn't be able to buy stock in their employer.  Such restrictions have 
existed for decades.  Why are you so stunned?

> 
> 
> -- Jeff

---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed,       potestas scientiae in usu est
Franklin might have had to invent him."    in nihilum nil posse reverti
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Black Unicorn writes:
> Incorrect.
> The deciding factor is the court's determiniation of whether the 
> information was "material non-public information."  As the question of 
> materiality is vague, subjective and subject to whim, even a low level 
> employee is risking time and fines.  Often materiality has exactly zero 
> to do with what effect it may have on stock price.

Mr. Unicorn has it exactly right.

> There is a simple solution to avoiding liability.  Don't trade in your 
> own company's stock.

In reality, of course, you are fairly safe so long as no one is
looking for your head and you aren't trading based on company
secrets. However, in theory, its possible to prosecute almost anyone.

> Such restrictions have existed for decades.  Why are you so stunned?

I guess this is all obvious to wall streeters like me, who live day to
day with yellow xeroxed sheets being mass distributed to all employees
informing us of the names of 150 companies that the firm has had
peripheral dealings with recently that we aren't allowed to trade for
some indeterminate period of time. People who don't live in regulatory
paranoia land often just don't get that the SEC's regulatory authority
is broad, based on very vague statutes, and capriciously
applied. Thats reality, folks. I suppose since most people have never
experienced it they don't understand what it's like....

Perry

On Mon, 3 Jun 1996, Perry E. Metzger wrote:

> > There is a simple solution to avoiding liability.  Don't trade in your 
> > own company's stock.
> 
> In reality, of course, you are fairly safe so long as no one is
> looking for your head and you aren't trading based on company
> secrets. However, in theory, its possible to prosecute almost anyone.

Both points conceeded.

> > Such restrictions have existed for decades.  Why are you so stunned?
> 
> I guess this is all obvious to wall streeters like me, who live day to
> day with yellow xeroxed sheets being mass distributed to all employees
> informing us of the names of 150 companies that the firm has had
> peripheral dealings with recently that we aren't allowed to trade for
> some indeterminate period of time. People who don't live in regulatory
> paranoia land often just don't get that the SEC's regulatory authority
> is broad, based on very vague statutes, and capriciously
> applied. Thats reality, folks. I suppose since most people have never
> experienced it they don't understand what it's like....

For facinating discussions of why insider trading is actually good for 
the market, See e.g., Henry Manne, Insider Trading and the Stock Market 
(1966); Michael P. Dooley, Enforcement of Insider Trading Restrictions, 66 
Va.L.Rev 1 (1980); James D. Cox, Insider Trading and Contracting: A 
Critial Response to the "Chicago School," 1986 Duke L.J. 628 (1986); 
Kenneth E. Scott, Insider Trading: Rule 10b-5, Disclosure and Corporate 
Privacy, 9 J. Legal Stud. 801 (1980); Dennis W. Carlton & Daniel R. 
Fischel, The Regulation of Insider Trading, 35 Stan.L.Rev 857 (1983).

I'll sum up the general arguments for and against insider trading if 
there is enough interest.

> Perry

---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed,       potestas scientiae in usu est
Franklin might have had to invent him."    in nihilum nil posse reverti
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Opp. Counsel: For all your expert testimony needs: jimbell@pacifier.com

Black Unicorn writes:

> Incorrect.
> The deciding factor is the court's determiniation of whether the 
> information was "material non-public information."  As the question of 
> materiality is vague, subjective and subject to whim, even a low level 
> employee is risking time and fines.  Often materiality has exactly zero 
> to do with what effect it may have on stock price.
> 
> There is a simple solution to avoiding liability.  Don't trade in your 
> own company's stock.
> 
> You make the case that it is somehow shocking to think that an employee 
> wouldn't be able to buy stock in their employer.  Such restrictions have 
> existed for decades.  Why are you so stunned?

