Re: Insider Trading - What constitutes "Disclosure" ?

[azur@netcom.com (Steve Schear)]

>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
>