Is it insider trading if I bought Boeing puts while inside the wrecked airplane? | Hacker News Reader

Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

law.stackexchange.com

525 pointswazbug214 comments

No, it is not. If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information. If you're in the plane when the door blows up, you're just the first person with material public information. You're not trading on material non-public information.

See, e.g.

https://www.law.cornell.edu/wex/misappropriation_theory_of_i...

This is just news trading, you're just really fast because you're the headline.

I love answers like this because it clears up confusion in few words and makes the answer obvious in retrospect

It’s often a dangerous kind of answer.

I once saw somebody say something to the effect that in every Hacker News thread, there is always a highly upvoted comment that sounds completely plausible, well argued, made by somebody who appears highly qualified to answer, and that is completely incorrect.

I don’t think it’s always true, but it often is.

Unfortunately in this case the answer as written is completely wrong. See the top reply.

> If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information.

Specifically this part. One of the first things you learn when doing mandatory insider trading training is you can easily run afoul of the law if you act on non-public info you overheard, or happened to see by accident, even if it has to do with some company with which you are not affiliated. A common example is you’re in a coffee shop and see an upcoming earnings report on someone else’s laptop screen, then trade based on that information.

The top reply currently for me is colinmorelli who says:

> in this particular case is no, it's not insider trading

You seem to be saying it could be, but that wouldn't mean the answer was "completely wrong" (your words)

The reasoning is totally wrong and while “no” is likely correct it’s more of a stopped clock sort of situation

Important clarification: you do not need to have confidentiality obligations with respect to the information or a fiduciary relationship, it need only be information that is material and non-public information that belongs to the company (i.e. only available to those with a fiduciary responsibility or confidentiality obligation to the company). If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading.

The link you referenced also clarifies this point, but it is different from what is written in your comment.

Note: this doesn't change the fact that the answer in this particular case is no, it's not insider trading. You are, as parent mentioned, just the first to know the news.

What does "non-public" mean here? If some information gets leaked without authorization by an insider (like when people leak stuff online...), (when) does that become public?

There's no bright line. But jurisprudence puts it somewhere below 375 subscribers to a newsletter.

https://www.bloomberg.com/opinion/articles/2023-11-02/the-ba...

(Journalism Section)

> it need only be information that is material and non-public.

I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank.

In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value.

P.S. nothing against BMW, just an example.

Just because Car and Driver hasn't published an expose doesn't mean the information isn't public. Presumably lots of other independent (and non-independent) technicians have noticed the same thing. Your observation may be sampling error or not something that is sufficiently noteworthy to have percolated up to all the car forums out there en masse.

"Public" doesn't mean the company has publicly announced it - just that the information is available to the public. The situation you're describing is very similar to the Boeing situation above. You just happen to be the first person aware of the news, because your job provides you the ability to see a bunch of cars and understand how their quality is trending. Nor is it any different than you buying, say, one of the first Rivans, thinking the QC was horrible, and shorting the stock.

Regardless of when you learned it, the quality of BMW's cars (in this example) became public information when they started selling them to the public.

Now, however, if an internal employee told the technician that BMW had removed all QA checks from their line, and (s)he should expect quality to fall precipitously in the years ahead, that would be different.

>I think this is wrong as well.

The gp's wording is a little confusing but he's just trying to explain the transitive logic of non-public information transferring from a "true insider" to an outsider is also "insider trading" and thus illegal. Think of it as the provenance of information coming from an insider.

E.g. Martha Stewart is an "outsider" and not an insider of drug company ImClone but she was found guilty of insider trading because she did get confidential information from insiders at the Merrill Lynch brokerage that handled stock trades for the ImClone CEO: https://www.sec.gov/news/press/2003-69.htm

Your scenario of a mechanic repairing cars, or somebody counting the number of cars in various Walmart parking lots, or a hacker that discovers a serious website vulnerability that may cause embarrassment and stock price drop ... none of those situations have a corporate insider in that information disclosure loop.

Slightly clarified my comment via a parenthetical. "Non-public" in this context refers to information which would only be available to those with a fiduciary responsibility and/or a confidentiality obligation to the organization.

I was trying to avoid the use of "insider," because people tend to assume that means employees or directors, but that is not the case. Outside organizations who have, as an example, signed an NDA with the organization may learn of material non-public information, and trading on that could constitute insider trading.

> "Non-public" in this context refers to information which would only be available to those with a fiduciary responsibility and/or a confidentiality obligation to the organization.