I trust it won't stun you to find that many, many large and even small
corporations -- including my current employer [*NOT* SecureWare, BTW,
despite the email address] -- actually encourage their employees to buy
stock by offering stock purchase plans as a benefit of employment.  They
even make it convenient by deducting purchases from one's paycheck.

Presumably then, we ordinary employees are so in-the-dark that any
non-public information we do hold is considered non-material?

So perhaps Tim over-simplified by saying that there were no limits on
what ordinary employees could do.  OTOH, it seems that Perry also
over-simplified by flatly stating that Tim's trades while an Intel
employee were "illegal".


-- Jeff

Jeff Barber writes:
> I trust it won't stun you to find that many, many large and even small
> corporations -- including my current employer [*NOT* SecureWare, BTW,
> despite the email address] -- actually encourage their employees to buy
> stock by offering stock purchase plans as a benefit of employment.

Yup. Indeed, its perfectly legal and even common to trade in the stock
of your own company, even if you are a corporate officer. HOWEVER,
that doesn't mean that you are safe against insider trading charges.

> So perhaps Tim over-simplified by saying that there were no limits on
> what ordinary employees could do.  OTOH, it seems that Perry also
> over-simplified by flatly stating that Tim's trades while an Intel
> employee were "illegal".

First of all, I never said that Tim's trades were illegal -- indeed, I
never mentioned Tim except to say that following his advice didn't
seem like a particularly safe course to take. Second of all, I can't
comment on whether Tim's trades were within the letter of the law or
not. Indeed, it would be difficult even if one knew all the
circumstances since the definition of "material non-public
information" is so hard to pin down.

The point of all this was not that one shouldn't participate in the
employee payroll stock purchase plan. The point was that a random
person on the street who gets told a 'hot tip' is probably subject to
the insider trading laws, never mind that he wasn't an employee or
what is conventionally thought to be an "insider".

Perry

Perry E. Metzger writes:

> Jeff Barber writes:

> > So perhaps Tim over-simplified by saying that there were no limits on
> > what ordinary employees could do.  OTOH, it seems that Perry also
> > over-simplified by flatly stating that Tim's trades while an Intel
> > employee were "illegal".
> 
> First of all, I never said that Tim's trades were illegal -- indeed, I
> never mentioned Tim except to say that following his advice didn't
> seem like a particularly safe course to take. Second of all, I can't
> comment on whether Tim's trades were within the letter of the law or
> not. Indeed, it would be difficult even if one knew all the
> circumstances since the definition of "material non-public
> information" is so hard to pin down.

In response to Tim's message wherein he described trading in Intel
stock while an employee there, you wrote (in message
<199606031523.LAA05288@jekyll.piermont.com>):

> >                          Under the rules, if you have nonpublic
> > information, even if you are not a corporate officer, you are an
> > insider for purposes of "insider trading" and your trades are illegal.

Sorry if I misinterpreted this.


> The point of all this was not that one shouldn't participate in the
> employee payroll stock purchase plan. The point was that a random
> person on the street who gets told a 'hot tip' is probably subject to
> the insider trading laws, never mind that he wasn't an employee or
> what is conventionally thought to be an "insider".

OK.  The only point I want to make is that thousands of us do this to
some extent every year and the risk apparently isn't terribly high.
Each person who works for a large corporation has *some* "non-public
information" which helps them decide whether to participate in the
stock purchase plan next year.  (Obviously if I think the company's
going to tank, I won't buy any more shares.)  I haven't seen anyone
attempt to define "material" but I'll concede that it's vague enough
to be dangerous to anyone whose trades are large enough to attract
attention.


-- Jeff

"Perry E. Metzger" <perry@piermont.com> writes:
> Jeff Barber writes:
> > I trust it won't stun you to find that many, many large and even small
> > corporations -- including my current employer [*NOT* SecureWare, BTW,
> > despite the email address] -- actually encourage their employees to buy
> > stock by offering stock purchase plans as a benefit of employment.
>
> Yup. Indeed, its perfectly legal and even common to trade in the stock
> of your own company, even if you are a corporate officer. HOWEVER,
> that doesn't mean that you are safe against insider trading charges.

