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
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.
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 00B9289C28DC0E55 E16D5378B81E1C96 - Finger for Current Key Information 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.
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 00B9289C28DC0E55 E16D5378B81E1C96 - Finger for Current Key Information 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 ********************************************************************** * * * Opinions expressed don't necessarily reflect my own views. * * * * There is no way that they can be construed to represent * * any organization's views. * * * ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ * * * http://members.tripod.com/~graphology/index.html * * * ***********************************************************************
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
--- 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
participants (7)
-
Black Unicorn -
dlv＠bwalk.dm.com -
Jeff Barber -
jonathon -
Michael Froomkin -
Perry E. Metzger -
tcmay＠got.net