Right, but information available to those with a confidentiality obligation can still be traded on if acquired legally. That's the crucial point. It's not enough for it to be non-public and material, you must also be in breach of a fiduciary duty (or acting in concert with somebody who is). For example, if a Boeing CEO was at a coffee shop discussing an upcoming acquisition at the table next to you, you'd be able to trade on it, even though it was confidential information not available to the general public and obviously material to Boeing's stock price.

It's not required – to my knowledge – that specific person disclosing the information be in breach of a fiduciary duty, as one could easily overcome that by disclosing to someone who discloses it to someone else, who then trades on it.

The scenario you mentioned is generally understood to be permissible, but it's not exactly clear to me why. Perhaps that the information became "public" (whether intentional or not) when discussing it in a public forum such as a coffee shop?

If she put it on twitter could she legally trade on the tip? If I saw the tweet and trade is that legal?

> If she put it on twitter could she legally trade on the tip?

IANAL, but if she traded a picosecond after tweeting: no. If she has zillions of followers and traded a year later: yes, because ’the public’ could be aware of the content of the tweet. A judge will have to decide on in-betweens. When doing that they likely will take into account how open Twitter/X is.

> If I saw the tweet and trade is that legal?

Again, IANAL, but I would think so, if she has ‘enough’ followers.

>> Martha Stewart is an "outsider" and not an insider of drug company ImClone but she was found guilty of insider trading

Minor correction: she was not convicted of insider trading. That charge was dismissed. She was only convicted of lying to investigators.

I can't find any evidence that she was ever charged with insider trading.

The judge dismissed a charge of "securities fraud", which claimed that she had defrauded investors in her own company by making false statements to the public.

The jury convicted her of "false statements", obstruction, and conspiracy.

I’m curious about trading on your supply chain partners.

Can Apple buy stock in a chip manufacture before they sign a deal with them?

Can they short them before not renewing a contract?

Another way of asking, is trading other companies based on insider knowledge from your company legal?

No, no, and yes.

Do you mean no, no, and no?

#3 is a general case of specific cases 1 & 2.

I don’t think 3 can be a yes if 2&3 are a no.

Of course you're right, I had misread the third question.

Oh right, I had misread the last one. Of course it's no, no, and no.

It's not insider trading to judge the quality of a product based on what you experience of the product in the wild and to make an investment decision accordingly. It's just being canny.

Now, if you learned from someone inside that they were going to do a recall but had not announced it yet, on the other hand...

That being said, I am sure that insider trading is widespread (e.g. above example). The thing is that is it not easy to detect unless you are already on the radar.

This is not "non public" information and to be honest it might not even be material

"Non public" usually means an information that's internal to the company, not necessarily something that can't be gathered independently

Google's menu for the week in their offices is "non public" but not material information

Seems to me the technician does have public information, he is not the only technician that has that data he might just be the only wise enough to notice the pattern

This is not insider information you got from the company. You just observed the world. Totally allowed. What would not be allowed is if you got hold of info from BMW that showed way more repairs than previously reported etc (and it was material for the company).

There is a court case about this.

https://www.compliancebuilding.com/2014/02/06/working-on-the...

Roadroad workers notice a bunch of visitors in suits, boss asked them to put together an inventory of property.

So they thought the company was going to be sold and profited on it.

SEC charged them, courts found them not guilty of insider trading.

You're muddying the waters here, the original poster is correct, but with a few scenarios for outsiders. For example, a company that printed the financial statements of companies, had no NDAs, was trading on the data, and was convicted of insider trading because they knew the data was company confidential information.

Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company.

Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing

EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question

It does seem quite odd to say "it doesn't matter one whit whether the information was material or public" when insider trading is defined as: the trading of a company’s securities by individuals with access to confidential or material non-public information about the company.

Further, I struggle to understand how one could learn information which is non-public without "theft" of that information. It would seem that, by definition, if the organization begins sharing that information with individuals who have no confidentiality obligation, they have now made that information public.

What does tend to happen often is that others assume "public" means "written in the news" and that is certainly not the case. There are plenty of things that are knowable by the public but not obvious, and it's perfectly fine to trade on that.

You're thinking too narrowly.

Example: logs of search queries that suddenly trend with adverse information about companies. Those logs are not public, in fact you need to buy them, but they have real signal (thus material and nonpublic), and are perfectly legal to buy and use. Satellite photos to estimate material stacking up outside a factory, or how many cars are in the parking lots of retail stores. Mobile data that has been statistically tied to foot traffic in stores. Credit card purchase data (not public! very material! perfectly ok!) I could go on forever

Go ask a lawyer this is a big space

EDIT: Yes exactly, ITS HAS TO BE CONFIDENTIAL TO THE COMPANY AND THUS TAKEN FROM THE COMPANY LIKE I SAID ABOVE. Your explanation implicated all the cases I described. You haven't seen how explicitly rich are the sources that I mentioned above, they are very very definitely information about the companies that are traded

My explanation did not implicate the cases you described above, because it explicitly said "only available to those with a fiduciary responsibility or confidentiality obligation to the company"

Regardless of the level of fidelity, if you got that information from an unaffiliated third party entity who captured it in the delivery of their own services, it is not "only available to those with a fiduciary responsibility or confidentiality obligation to the company"

It sounds like we are saying the same thing and you don't feel my original comment was clear enough. That's fine feedback. But there's no substantive disagreement. The points you listed above are all fine to trade on.