High-level corporate officers have to file a special form with the SEC
whenever they trade the stock of their corporation. This information is
then publicly available. The Wall St. Journal reports monthly on large
insider trades reported to the SEC. I'm aware of at least one service (in
Florida) that takes the paper forms from SEC, does data entry, and sells
the data in computer-readable form.

Several studies showed something interesting:

a) If someone trades with the insiders, s/he'll have the same returns as
the market or worse;

b) If someone follows only the highest-level insiders (directors and CEO's)
as soon as their trades become known (which is about 4 weeks after the trade),
they'll generally beat the market.

This seems to indicate that a) insiders on the average are misguided,
b) highest level insiders do profit from their insider knowledge.

---

Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps

Jeff:

On Mon, 3 Jun 1996, Jeff Barber wrote:
> IANAL, but I think you must be wrong about this, Perry.  If this were

	Tim is calling any trade by an Insider, as being insider trading.
	Perry is saying anybody can do insider trading. 
	

> the case then, as an employee of company XYZ, I would never be permitted
> to buy XYZ stock (which is clearly not the case) since I *always* have

	An Insider may trade stock. s/he simply has to announce 
	their intention to do so 30 or more days beforehand.
	<< I probably have the number of days wrong, but it is 
	at least 30.  >> 

	From my little black legal dictionary:

	Insider:   Defined in Securities and Exchagnes Act.
		   15 USC 78p(a) ( 1964)

		   An insider is every officer and director of a 
		corporation and any person who owns more than
		ten percent of the stock of taht corporation.

	Insider Trading:   Buying or selling corporate stock by 
  			   by a corporate officer or other insider 
		who profits by his access to information not available
		to the public.  << Skip several paragraphs >> The prohibition
		against trading on inside inforamtion is enforced regardless
		of whether the trading is done by an insider, or by an
		unscrupulous investor who has been tipped off by an insider.

		*** end of legal defination ***

		I don't have legal citations, but I do remember a scandal
		in the sixties, involving secretaries passing information
		on to others, who were convicted of insider trading,
		amongst other things. << Not the secretaries, but those
		they passed information onto, were convicted. >>

		Then for those who believe that TV is real life, at
		least one episode of LA Law dealt with insider trading 
		--- a secretary << I think -- I don't watch TV >> was
		getting stock tips from an insider, and traded on that
		advice.  She hadn't a clue as to what she was doing,
		but made a pretty penny. And was arrested for Insider 
		Trading.  She didn't even know taht that was what she
		was doing.  << First aired three or four season's ago,
		I think.  >> 

        xan

        jonathon
        grafolog@netcom.com



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On Mon, 3 Jun 1996, Perry E. Metzger wrote:

[...]
> Securities laws are extremely complex, extraordinarily broad, and
> subject to extremely flexible interpretation. I would suggest not
> attempting to skate a fine line near them -- the ice is very thin.

Damn good advice, if you ask me.

A. Michael Froomkin        | +1 (305) 284-4285; +1 (305) 284-6506 (fax)
Associate Professor of Law | 
U. Miami School of Law     | froomkin@law.miami.edu
P.O. Box 248087            | http://www.law.miami.edu/~froomkin
Coral Gables, FL 33124 USA | It's warm and humid here.

On Sun, 2 Jun 1996, Timothy C. May wrote:

> At 4:30 PM 6/2/96, Martin Minow wrote:
> >>
> >>One of the oldest tricks for running a stock up (or down) is
> >>to put rumor teams on elevators in the financial district of
> >>major cities.
> >
> >It would be more efficient to talk about the rumor on a cellular
> >phone.  Probably make a nice sting scenario, too.
> 
> An interesting example, but I'm having a hard time figuring out who has
> committed a crime, even by SEC rules.
> 
> Namely, are the people "talking up" a stock committing a crime? Even if the
> SEC forbids this (under defined circumstances and for defined persons, as
> most of us are not covered by any such laws), how can talking over a
> "putatively secure" cell phone be construed as talking up a stock?

