Tag Archives: securities law

Yahoo Finance/Reuters Guide To Successful Insider Trading, Part I

8 Apr

Ethics, they don’t haz it.

Here’s some advice for anyone hoping not to get caught in an insider trading web: Shut up.

After the October 2009 arrest of Galleon Group hedge fund founder Raj Rajaratnam, who was wiretapped by the FBI, the world woke to a new era of prosecutorial tactics in insider trading probes.

For those considering crossing the line, the changes may make insider trading seem a vocation not worth the risk.

Emails and other forms of electronic communication can be traced. Destroying old-fashioned snail mail or hard drives will not work if the government gets a tip it is being done.

And don’t talk to people. There is no certainty that what is said will remain private. Indeed, recent phone recordings make some accused wrongdoers come across as Keystone Kriminals.

If I remember correctly, the first week (if not first day) of Analyst training at my first i-banking job when I was 22, we were told the same thing I thought everyone else who worked on Wall Street was told “Don’t write or say anything you wouldn’t want to see on the front page of the WSJ.

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Weekend Open Thread: How SHOULD a “Sophisticated Investor” Be Defined?

9 Jul

Securities laws define an “accredited investor” like this.  There are so many problems with these definitions I don’t even really know where to start, but firstly, I think the most glaring problem with the existing definition of a “sophisticated investor” is the wealth aspect.  Wealth does not equal, approximate, or even remotely correlate with financial sophistication.

What else needs to be changed?  Should we require at least a Bachelor’s degree in Finance?  Masters?  PhD?  X years of professional experience?  Lets talk this out and draft what we think it should really be.  GO!

On Materiality, Goldman, Abacus $GS

12 May

As my last post stated, the SEC – absent some sort of damning evidence we’ve yet to see – has its hands full proving Goldman’s lack of disclosure of Paulson & Co’s involvement in the Abacus CDO was material and amounts to fraud. They’re up against some interesting precedents, for example, TSC Industries Inc v. Northway, Inc, in which the judge’s logic went as follows, and found (see http://en.wikipedia.org/wiki/TSC_Industries,_Inc._v._Northway,_Inc.):

“If the test was too stringent, it would cause the dismissal of otherwise meritorious lawsuits; if it were too lenient, corporate officers would be inclined to overwhelm shareholders with such a large volume of information that truly valuable facts might escape them. He formulated the test as follows: an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. In other words, the court must determine whether under all the circumstances, the omitted fact would have assumed actual significance in the decision of the shareholder. Thus, materiality is a mixed question of fact and law.”

As I’ve argued, I don’t buy that full, explicit disclosure of Paulson’s involvement would have changed anything (excepting perhaps, as Steve Randy Waldman said, if IKB decided they’d be violating their mandate, but thats another conversation altogether).

I’ll try to post some more later,