But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and confidence”.

most of the Stewart case was about her actions post the tip. If she’d had just said “my broker told me to sell” she’d likely be good to go (who knows). But she didn’t. She obscured and made it obvious with her actions that she was trying to steal from other shareholders (by acting on information she should not have).

The case for those wondering.

A fiance is still close enough that they are captured by lots of regulation, because collusion/cooperation between partners is so common.

This is the stuff of tawdry crime thrillers, but it's certainly not so far out of the realm of possibility that the SEC can just ignore it.

But it’s not strictly about insider trading. Pelosi (or trump or Pelosis’ husband) are not traditionally insiders. The testimony they receive is by its nature public. That we’ve allowed lots of things that shouldn’t be secret doesn’t change that. That elected officials can be corrupted by their power isn’t an insider trading issue, it’s a corruption one.

The common belief is that insider trading laws are about having data that the market doesn't know. In the US that's just not the basis for the law. In the US there is no expectation that everyone has the same information when trading. The expectation is that people who have a duty to the shareholders are not trading on any non public material information. If you don't have a duty to the shareholders, it doesn't matter how you trade.

Is that the appropriate standard to hold congress people to? I don't know, personally i think, no. But its not obvious that its incorrect from a legal point of view. What fiduciary duty does Nancy Pelosi have to some fund her husband owns? I'm good with a definition that says "once you become a congress person you have fiduciary duty to everyone" but thats not the law now.

See also: I am not allowed to use robinhood at all because their referral program can reward you with a restricted security. Nobody was grandfathered and every RH user at my firm was told to xfer out or find a new job. I also can't use any roboadvisor.

For us peons, independence is a serious matter. It's just the rich and powerful that get to flaunt it.

Isn't that basically just scamming? I can tell you I have a box full of gold, sell it to you, and then it's not. You think this is ok?

In this case though you’d probably have a good defense to those charges. It’s possible they’d interview you and look into it more and see this plainly before bringing those charges. If they did though, even with a good defense, it’s going to be disruptive to your life and finances.

The fact they were speaking about it in public and you have no connection to them makes it plausible for you to think that what you heard was public information. The onus is on them to protect sensitive information like this so they could actually face some problems. It’s very much going to vary by all the people involved with the investigation and what they want to do with it.

You do this for months (hopefully without your M&A 'friend' swapping jobs or going WFH) before you shoulder surf that a publicly traded company is being acquired at some massive premium and spear the whale for low-DTE calls within 2S.D. of your normal range.

If you get investigated you can just say that you regularly take these kinds of punts for fun. You've got a record to prove it. You've got no contact with people in these positions, you can provide your entire social calendar and contact list and be probably many steps removed.

FWIW I keep all my money in some individual stocks and index funds. I just think this kind of hypothetical is a pretty fun situation to try to optimize for.

If this guy had bought these calls last week (at same DTE) all he would have accomplished is donating $22k to some bank or hedge fund somewhere.

See 17 CFR § 240.10b5-1 "Trading “on the basis of” material nonpublic information in insider trading cases", particularly section (b) "Awareness of material nonpublic information."

https://www.law.cornell.edu/cfr/text/17/240.10b5-1

[1] https://www.sec.gov/forms

if you’re not affiliated with the company and simply overhear and trade, make enough to retain a lawyer real quick

If someone anonymously posts on Twitter that Splunk is going to get acquired by Cisco and you immediately buy options, and you don’t know who this Twitter account is, then it’s speculation. Also it’s no longer non-public information if someone posts it on Twitter.

Yes, if you trade on public information, then it's not material non public information.

“insiders must be breaching a fiduciary duty owed to their corporation when they trade on or tip confidential corporate information. This stipulation almost always means that an insider cannot trade on such information and cannot tip others about it if the insider stands to gain by doing so. https://sloanreview.mit.edu/article/when-is-it-legal-to-trad...

In the case where an unrelated outsider overhears the information that’s public disclosure. And the information no longer needs to be treated by random people as non-public.

The amount of HNers attempting to defend illegal trades like this is mind-boggling. Those in Congress should also be investigated over their suspiciously timed trades and as long as they are working in Congress, they should not be doing such trading at all.

There are no excuses for it.

[0] https://www.nbcnews.com/politics/politics-news/ex-lawmaker-c...

> Oh, but I didn't pay employees for insider information. I merely overheard it at the bus stop!

Granted, if this really is how someone learns of an acquisition it would be unlikely to get proven in court, and unlikely you'd even get accused as someone with no ties to the company.

That all being said, the clear message from our government is that insider trading is okay. Our politicians do it every week. So don't feel bad about it if you do get a lucky tip.

The SEC could still sue you and turn your life upside down by investigating every aspect of your life to try to find the connection that gave you that information, but if they can’t come up with the proof then eventually you would be fine.

I believe someone in Europe overheard info on a train and was successfully prosecuted. The US has not historically prosecuted trading on inside information that wasn't obtained illegally

So if you research that's fine. If you overhear something that might be fine (I don't think anyone has been seriously convicted yet but I could be wrong)

It can't be enough to say the trade was statistically unlikely because your independent research might legitimately let you make an unlikely trade. This particular trade was very unlikely though.

It is fun to think about what the most minimal case could be. Ask the CEO what he thinks of revenue next quarter. If he smiles, starts to speak, then looks at the CFO and realizes he should stop, is that insider information? It probably is by some people's definition and he communicated no words.