If it's in relation to a tender offer, they are in deep.  (As, for 
example, if they were hiking up price to deter a hostile aquisition).

[...]

> (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. But ordinary people, even employees of a company, are not
> considered to be "insiders" and hence are not covered by insider trading
> laws.)

Incorrect.

I direct you to Dirks v. Securities and Exchange Commission, 463 U.S. 646 
(1983).

Specifically footnote 14:

"Under certain circumstances, such as where corporate information is 
revealed legitimately to an underwriter, accountant, lawyer, or 
consultant working for the corporation, these outsiders may become 
fiduciaries of the shareholders....  When such a person breaches his 
fiduciary relationship, he may be treated more properly as a tipper than 
a tipee...."

This circumstance is classically refered to as a "footnote 14 insider."

It has been held to apply to lower level employees within the corporation 
who "knowingly trade based on material non-public information acquired by 
virtue of their position within the company."

After 1983, Mr. May may have committed a crime.

The case against Mr. May would be strengthened if a court were to accept 
a misappropriation theory.  (In short, that the employee used information 
intended for corporate purposes [development, etc.] in order to trade 
stock for his gain).  Misappropriation theory, where it is accepted, 
fills in the needed "fraud" element in rule 10b-5 which would impose 
liability on a trader and which is otherwise absent in the case of an 
employee trading as Mr. May has indicated.  While misappropriation theory is 
waning, it is not entirely dead.

Remember that restrictions on senior management as per trading in the 
company's stock are to prevent director and corporate liability.  No one 
cares much if a lower level employee gets zapped because it doesn't open 
the door for greater corporate liability like it would for senior 
management.  Further, you don't want to have to circulate a memo to the 
whole company as to when trading is restricted.  That would be asking for 
trouble.

Be sure to distingiush between corporate policy with regard to 
employee trading and legality.

> So, the only way I can imagine the cell phone case leading to an insider
> trading charge is if the cell phone users _knew_ that the cell phones were
> not secure, and _planned_ to have their conversations overheard. The people
> doing the intercepting could be charged under one of the laws covering
> unauthorized interception of cell phone conversations, but probably not for
> insider trading.

Or if they were artifically hiking up the price to defend against or 
interefere with a tender offer.

> --Tim May

---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed,       potestas scientiae in usu est
Franklin might have had to invent him."    in nihilum nil posse reverti
00B9289C28DC0E55  E16D5378B81E1C96 - Finger for Current Key Information
Opp. Counsel: For all your expert testimony needs: jimbell@pacifier.com

Black Unicorn <unicorn@schloss.li> writes:
> I direct you to Dirks v. Securities and Exchange Commission, 463 U.S. 646
> (1983).

rev'g 681 F.2d 824 (D.C.Cir.1982), SEC. Rel #34-17480 (Jan 22, 1981).

> Specifically footnote 14:
>
> "Under certain circumstances, such as where corporate information is
> revealed legitimately to an underwriter, accountant, lawyer, or
> consultant working for the corporation, these outsiders may become
> fiduciaries of the shareholders....  When such a person breaches his
> fiduciary relationship, he may be treated more properly as a tipper than
> a tipee...."
>
> This circumstance is classically refered to as a "footnote 14 insider."
>
> It has been held to apply to lower level employees within the corporation
> who "knowingly trade based on material non-public information acquired by
> virtue of their position within the company."

