Comments on: The law and theater of insider trading A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: bulllmktcowboy Thu, 25 Nov 2010 23:40:09 +0000 I think the thing that the government and most people not within the financial services industry forgets is, risk.

Risk occurs in all insider trading cases, especially in the the cases with Big Lots. At the end of the day Retail Intelligence is expressing an opinion, not a fact. There is no guarantee that you’ll profit by following Retail Intelligence’s opinion.

Even if the case was that Big Lots CEO is giving non-public information to an analyst, such as an extraordinary dividend. The information is still not guaranteed. How do you know that the CEO isn’t just trying to ramp his stock? Or that perhaps the CEO doesn’t like the analyst and is trying to send them on a wild goose chase. Or even if the CEO is telling the truth, how do you know it’s not going to be rejected at the last minute by the board? At the end of the day the analyst is still taking risk from the information.

Is it less risky? Only if the analyst is sure of himself. But then is that any different to the analyst deciding that Big Lot’s sales are directly correlated to the number of lizards in his back yard? What happens if they were, would the analyst have an unfair advantage?

As you can see there is a fallacy in claiming that insider trading effects people.

If insider trading is based on having an “unfair advantage” over the “public” then basically everyone in the financial services industry has an unfair advantage over the public. Heck just having a Bloomberg terminal should be considered unfair, not everyone can afford one. Not to mention it most likely DOES give “non-public” information. Information usually distributed faster on financial networks than via public media.

Or even going further, the Australian Securities Exchange releases pricing data on its websites on a 20 minute delay. If I was to rely on that, then I am severely disadvantaged and someone with real-time-pricing would have “non-public” information.

Or what happens if my coworker has a faster computer than me? Is he getting price data faster than me? Is he getting news releases faster than me? Yes. Could that be considered non-public?

Where does it end?

By: SteveHamlin Tue, 23 Nov 2010 20:03:25 +0000 Generally, you don’t need to pay a leaking employee in order for you to be civilly liable for misappropriation & misuse of trade secrets. This case has very little to do with insider trading, and a lot to do with corporate espionage.

I agree that the specifics of what is inside information, and to whom the surrounding legal duties apply, are increasingly hard to apply in the modern, internet-enabled world of financial information.

However, Big Lots v. Retail Intelligence Group isn’t a case of “insider trading”, it is being pursued as a case of misappropriation of trade secrets and tortious interference with business relationships. Who wound up using the information to make investment decisions is not the point, rather the point is HOW the information was obtained.

Some selected quotes from the complaint ( documents/BigLots.htm):

“The Report consists largely of trade secrets and/or confidential and proprietary information obtained wrongfully from Big Lots’ managers and other employees. As set forth in more detail below, RIG has committed torts in connection with obtaining Big Lots’ confidential business information and selling it for profit in its Report, including (a) violations of Florida’s Uniform Trade Secrets Act, (b) interference with Big Lots’ business relationships, and (c) inducing Big Lots’ managers to breach their fiduciary duties to Big Lots by disclosing trade secrets and/or confidential and proprietary information about the Company.”

“RIG prides itself on its unique ability to dupe store managers into revealing trade secrets and confidential and proprietary information that it can then sell for a profit. On its website, RIG states that it is especially successful at obtaining confidential information because it hires former store managers, which allows RIG to better induce current managers to disclose such information.”

“Big Lots’ Confidential Information Policy states that its employees may not disclose to third parties (a) business, financial, and product development plans, forecasts, sales, and earnings data, (b) information related to customers, price lists, pricing policies, and financial information, (c) marketing techniques and materials, (d) marketing and development plans or (e) strategies, business policies, or practices.”

“Without Big Lots’ permission, RIG has improperly obtained the Company’s trade secrets and proprietary and confidential information from its employees, has disclosed such information, directly and indirectly, and has used Big Lots’ proprietary and confidential information to benefit itself and its customers.”

By: Felix Salmon Tue, 23 Nov 2010 17:10:53 +0000 Steve, I haven’t seen the suit, as noted, but I suspect that there were no payments involved in the Big Lots case.

By: SteveHamlin Tue, 23 Nov 2010 16:53:40 +0000 Links to articles above (HTML didn’t go thru):

Kid Dynamite article about expert networks and insider trading: 1/insider-trading-or-not.html

Detailed background article on expert networks: 839-28.stm

By: SteveHamlin Tue, 23 Nov 2010 16:51:04 +0000 Felix – you would have no problem then, if I paid currently-employed Reuters middle-managers to give me confidential information about the inner strategic planning and financial forecasts of Reuters business units, and then sell that information to competitors or investors?

You have no problem with that? Really? That is what the Big Lots lawsuit is about.

Kid Dynamite has a good article about expert networks and insider trading in general, with a link to a very informative background article on expert networks in detail. Asking a former Sprint executive about the impact of the iPhone becoming available on Verizon’s network – that is a good use of expert networks. Paying current employees to divulge proprietary corporate information is not, and should not be allowable simply because you call it ‘expert networking’ as opposed to corporate espionage or tortious interference with business contracts.

Simply because you might not be legally prohibited from trading on previously non-public information that has been leaked does not mean that you can do anything you want to get that non-public information in the first place. Make sense?


BTW, from the article, here is what the Big Lots lawsuit alleges. You’re fine with all of this?

“Big Lots alleges the firm pried information out of store managers, in effect stealing trade secrets and aiding and abetting employees’ breach of fiduciary duty. It has asked the court for an injunction to immediately stop what it calls “wrongfully induced” snooping.”

“It claims it suffered in the wake of Retail Intelligence’s disclosures, which show details on inventories, payroll and margins. In the highly competitive business of discount retail, this kind of disclosure can harm a company and its share price, Big Lots claims.”

“It accuses the group of illegally pinching information out of store managers, inducing them to disclose trade secrets about the discount chain’s sales, inventory and foot traffic.”

“Deploying a 21-question survey of 72 store managers, it concludes the company’s sales growth was beginning to falter. The managers even were asked to estimate the chain’s year-over-year performance, pegging it at a sluggish 1.8% gain.”

I see no problem with firing those employees, suing them for all gains they derived from their actions as well as for costs & damages, and suing Retail Intelligence Group for conspiracy to violate trade secrets and tortiously interfering with, at least, Big Lots employment agreements.