You’re missing a clause in what constitutes illegal insider trading. From an SEC site: https://www.investor.gov/introduction-investing/investing-ba... (italics added by me)

> Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.

My statement was copied from Cornell Law's definition [1].

But, yes, all of these shorthand definitions are designed for the general public's consumption, and skip over specific nuances - including the SEC's definition. The sentence read above would seem to permit a person with a fiduciary duty to share information with someone who does not have one, and for that person to trade based on the information. However, we know this is not permitted.

In any case, I think my comment still stands. I specifically called out in my parenthetical in the original comment that the information would need to be knowable only by those with a fiduciary or confidentiality obligation to the company. This seems to cover your comment and sibling's concern.

[1]: https://www.law.cornell.edu/wex/insider_trading

> or an outsider who comes across data from inside the company

Doesn't it matter how you came across that data? If you were at a coffee shop and happened to overhear a bunch of Boeing engineers talking about how they were replacing bolts with hot melt glue I thought you could you trade on that. If they explicitly told you that they were replacing the bolts with hot melt glue, then you wouldn't be able to.

Unless you shad signed an NDA that stated they would not disclose non-public info and then told you about the glue, in which case you could still trade on it.

What if you are on a plane and door blows out but the only other passenger on the plane happens to be a Boeing exec by sheer coincidence?

Anyone could have been on that plane provided they bought a ticket. The fact that nobody else was is irrelevant. The information was not only knowable to those with a fiduciary or confidentiality obligation to the company.

If you're traveling as a regular passenger, you still would not have a fiduciary relationship with Boeing and you have no confidentiality obligations regardless of who else is on the plane.

I know what you're thinking, but no, you still can't push him out.

Ayyoooo

There is a chance that the plane crashing would improve Boeing's management.

What if you infer it from a person that does have a privilege position.

Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence.

Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?

Depends on how well connected you are to the establishment whether a prosecutor would try to bring charges on more novel fact patterns. Rule by law vs rule of law and all that.

If you infer it, rather than being told by the research company then it’s probably on the “not” end of the “insider trading” spectrum. The SEC could still charge you but it would be hard to prove how you inferred the information

There's an ongoing insider trading case where an executive at Company A learned that Company A by might acquired. He then bought call options on his closest competitor assuming that the news of Company A being acquired would cause the value of the competitor to also increase.

https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summa...

That’s not quite correct, it depends on the nature of the disclosure.

Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.

This exact scenario happened to me. I was flying United business class SFO to EWR and the guy next to me was writing a Powerpoint slide in 9000-point bold type "BUY XYZ CORP FOR 880 MILLION" and when I got to work a few hours later our counsel advised me that it was not at all improper to trade on that information, which we did.

The absolute first thing I ever do when publicly working on a doc like that (if I absolutely must) is Ctrl+r any trademarks, swapping them for [#x].

Seems good. But I also feel like if you're the kind of person who can command the disposition of a billion dollars, just stop writing slides. Stand up in front of the board and say what you came to say and then sit back down.

Well, I’ve figured out how I’m spending my spring break- buy a ton of cheap stock in some random startup, dress head-to-toe in Microsoft swag, and then spend a few days hanging out in various SFO lounges working on fake PowerPoints declaring intent to buy the startup

Sounds fun. You'll also need to hack your photograph into the "about us" page of a major corporation, though.

... but did you make money on it?

", which we did."

This warmed my heart greatly.

> So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear.

I am under the impression that this would also be illegal, because trading on the basis of MNPI is itself illegal, irrespective of insider/outsider status.

In the specific hypothetical case mentioned, wouldn’t that constitute “public” information if it was overheard in a non-controlled location?

Overhearing could fall under the "misappropriation theory" of insider trading. If you run into "confidential" (material non-public) information about the security, you still would be committing fraud. [1]

But then the passenger could claim that they did not the person next to them was Elon Musk, and that when Elon said over the phone "whoever shorts Tesla stock now will become a billionaire next month" they thought it was some random guy giving his 2c on the trade.

