Is it Insider Trading to own customer's stock?
April 13, 2009 12:02 PM Subscribe
Is it insider trading to purchase and own shares of my client's stock?
Let's say I have a publicly traded customer. As such, they wouldn't give me any information that would not be public. However, it would entail earlier and better knowledge of their trends, etc. Would this be insider trading? If so, what would the options be to get rid of the stock or otherwise disclose the situation? Would it entail selling it at a loss? Just disclosing to the client so they would know not to give me advance notice of anything?
Let's say I have a publicly traded customer. As such, they wouldn't give me any information that would not be public. However, it would entail earlier and better knowledge of their trends, etc. Would this be insider trading? If so, what would the options be to get rid of the stock or otherwise disclose the situation? Would it entail selling it at a loss? Just disclosing to the client so they would know not to give me advance notice of anything?
Seems like it would depend on what you do for them. If you're shorting their stock because they cancelled their janitorial services, maybe not so much.
posted by electroboy at 12:21 PM on April 13, 2009
posted by electroboy at 12:21 PM on April 13, 2009
Response by poster: DA,
You're right. This wasn't the most carefully worded question. First, it is a retailer. Second, I'll try to illuminate:
Because they are a publicly traded company, they would not be letting me know anything prior to when it would appear in a newsletter or other investor communication.
However, I would know, for example, if they are doing a big promotion at retail and general plans that another investor wouldn't know about. I would also know better than the average investor how sales at retail are going in general, and specifically for my product category. I would not know, though, the projected earnings for the quarter, etc.
According to the wikipedia definition, I am not an insider:
"corporate insiders are defined as a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities."
"However, it seems to me that I would fit this description:
the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned, but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information likely to have an effect on the company's share price, the duty the corporate insider owes the company is now imputed to the friend and the friend violates a duty to the company if he or she trades on the basis of this information."
Finally, I am in no way capable of being a major shareholder - I could only afford a tiny # of stocks.
posted by Rae Datter at 12:23 PM on April 13, 2009
You're right. This wasn't the most carefully worded question. First, it is a retailer. Second, I'll try to illuminate:
Because they are a publicly traded company, they would not be letting me know anything prior to when it would appear in a newsletter or other investor communication.
However, I would know, for example, if they are doing a big promotion at retail and general plans that another investor wouldn't know about. I would also know better than the average investor how sales at retail are going in general, and specifically for my product category. I would not know, though, the projected earnings for the quarter, etc.
According to the wikipedia definition, I am not an insider:
"corporate insiders are defined as a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities."
"However, it seems to me that I would fit this description:
the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned, but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information likely to have an effect on the company's share price, the duty the corporate insider owes the company is now imputed to the friend and the friend violates a duty to the company if he or she trades on the basis of this information."
Finally, I am in no way capable of being a major shareholder - I could only afford a tiny # of stocks.
posted by Rae Datter at 12:23 PM on April 13, 2009
Finally, I am in no way capable of being a major shareholder - I could only afford a tiny # of stocks.
that's irrelevant. if you buy or sell because of information you received before it was public ("hey, we're gonna be announcing this product in two weeks.") you're getting yourself into trouble. check your NDA for details. if you didn't get one, you probably don't get undisclosed information anyway.
it is legit for you to buy and sell stocks based on your knowledge of management or company structure. that's just doing research. but if you hear that the ceo had a heart attack and are considering selling your stock check news.google.com first.
posted by krautland at 12:39 PM on April 13, 2009
that's irrelevant. if you buy or sell because of information you received before it was public ("hey, we're gonna be announcing this product in two weeks.") you're getting yourself into trouble. check your NDA for details. if you didn't get one, you probably don't get undisclosed information anyway.
it is legit for you to buy and sell stocks based on your knowledge of management or company structure. that's just doing research. but if you hear that the ceo had a heart attack and are considering selling your stock check news.google.com first.
