If a journalis sells short a company stocks before printing a story that will shock shareholders, is that insider trading? What's the legality of that?
So this Hollywood interpretation needs to go.
Its only insider trading if you trade on material non-public information ABOUT SECURITIES (but if we're being honest, only equities and equities derivatives, corporate bonds are supposedly covered but no-one cares enough) where you have a fiduciary duty to not tell, such as by being employed with the company or in a nondisclosure agreement. You also create liability if you have a fiduciary duty not to tell, and you tell and that person or someone in that chain or persons trades.
If you:
- don't have a fiduciary duty not to tell, and you have material non-public information, you can trade or tell people who then trade.
- don't have a fiduciary duty not to tell, and you have baseless non-public information, you can trade or tell people who then trade. It doesn't matter if you KNOW that your baseless information is going to move the markets. To avoid liability from individuals - this is distinct from liability from the regulators - all you do is put a disclaimer at the bottom of your post. The PSLRA of 1995 streamlined this due to frivolous lawsuits.
- and last but not least, if you aren't trading securities then there is no prohibition of insider trading. there is no regulator that polices trading ahead of information in non-securities markets, there is no statute, there is no interest in Congress which assumes they could even make that constitutional at all, since there is no voluntary fiduciary duty role people could get themselves into.
One might question journalistic integrity and incentives, but there is some good that can come from this sort of reporting. It helps in price discovery. In the below link, someone does additional research and short sells companies he believes are fraudulently reporting numbers to great success.
Having insider information doesn't necessarily mean it's insider trading.
https://www.washingtonpost.com/business/gaining-by-betting-a...
It is totally legal to get information ahead of the market, especially if it's "public". It is not legal to trade if it's non-public information as it relates to securities. In this case, it's also legal to get information from a paid source (think a paid news source - WSJ), it's not legal if they are bribing.
In this case, the journalist is just selling the story to bloomberg who is then distributing the news (potentially) slightly ahead of it's public release (this is no different than a paid journal).
If you need to know how a court is likely to draw the line, talk to a lawyer. :) But in general, the fact that a journalist is involved doesn't really change anything. In general, you can trade on whatever information you may have; the exception is if you have some duty not to trade on it.
https://seekingalpha.com/article/2389665-is-it-wrong-to-take...
I don't believe that case was considered insider trading but I may be mistaken.
The giveaway in this case is that MedSec/Muddy Waters were not in any way insiders, they were simply smart enough to investigate a company and find out it was overvalued before anyone else did, and then pointed it out when they had their financial ducks in a row to benefit from it.