[1] https://www.law.cornell.edu/wex/misappropriation_theory_of_i...

> Before U.S. v. O’Hagan, 521 U.S. 642 (1997), individuals could only be liable for insider trading under the classical theory of insider trading. In U.S. v. O’Hagan, the U.S. Supreme Court faced a scenario where a partner at a large law firm purchased stock futures in a company conducting a tender offer based on inside information that he gleaned from other partners at the firm working on the deal. Although the partner had no fiduciary duty to the companies in whose stock he traded, the Supreme Court found him liable under Rule 10 b-5 on the grounds that he used confidential information to trade securities. The Court reasoned that such insider trading is fraudulent because it is akin to embezzlement; that is, the owner of the confidential information has exclusive use of such information, and the trader misappropriates that information by trading on it and not disclosing the use of the information to the owner of the information.

That partner had privileged access to that confidential information and as such wasn’t an unrelated 3rd party.

Where the ‘theft’ line of reasoning is an issue for unrelated 3rd parties is hacking: https://www.justice.gov/usao-edny/pr/former-hedge-fund-manag...

Agreed. It absolutely could be if it’s technically non-public information. That’s the entire point of the regulations. Just because you don’t work for the company doesn’t make it not insider trading if you act off information the company didn’t disclose.

Always funny when the startup geniuses reinterpret securities and broker-dealer rules

How would a random person know if that information was MNPI? How could you possibly prove that someone knew it was?

Ignorance of the law is not an excuse for misconduct

This has nothing to do with ignorance of the law, it's about intent.

You can be fully versed in insider trading law, receive some information that you reasonably assume isn't protected, trade on it, and that's not insider trading.

If that weren't the case, every single person who traded a stock after some MNPI was inadvertently broadcast/published would be guilty of insider trading.

> because trading on the basis of MNPI is itself illegal

"yes" in Europe, "no" in the US

What if the plane is in the middle, over the Atlantic?

My guess is it is based on where you order the execution of trades. That is physical location of either exchange or your broker.

I'm sorry but you are wrong. Russia is the only country that I know of that does not follow "common understanding" of insider trading

Do you ever bother reading?

https://en.wikipedia.org/wiki/Insider_trading#Legal_differen...

> The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known. This is a much broader scope than under U.S. law. The key differences from U.S. law are that no relationship to either the issuer of the security or the tipster is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information

But how does this square with rumors? Is trading based on rumors illegal then?

"I heard a rumour that their defect rate is very high for this new product."

Information that isn't meant to be public might still send up circulating sure to mistakes etc. How would you determine whether trading based on it would be legal or not?

Hearing a rumor isn't illegal.

Hearing and trading on a specific statement by an insider at a public company, as an outsider, is insider trading. It's not that complicated

> If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading.

Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?

"If you do not have a fiduciary relationship with Boeing"

Ok so what if you are a Boeing executive or engineer on said flight?

Better question can the flight attendant buy puts? What about the air traffic controller who handled the emergency? It’s the exact same information.

This is where insider trading rules just don’t make sense. Here’s a good example. You can buy credit card data from Bloomberg that will give you near accurate information on revenue. For earnings, you can pay to see if a company will meet expectations and trade off that information. If you work for the company, it’s insider trading. If you work for the credit card companies and get the same info and trade on it, it is also insider trading.

Maybe we should make insider trading, trading off information that isn’t public.

>Maybe we should make insider trading, trading off information that isn’t public.

This is stupid. It disincentivizes people who make a living externally auditing/investigating companies

> This is stupid.

Why? Trading implies making stock trades based on non-public information. This has little to do with auditing and investigating, since that information is not necessarily public.

Investigating is non public information.

This wasn't a question being posed to HN readers, it's a StackExchange post.

UK rules differ from the US there is a 3-point test for insider trading:

1. The information has to be specific - Yes - you should sell Boeing

2. Would a reasonable investor take this information into account when making a decision to trade - Yes - this seems quite clear

3. The information must be non public - IIRC disclosure to a large group of people - in this case the perhaps 200ish people on the plane knowing it had a problem would probably count as the information being public and thus this test is not met and you are free to trade - I think the bar is around 30 people

I knew all those hours spent in compliance training would come in handy one day!

On the third point, what if the plane was privately-owned or chartered?

That's when you start counting the radio call to the tower + whatever other pilots are there in the area to hit the golden 30.

On the plane you can see the hole in the side. That is more of a signal to sell than a mayday alone. Maybe.

The fourth point, which most comments seem to be missing: would a court and appeals court take that same stance?

here in the US, quoting statutes on this topic is not useful because we also don’t have a specific statute, we have a couple of general fraud statutes that the regulator has contorted itself to fit scenarios in

So if this was a smaller plane with only 20 people on it, it could qualify as inside trading in the UK?

