Felix Salmon

Do financial journalists routinely break the law?

By Felix Salmon
January 15, 2010

Ben Sheffner makes the case today that it’s illegal for journalists to convince or induce sources to leak information, if those sources are obliged not to do so. He pegs his article off the Gawker case, but notes that the WSJ, too, might be guilty of the same tort. He concludes:

Mainstream journalists may not be comfortable putting it this way, but they routinely ask their sources to break the law or violate some legal duty by coughing up information some contract or statute obliges them to keep secret. Gawker calls it a “scavenger hunt”; others call it “reporting.” Perhaps what’s most surprising is that it doesn’t lead to more lawsuits.

Of course when Sheffner talks about “some contract or statute”, he’s referring to much more than just nondisclosure agreements. Specifically, whatever’s true of NDAs is also true of SEC regulations, like the “quiet period” surrounding earnings statements, securities issues, and the like. Nearly all financial journalists have run into people saying “I can’t talk about that, we’re in the quiet period” — and most of them will have continued to push their source for the information anyway, on an off-the-record basis. Often, they end up getting the information they want — but even if they don’t get it, simply asking their source to violate the SEC regulation is, if Sheffner is to be believed, an illegal act in and of itself.

Now it’s pretty hard to imagine who would ever sue a journalist for inducing such a statutory violation — so it’s hardly surprising that there isn’t a lot of jurisprudence surrounding the issue. But it’s still a little sobering to wonder whether virtually all journalists have broken the law at some point, just by asking a source for information.

3 comments so far | RSS Comments RSS

“Now it’s pretty hard to imagine who would ever sue a journalist for inducing such a statutory violation.”

Er, you mean besides Apple? Or are the Gawker folks (and legion others who traffic in Apple news and rumors) not “journalists?” I recall a college kid shutting down his Apple rumor blog a few years ago over precisely this kind of threat from Apple.

Also, the key difference between the Gawker case and the financial journalist example: Gawker is offering cash rewards, which seems to me a clear act of inducement, whereas the financial journalist is merely asking for information (no consideration); the latter seems far less clear-cut.

Other interesting questions: Should there be a journalistic safe haven? [My view: No.] If so, should Gawker count? [My view: Yes.]

Posted by Sandrew | Report as abusive

Hah. I think it’s a pretty good thing that journalists don’t think about it too much. Chilling effect and all that, ya know.

Posted by mushr00m | Report as abusive

Yeah, the lawyer’s letter is pretty clear that the cash reward part is what prompted action. Although it seems that the law doesn’t distinguish between monetary inducement and other kinds.

Posted by GingerYellow | Report as abusive

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