Posted-Date: Thu, 26 Sep 1996 00:40:14 -0400 Date: Thu, 26 Sep 1996 00:40:14 -0400 (EDT) From: Black Unicorn <unicorn@schloss.li> X-Sender: unicorn@polaris To: Steve Schear <azur@netcom.com> Subject: Re: Insider Trading - What constitutes "Disclosure" ? MIME-Version: 1.0
On Wed, 25 Sep 1996, Steve Schear wrote:
Often the choice faced by the investor who has material non-public information is characterized as "disclose or abstain," meaning that the investor may either trade after disclosing or abstain from trading on the information.
A few people have asked me what constitutes disclosure.
I've not researched the latest cases, but the generally accepted "best description" can be found in SEC v. Texas Gulf Sulpher Co., 401 F.2d 833 (2d Cir.1968), cert. denied.
The reading of a news release, which promoted Coates into action, is merely the first step in the process of dissemination required for compliance with the regulatory objective of providing all investors with an equal opportuinity to make informed investment judgements. Assuming that the contents of the official release could have been instantaneously be acted upon, at the minimum Coates should have waited until the news could reasonably have been expcted to appear over the media of widest circulation, the Dow Jones broad tape, rather than hastening to insure an advantage to himself and his broker son-in-law.
It would seem to me that if I operated an open listserver, upon which financial information regularly appeared and which any trader (serious or otherwise) might subscribe, my information should be held in the same legal regard as DJ.
I disagree. If the information appears only on your listserver it will not, in my view, be considered released. You'll note above that the reading of a news release, which eventually propogated to Canada and New York, still was not enough to limit liability for Coates. I hardly think a small circulation electronic mailing list will be considered sufficent either.
If not, the SEC has in effect created a monopoly for Dow-Jones and its ilk and effectively impede or excluded other news sources (e.g., Internet feeds) as legit means for generating market awareness, and therefore revenue.
Correct.
I and many others occassionally trade on public information from narrower sources than DJ (e.g., market newsletters).
But you and others are (I hope) not insiders or direct tipees. You also note that you trade on "public information." So long as you keep it that way you should be alright.
You will be putting yourself in a interesting position if material non-public information ever shows up on your newsletter and is later the subject of investigation.
Sometimes DJ and others pick up info from these sources and sometimes they don't (or not immediately). Does that mean those trading on this data published not yet picked up by DJ may be trading illegally? If so, this is totally unjust and wrongheaded.
The case mans what it says. Until the information reaches the sources of largest distribution it is still "non-public." What is a source of largest distrubution? Ask a judge. I would simply be careful and prudent. You could easily be in trouble for trading on information which you "knew or should have known was material, non-public information."
There is, of course, a distinction between the trader who reads an article and trades on it and a trader who hears over a mailing list from a corporate insider that a major fraud in the company has been discovered.
If your newsletter carries hints of the big merger before it happens and a trader later points to it as the source of his tip, you could be in serious trouble. God forbid they get it in your head that you are distributing inside information. Of course you can imagine the headlines.
"Internet crime network foiled. Hundreds of subscribers capitalize on inside information."
As for unjust and wrongheaded, welcome to the American concept of securities regulation.
-- Steve
-- I hate lightning - finger for public key - Vote Monarchist unicorn@schloss.li