There's an interesting real world case of the distinction between US and UK/Europe rules about what is public from a few years ago. Someone acted on information from an overheard phone call on a train and was found guilty by a French court.

https://www.bloomberg.com/opinion/articles/2019-03-29/deals-... Archive https://archive.ph/Imf75

Ctrl-F Casino Royale

During the film, the terrorist financier Le Chiffre uses a Ugandan warlord's money to short-sell stock in Skyfleet, thus betting the money on the company's failure. The banker plans to bring about said failure by destroying the company's prototype airliner. After his original bomb-maker is killed by James Bond in Madagascar, another is hired to complete the job. The bomb-maker infiltrates Miami International Airport and steals a fuel tanker; attaching a keyring-sized bomb to the vehicle. As he attempts to blow up the prototype with the truck he is intercepted by 007 and a fight ensues on-board. Eventually the terrorist is forced from his vehicle and Bond narrowly prevents the truck from colliding with the plane. With his plan foiled, Le Chiffre is left with a major financial loss and is forced to set up a high-stakes poker tournament at Casino Royale in Montenegro.

> is forced to set up a high-stakes poker tournament at Casino Royale

And take a long pull from that inhaler of his.

Huh, so sabotage of a flight on a plane where it's very plausibly related to ongoing quality control is a viable method of generating profit without suspicion - so long as the mechanic who sabotaged door to low off isn't the same one making playing the stock?

I still don't think it counts as insider trading if an outsider sabotages the airplane and buys the puts. The sabotage itself is probably a dozen federal offenses (gasp, terrorism!) resulting in actual prison time; insider trading only gets a slap on the wrist.

Agreed, it wouldn't be insider trading - just fraud - with potential horrible unintended but predictable consequences; of which the person(s) buying the stock around that orchestrated event happens would be complicit in.

There's probably far easier and more lucrative ways for clever criminals to execute on though.

I'm not sure it would even be fraud although obviously blowing up airplanes breaks some laws. But on the finance side if you buy calls on a company and then help it be successful in some way I don't think you have broken any laws.

_the sweet tang of_ insider trading

Of course not, because you learned the information yourself as an outsider.

Just like the hedge funds that pay for satellite images of all of the WalMart parking lots in the country and count the cars to estimate year over year sales. It's information they have that no one else does, but they didn't get it from an insider.

The real reason Walmart allows car campers to sleep in their parking lots...

Exactly. It's literally called "insider trading". There's nothing "insider" about an customer discovering something about the company's product while using it. The source of the information was not from "inside" the company.

But the customer was literally “inside” the problematic plane. :)

But the plane is owned by the airline, not the manufacturer, so they are inside a Boeing, but they are not a Boeing insider.

this seems really obvious. you're not an insider if you're ... not an insider? how is this question even being considered

You can still be guilty of insider trading and not be an insider. If you get inside information from an insider and trade on it, even though you are not an insider or even if you didn't know the person you got it from was an insider, you are still in violation of the law in the US

Don't be so quick to assume. In law school in Australia (20+ years ago), they specifically covered this point: third-party/outsider could not legally trade on information that wasn't conceivably available to the wider public (there were more specifics, but that was the gist).

Buying puts inside the plane may very well contravene that law, because there's only a couple of hundred people who theoretically had access to that information. Once it was radioed back to ATC, then it's actually available to the public (irrespective of who is actually listening, much like your satellite imagery).

I'm not saying that's the law in the USA (or that it's still even the law in Australia), but "that's how the law should operate" isn't the same as "that's how the law does operate".

I recall learning in law school that “if there is no tipper there can be no tippee”. In order for there to be a tipper, the person has to have an intent to provide a tip improperly. Imagine there’s a CEO talking in an obscure foreign language in his own backyard, to a colleague on the phone, he is not a tipper — even if someone who happens to speak that obscure language is walking by his fence at that moment. As a result, that person cannot be a “tippee” because there was no tipper in the first place.

I’m not sure that not being a tippee means you’re completely in the clear, since you have material information. But it’s presumably not non-public information since hundreds of people know it, and thousands more are finding out by the minute.

>Imagine there’s a CEO talking in an obscure foreign language in his own backyard, to a colleague on the phone, he is not a tipper

Is that actually true? I could believe it if he were speaking in a cryptographic code, but even an obscure language has more than one speaker so he shouldn't be revealing corporate secrets where he can be overheard even if he's speaking a foreign language.

Apparently there are a few languages with only 2 speakers left, so I guess in that case its true.