posted by krautland at 12:39 PM on April 13, 2009
The company I work for has windows that company employees can use to buy or sell stock, outside of those I don't think I'm allowed to. Anything similar for your company that you know of?
posted by RustyBrooks at 12:42 PM on April 13, 2009
posted by RustyBrooks at 12:42 PM on April 13, 2009
If you have the same knowledge that an employee of your client has, and that client has trading restrictions, you should assume that you may have some liability.
posted by Pants! at 12:45 PM on April 13, 2009
posted by Pants! at 12:45 PM on April 13, 2009
Response by poster: And how would I know if an employee would have trading restrictions?
posted by Rae Datter at 1:11 PM on April 13, 2009
posted by Rae Datter at 1:11 PM on April 13, 2009
The criteria for insider trading is whether you have access to information that is both "material" and "nonpublic." If you have access to nonpublic information that is not material to the stock price (say, the company's going to be changing its lunchroom's foodservice vendor), you can trade on it. If you have access to material information that has become public (say, was announced to a large group of securities analysts at a conference), you can trade on it.
Since, if you were accused of trading on material, nonpublic information, you would be required to defend yourself in a court of law; I suggest you tell all this to a securities lawyer and get his opinion on whether your information meets the criteria for insider trading.
posted by jillsy_sloper at 1:53 PM on April 13, 2009
Since, if you were accused of trading on material, nonpublic information, you would be required to defend yourself in a court of law; I suggest you tell all this to a securities lawyer and get his opinion on whether your information meets the criteria for insider trading.
posted by jillsy_sloper at 1:53 PM on April 13, 2009
The law firms where I have worked have had very clear rules that employees of the firm were not to trade in the equities of their publicly traded clients. This rule applied to all employees, regardless of whether he or she was in a position to have inside information. It was a very bright line.
My sister works for a big 4 accounting firm and similar rules apply there. First and foremost it is a question of potential insider trading. You really don't want the SEC knocking on your door. It is also a question of optics with your client. It isn't clear what you do for them, but there is a very real possibility that your contacts within the client could learn of your purchase. How would that be perceived? The last thing you want is to have your investment harm your business relationship.
posted by ambrosia at 3:45 PM on April 13, 2009
My sister works for a big 4 accounting firm and similar rules apply there. First and foremost it is a question of potential insider trading. You really don't want the SEC knocking on your door. It is also a question of optics with your client. It isn't clear what you do for them, but there is a very real possibility that your contacts within the client could learn of your purchase. How would that be perceived? The last thing you want is to have your investment harm your business relationship.
posted by ambrosia at 3:45 PM on April 13, 2009
This is a complex and fact-specific question--consult with a legal professional.
posted by Ironmouth at 4:50 PM on April 13, 2009
posted by Ironmouth at 4:50 PM on April 13, 2009
I think there is a bit of a false assumption in your question. You say "Let's say I have a publicly traded customer. As such, they wouldn't give me any information that would not be public." But that doesn't remotely follow; non-employees of public companies have material nonpublic information all the time — attorneys; accounting firms; ad agencies; consultants.
posted by raf at 5:37 PM on April 13, 2009
posted by raf at 5:37 PM on April 13, 2009
I don't know anything specific about IT laws in your jurisdiction. But I imagine that what is most important is not whether you can be generally described as an "insider" (although this might come up as evidence at trial); rather, what matters is whether you have any insider information on hand before you make each particular trade. Ironmouth is right; if there is any doubt in your mind (and there is), see a lawyer.
posted by A Thousand Baited Hooks at 2:52 AM on April 14, 2009
posted by A Thousand Baited Hooks at 2:52 AM on April 14, 2009
This thread is closed to new comments.
These two statements appear to be mutually exclusive. How do you have "earlier and better knowledge of their trends" if they aren't giving you information which isn't public?
posted by DevilsAdvocate at 12:15 PM on April 13, 2009