Zuckerberg sued over privacy scandals, alleged insider trades
news.bloomberglaw.com
news.bloomberglaw.com
So you can follow the rules and have sales on a schedule and not be labeled "insider trading", but restrict disclosure of information that would affect the price prior to the scheduled sales. So there needs to be a mandatory disclosure deadline once something is discovered. I'm not familiar with the law here, but how is it changing? It seems hard to classify different events as worthy of mandatory public disclosure when they vary across industries.
cough Intel cough
Partially correct. Your trades will still be tagged as a trade by an insider, I can see all Mark's trades on my bloomberg terminal.
But you are correct that currently you don't need to stop your scheduled trades if good or bad news is bout to be reported and there isn't a firm rule about when you need to report bad news, ie you could delay the release of bad news until after your preplaneed sale and as long as you had a reason other than "for your own benefit" as the reason why you delayed the release of bad news you would almost certainly be in the clear.
Any "pre planned" trades that were originated after the news was known to you would almost certainly get you investigated by the SEC.
TL/DR there is a big distinction between "Insider Trades" and "insider trading".
The former is any trade by an "insider", which is a term with meaning by the SEC and the later is illegal and what Matt Levine has made a career writing about.
Matt Levine—a columnist at Bloomberg who is both smart and hilarious; his Money Stuff newsletter is excellent—has a recurring theme of “everything is securities fraud.”
The theory: anything that effects the stock price of the company and isn’t disclosed as soon as possible is securities fraud.
Company doesn’t disclose a security breach? Securities fraud. Board buries a sexual harassment settlement with the CEO? Securities fraud.
If you buy stock after the event but before the event is disclosed, you were trading when the company had material information that could effect the stock price. That’s securities fraud.
Levine is both joking and not that really _anything_ could be prosecuted under this, and the SEC has seemed to make some prosecutions under this theory that feel more like, “what you did was shitty and maybe not exactly illegal or we don’t have exact evidence so we’ll prosecute you under this super broad statute.” Wire fraud seems to be applied in a similar manner.
(I’m not a lawyer and this is not legal advice, just some things I’ve read and now you’re reading on the internet from a random commentor. The above is how I understand it.)
Other than the insider trading conundrum though it might seem like everything is securities fraud because we're too used to executives putting their own interests ahead of (or at least in line with) their shareholders*. That's a problem because their fiduciary duty says that company/shareholder interests have to come above all else.
Edit: Meant "shareholders" interests not "own" interests.
If you believe that mechanism is sound, then I guess the downside would be that you have fewer incentives to maximize shareholder value.
I don't really believe that mechanism is sound. I mean, it likely has some sort of affect in that direction, but I don't really think that it's a strong one.
If an employee couldn't get stock options in a startup, then there would be significantly fewer cases where they would choose to join a startup over a more stable, mature company. Sharing in the upside potential is critical. Sure, that isn't a public company but it still demonstrates the mechanism is sound.
That's possible, of course. I haven't seen any data to support it.
In my own experience (which is not statistically meaningful), this is a weak effect. I strongly prefer working for startups and very small companies, and most of the engineers I've worked with have stated that things like stock options aren't important to them (that's part of why options are so widely referred to as "wallpaper").
The attraction to working for startups, for both myself and most of the people I've worked with, is that startups offer better working conditions and more interesting projects.
However, I do feel the need to underline that this is just my subjective experience and it may not representative overall.
Every company in YC Winter 2019 issues half its ownership to a pool. Every company receives, in return, shares of the YCW19 fund. Employee stock options are 100% issued from the YCW19 fund.
Is this better or worse for non-founding employees? More or less attractive than receiving stock options that only apply to the member company that they actually work for?
And thus CDOs were invented...
For example, once you are fully vested at a startup, the reason to stay is primarily if you think you have a material impact on the share price. If you don't, then you should leave to go somewhere where you do have a material impact and treat your shares in the original startup simply as an investment. In contrast, if you have a material impact, you should stay to maximize the value of your shares. Pooling everyone's shares, while better for the individual employee from a diversification perspective, reduces the ability of the employee to have a material impact on their investment.