Technically he wouldn’t be a tipper (vis a vis the stranger on the other side of the fence) even if he were speaking English. To be a tipper one has to have intent to share the information inappropriately. I only included the language bit to make it clear he was taking some level of precaution, and had a reasonable expectation that he was not spreading the information around. Even carelessness does not make one a tipper vis a vis a stranger, IIRC. But it’s been a couple decades since law school, so I could be wrong, laws could have changed, etc.

Matt Levine covered this well too: https://archive.is/Kd6Os

The answer being no, because as a consumer you have no duty of confidentiality.

It’s a better question to see if it meets colloquial definitions of arbitrage.

It’s an advantage only a few people have, and you paid something in order to be put in that position.

You paid to be in the plane. I doubt anyone paid specifically to be in a plane with the hope that a door would blow off to take advantage of information asymmetry in the aircraft manufacturer's stock (or the airline's stock).

What if in the fine print of your ticket purchase was an NDA clause?

Now you’re gonna have terms like that on your next ticket.

And you’ll get charged a fee for the privilege.

IANAL and it depends by jurisdiction but I don't you can stick whatever you want in those sort of shrink-wrap contracts. And according to this site[1] there's at least one (Finland) where surprising terms specifically are not allowed.

[1] https://www.dlapiperintelligence.com/goingglobal/intellectua...

"if you are just a regular person and you go to McDonald’s and buy a burger and say “this burger tastes bad, I’m gonna short the stock,” that’s fine, that’s legitimate research. ... People are supposed to go around observing companies’ products and services, evaluating them, and incorporating those evaluations into their investment decisions. That’s how stock prices become efficient and how capital gets allocated to good uses rather than bad ones."

This is literally posted in the 2nd answer of the link…

IANAL, but I don't see how. If you're just an ordinary person, you're trading based on an event you witnessed in the course of going about your life. No different I would think than if you witnessed a plane crash. You might be investigated though if the amounts were large enough.

It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.

I think it's mostly a joke, the original post is from Reddit r/WallStreetBets.

But regarding Air Traffic controllers, it appears they are barred from owning airline stock https://www.law.cornell.edu/cfr/text/5/6001.104 (b)

That sounds like it's not really about insider trading but rather about quality of service and avoiding perverse incentives? So different entities don't get different treatment by ATC.

In particular note that the requirement is about lacking financial interests at all, not merely about avoiding trading.

I more hope they're barred from shorting airline stock. :)

They're barred from trading anything the SEC regulates (including options and shorted stock) with regards to airline, airplane manufacturer or airplane part manufacturer stocks. There is an exception allowing them to indirectly own them (like through mutual/index funds).

“But I did even better than owning zero airline stock. I own a negative amount!”

I would love to see congressional members and their families banned from the same.

It’s a big ask though. Where do you draw the line?

So either that, or I can get Pelosi ETF.

Has someone done that? Created a virtual etf of pelosi’s stocks?

Yes https://www.thestreet.com/etffocus/blog/want-to-trade-stocks...

But there is a very high expense ratio.

>> It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.

I think even a Boeing employee would not be guilty. The event happened in public and it should make no difference since the non employee next to them would not be trading on insider info either. The information did not come from inside the company.

>It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.

IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?

As a random individual, almost certainly. I can do lots of (legal) things to ferret out information that is theoretically public but which isn't actually widely known.

As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to price the results into the stock. In other word, you couldn't trade based on the results you knew were coming a microsecond after the results hit the wire. (The HFTs would probably beat you anyway but I digress.)

IANAL but I imagine corporate policies are stricter than the law here. I have a hard time imagining people getting prosecuted for "insider trading" based on earnings reports half an hour after they become public, but trading windows still generally prohibit that.

You're right. Caesar's wife beyond reproach and all that applies.

Especially these days with computer algorithms, the idea that it might take a couple of days to price in an earnings report is pretty silly probably. (And if an employee knows a lot of dirty laundry behind the public numbers, an extra day or two probably doesn't make much of a difference anyway.)

There was a legal case where the speed of light was used to identify insider trading. Information was publicly disclosed at (fake numbers) 12:00:00:001, yet trades benefiting from the information came at 12:00:00:002, which was faster than possible for the information to have been learned and acted upon by the involved parties.

https://www.theverge.com/2013/10/3/4798542/whats-faster-than...

> I am curious if ATC radio communications are considered public

It varies by justification. In the UK it is illegal to monitor communications not intended for you ( Wireless Communications Act 1949 ).

If you're an insider, my understanding is that it's not advisable to trade on material non-public information has become public immediately upon release. You need to wait for it to become widely dissemeniated. I've heard guidance of something like 2 business days after release, although that seems extra cautious.