The poor Dirks was a financial analyst who "received information from a
former vice president of Equity Funding that there was widespread fraud at
the company. Dirks confirmed this information with one current and several
former Equity Funding employees and communicated it to five investment
advisors. The five investment advisors sold or directed the sale of large
blocks of Equity Funding stock without disclosure of the information they
had received from Dirks. The SEC found that once Dirks had confirmed the
information by contact with a number of former insiders, it had a
reasonable probability of being true and was, for that reason, material
nonpublic information. The SEC also held that Dirks aided and abetted
violations of Section 10(b) on the part of the investment advisors who were
his tippees. The decision was upheld by the Court of Appeals but _reversed
by the Supreme Court on the grounds that the insider did not breach his
fiduciary duty by disclosure of the information because there was no benefit
to the insider, and thus Dirks did not breach any duty." I.e., Dirks got
away with it, after spending lots of $$$ on shysters.

IANAL, but I see a trend to let insiders get away with trading on material
non-public information in Chiarella v. U.S. (455 US 222 (1980)) followed by
Dirks.

---

Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps

On Mon, 3 Jun 1996, Dr.Dimitri Vulis KOTM wrote:

> Black Unicorn <unicorn@schloss.li> writes:
> > I direct you to Dirks v. Securities and Exchange Commission, 463 U.S. 646
> > (1983).
> 
> rev'g 681 F.2d 824 (D.C.Cir.1982), SEC. Rel #34-17480 (Jan 22, 1981).

[...]

> his tippees. The decision was upheld by the Court of Appeals but _reversed
> by the Supreme Court on the grounds that the insider did not breach his
> fiduciary duty by disclosure of the information because there was no benefit
> to the insider, and thus Dirks did not breach any duty."

I'm not sure where you got this quote.  Probably a commentator who knows 
jack about securities regulation.  They reversed because the SECs 
conclusion was expansive even with respect to Chiarella, which it 
implied it was following:  "Where 'tippees' - regardless of their 
motiviation or occupation- come into possession of material 'information 
that they know is confidential and know or should know came from a 
corporate insider,' they must either publically disclose that information 
or refrain from trading"  21 SEC Docket 1401, 1407 (1981).

> I.e., Dirks got
> away with it, after spending lots of $$$ on shysters.

I'm not sure I agree with your read of the facts here at all.

You failed to mention that Dirks called the Wall Street Journal with his
findings in an effort to expose the massive frauds at three times and was 
ignored each time.  (William Blundell was the Journal reporter).

Dirks began to tell everyone under the sun about his own first hand 
investigations (he visited Equity Funding in LA and talked to officers 
and employees) only after he was repeatedly ignored by the Journal and 
other publications (which refused to believe that Equity was twisted as a 
pretzel).  Neither Dirks nor his firm ever held interests in Equity Funding.

As word spread of the fraud, Equity funding lost half its value in two 
weeks.  California impounded Equity's records and revealed the fraud 
officially.  Finally, the SEC (who Dirks had also yelled at and been 
ignored by) filed a complaint (3 weeks later) and the Journal Published a 
story (front page April 2, 1973).

It was then, and amid criticism of the SEC, that a complaint was filed 
against Dirks and the SEC found Dirks had aided and abetted violations of 
section 17(a) of the Securities Act of 1933, rule 10b and 10b-5 among 
others.  After a massive stink, the SEC backed off and stated that Dirks 
"played an important role in bringing [Equity Funding's] massive fraud to 
light," 21 SEC Docket at 1412.  The SEC elected to drop charges, and only 
censured Dirks.

Dirks wasn't buying this bill of goods (it seemed to have the tendency to 
repeatedly destroy his career) and instead and appealed to the Court of 
Appeals for the District of Columbia Circuit to clear his good name.  
(No fines or restrictions were imposed on Dirks, they merely held him out 
to be a crook in public).  The District Court entered against Dirks and he 
appealed to the Supreme Court which reversed.

Easy to demonize the defendant when you don't have all the facts.

> IANAL,

Apology accepted.

> but I see a trend to let insiders get away with trading on material
> non-public information in Chiarella v. U.S. (455 US 222 (1980)) followed by
> Dirks.

An odd analysis considering both Chiarella and Dirks simply refine the 
defintion of insider instead of allowing the SEC to designate it.

> ---
> 
> Dr.Dimitri Vulis KOTM
> Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps

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