Assume your prospective employees are economically rational. They have a couple of offers on the table, identical as to salary, benefits, and track record of existing founders. The only difference is that one is offering a tiny percentage of a lottery ticket that will pay out if they exit successfully, and the other is offering a tinier percentage of a lottery ticket that will pay out if any of their sister companies exits successfully. And there's little chance that you picked a unicorn, but a pretty good chance that somewhere in the cohort is a unicorn.
Being in that cohort becomes a hiring advantage if you get to share in their success.
If you take outside capital to accelerate your business on the assumption that the investors will make money as it grows, you're choosing to join that system, no one forces you to participate.
Although I suppose you could end up in a zero sum competition with another business for market share, and there might be an unstable nash equilibrium where you both might want to not raise money, but if the other raises significant capital they could crush you, so you are kind of systematically pushed to play the game to keep your vision alive.
Historically we've said the pros outweigh the cons but I'm really not sure we can accurately assess the risk of insider trading anymore because the definition of it is constantly changing.
Maybe you could limit the rule to publicly traded companies, but then people would have to decide whether to sell all of their stock or leave a company when it went public, which doesn't seem fair to the employees or good for the company.
Recent cases are taking things to the point where it might soon be difficult for senior executives to own stock without a blind trust.
I get the thinking that execs holding equity gives them more skin in the game, but it also seems to often lead to poorly matched incentives, and a reward structure that is only loosely coupled to real performance.
I am the Queen of England.
That's also untrue. But I'm confident I didn't just commit wire fraud.
Wire fraud requires an intentional material deception that deprives someone of money or property. While both of your examples have the intent element they're lacking materiality and injury.
All fraud requires a lie but not all lies rise to the level of fraud. The vast majority don't.
We can just sell equal amount of stock every single day. Then, there's no way to do insider trading.
I'm not sure why we sell it like once a month or every three month.
I realize that there is a buyer or seller for every trade and this could be harmful to them, so perhaps just fine the insider for the difference between the worst prior/successive price and the price on the day of the trade.
While this isn't a criminal insider trading case and delayed disclosure is not the typical insider trading allegation it's also not a stretch by means.
Complaint for anyone interested: https://images.law.com/contrib/content/uploads/documents/394...
The outcome is the same though. A director's "duty of loyalty" means that he or she cannot personally benefit at the expense of the corporation or it's shareholders. The number of shares he owns and the voting power is irrelevant as the duty applies to all shareholders.
No idea if Zuckerberg is guilty, but I don't think "well he's already loaded" is a very good reason to assume innocence.
There is an amount of wealth (and I think it's substantially less than a billion dollars), past which gaining more wealth won't improve your standard of living at all.
However, most people who hit that continue to strive to increase their wealth. I think that this is because the sort of person you have to be in order to accumulate a large amount of wealth is the sort of person who isn't interested in the wealth in the way ordinary people are.
They are interested in increasing their power, and in our society, wealth is power. I also think that past a certain point, many wealthy people are effectively engaging in a competitive game with other wealthy people, and the amount of money you are worth is nothing more or less than your current score in that game.
That is based on a very narrow definition of standard of living. If you include the "goods" that are social status among your wealthy friends while you're on your Mega-yachts around the isle of Capri then power is itself a part of your standard of living.
Standard of living should be any good or service you have access to based on your income/wealth. Those goods don't have to be material goods but can be conceptual / philosophical goods.
Thus, reshaping whole industries, singlehandedly pushing the boundary on the privatization of space, etc can all be thought of as part of one's standard of living for the world's super elite.
As history shows, it is NEVER concave.
Meanwhile, FB stock has been flat for a year, and they have already reached every person in the world plus a few hundred million bots, and can't figure out another business. The multi-billion-dollar fines won't kill them, but they cut into profits enough. It's a good time to cash out.
OK, I'm not quite a billionaire (ha!) but I don't see why this mindset doesn't persist as net worth increases.