Like if you were mechanic for the airline and got message that we will be landing with missing door. And then traded stock of airline on that information.

Being in the crew of the plane might get more messy at least when done with airline. Boeing less so.

This is the part which I find really sticky. What about all of the non-Boeing employees who interface with the equipment for their job?

The pilot, flight attendants, air traffic control, EMTs, etc. They have no direction association with Boeing, yet you could make an argument it was part of their responsibilities.

On the other hand, if your employer gives you X-brand wrenches, which frequently fall apart in your hands during routine operation, that seems like actionable information on which you would be justified to act.

Like all laws it's about enforcement. They can say whatever they want we know "insider trading" is a natural human response to information. Unless they can prove it was insider trading it isn't.

Hmm. So a rouge Meta employee could put a barometric pressure monitor in Messenger or WhatsApp (that people use even without paid in-flight wifi) to detect depressurization and automatically short the airline and aircraft manufacturer.

This would probably be violating the employee’s fiduciary duty to Meta.

But Meta the company could short the stock, and run a trading team using the information. It might be unwise because of bad PR, though.

Yes, exactly.

They wouldn't have to be rouge, they could be any colour really

Most phones got rid of the barometers.

Complicated. You could just monitor commercial flights that take off and return to the same spot shortly after

But they could do it under the guise of a distributed barometric weather station system.

….which actually kinda seems doable

It can be more complicated, what if you are the pilot?

> On August 15, 2006, it was revealed that Halutz sold off his investment portfolio three hours after two Israeli soldiers were captured by Hezbollah during the Zar'it-Shtula incident, leading to the war. While this action on the part of the chief of staff is technically legal and is only restricted (through blind trusteeship) from cabinet members, the State Comptroller Micha Lindenstrauss has called to expand it to the chief of staff and to other senior officials. Several Knesset members called for Halutz to offer his resignation and some members of the General Staff Forum commented that his resignation appeared inevitable

https://en.wikipedia.org/wiki/Dan_Halutz#Investment_portfoli...

Original post from 16 days ago: https://news.ycombinator.com/item?id=38948827

My man you deserve every dollar you make from that trade

Of course not. I could see the airplane lose a door in the sky and immediately short airline stocks.

But so can anyone really. People watching all this have no control over the door actually falling off.

Insiders have the ability to shift the course of the company. So the reason why we have this law is so that insiders don’t short their own stocks and then run the company into the ground, making guaranteed profits from that at the expense everyone else.

The incident occurred at 526pm local time on the West Coast, so markets were closed. You wouldn't be able to trade.

I'm a bit surprised that question is being asked. Fundamental investing is all about understanding things about a company that nobody else knows. This is an age old approach to investing. If you happen to stumble on that information, it doesn't make it insider trading.

Where is crosses the line is if you're an insider and effectively breach your duty to the company or as a fiduciary. You're effectively stealing from the company. A passenger on an airline cannot steal information.

Is it insider trading if you sold Microsoft stock short because Windows gave you a BSOD?

Clearly not. The question is only raised because airplane failures are much more rare than software failures.

Well, if I found an unpatchable zero-click RCE exploit on an iPhone, then that would have a major effect on the stockprice when the news is announced. It definitely seems like it would be insider trading if i used that knowledge to do options trading.

Only if you were an employee of apple (or one of its vendors working on the iPhone).

If you independently discovered it, any other member of the public could have discovered it (assuming they had the skills and time).

This is basically how professional short sellers like Citron Research and Muddy Waters work.

They spend months doing research and if it’s promising they first build their short positions, then publish the research. Often just being targeted by these famous short sellers will crash the stock. But it’s not insider trading because their research was independently sourced.

Recently, big airlines added the functionality to filter by airplane type. That comes in handy for such trading tricks.

If you're employed with the airline, trade your insider informations instead of using it yourself. There are TOR websites to do so.

No, you're not a Boeing insider by sitting inside their plane; that's weapons-grade word semantic equivocation.

Related to this, MIT professor Andrew Lo discussing stock price after Challenger rocket explosion. https://youtu.be/sMKQywwkIjQ?si=IXRB2iRZ0hPH3Sic&t=4633

Someone is going to write a trading bot that scans worldwide ADSB data, looking for sudden, unexplained altitude changes - Identify the airline and equipment type and short them both. Assuming this doesn't exist already.

I’ve long thought that the airlines have systems that was sports leagues. That when team A is out of the running or team B makes it to championship that the price of tickets to or from are automatically adjusted m.

Already imagining a black mirror Nosedive app that recognizes products in your location and environment and presents offers to buy or sell the stock of the companies that produce them based on your experiences of the produts in the moment.

The irony is of course is the adage, "Hate the service? Buy the stock" because it's so valuable people use it in spite of it sucking. Nobody ever thinks, 'this is terrible, how do I get long?' or, 'this is so awesome it can't possibly last, how to get short?', but that's how some traders make a living.

The interesting case of this question is mentioned in the comments to the question but not answered: what if you are the Boeing CEO, you have a ton of stock, and you are on the flight.

Would it be insider information to tell your broker to sell evrything before the plane lands?

It’s information about your company not known by the (wider) public but it’s also not information that it’s your job to protect or that you have any special access to? So if I understand correctly, it wouldn’t be insider trading in that case either?

If you're the CEO you're likely not allowed to trade this readily, no matter your reason. High-level execs tend to have to pre-declare sales and purchases months in advance.

If members of Congress can make millions trading on info they get from sitting on key committees, then trading based on your first hand experience certainly should be ok.

But you know that law applies differently to poor people and to wealthy and powerful people?

Whatever is ok for congressman could not be ok for you.

True but that goes beyond “is it illegal” to “will I be prosecuted for…”.

Interestingly here I reckon even if illegal it is a bad look to go after a survivor of this.

Of course it’s not insider trading. My question is how did this make it to the top of the HN front page? It reads like something you might see on WallStreetBets.

You're right, that's the original source of the question

https://www.reddit.com/r/wallstreetbets/comments/1935frs/is_...

Top reply: crash was priced in before takeoff!

Now that's pretty funny! Good find.

A hacker news post to a stack exchange question copied from reddit? At some point we might simply fuse these networks into one, don't we?

No! I like the firewalls between these networks thanks.

no, think of it as a distributed network with manual switching (changing browser tabs, data cached/queued up in your brain)

From the headline, I thought this was going to be a link to an article on The Onion [1], or McSweeny's Internet Tendency [2].

[1]: https://www.theonion.com [2]: https://www.mcsweeneys.net

I would expect the answer to depend on the jurisdiction, Insider Trading is defined differently in US Vs other countries.

Someone explain to me why is this any different to HFT bots trawling the web and reacting in microseconds to any adverse "news" about Boeing?

("news", since I'm not in that industry and don't know if they only react to official media, unofficial media - aka blogs etc, tweets, etc)

You don’t work for that company so it only means you for the news the fastest.

Even if you worked for Boeing, it is public news as soon as it happened. You just happen to know it the fastest. Pure alpha

I've been thinking about building a system that would enable me to quickly react to black swan events like this should they happen around me in daily life. The problem is that most of my funds are in savings accounts that take 1-2 business days to withdraw from, so I'd have to keep them in accounts that are faster to access.

Also, this information that the passengers had in advance could have been worth millions in the right hands. If you had information like this, how could you quickly find parties interested in buying this information or giving you a share of potential gains?

Verification of time-sensitive rare events from strangers is hard. But I can see how that could really increase your potential winnings.

This is clearly public information, it is not sensitive or restricted to the people with relationship with Boeing who are privy to this information.

Why would it be it’s public information at that point.

HN of a stack exchange of a reddit

(special shoutout to Money Stuff)

No, it's not material knowledge, it's just that you accessed public information first.

The actual article was from Reddit’s r/wallstreetbets , where any excuse to post meme trades goes. Go read for fun.

This is a good opportunity to point out that insider trading is a victimless crime. If you sell stock with insider knowledge, you sell it to someone who would have happily bought it at the same price or possibly a higher price from someone else anyway. The same is true if you buy stock with insider knowledge. The only net effect of insider trading is to make the market more efficient by pricing in otherwise inaccessible information.

If I work for Apple and I'm on the special secret new Apple Glasses project, I reasonably know that when the product is announced the stock is going to go up. That information belongs to Apple, not me. Apple could sell more shares to capitalize on the announcement. By buying shares before the announcement, I'm capturing some of the gain that should be Apple's.

If the company itself was to buy its own stock based on non-public information, wouldn't that also be insider trading? The corporate entity itself is, like, the ultimate insider.

That's why companies like Apple have very strongly enforced rules related to this for their employees, like blackout windows on trading AAPL shares and not allowing them trading AAPL shares at all. And there are even more restrictions for those working on certain teams and in certain areas (e.g., finance/accounting). Buying/selling right before the big announcement or earnings reports is straight up not allowed.

I don't know the actual dates for Apple (as I only have friends working there, I haven't worked there myself, and I didn't quite care to ask for the exact length of trading blackout windows). But I know for a fact myself that at Google you get a trading blackout window that starts around 3-4 weeks before the quarterly earnings announcements and ends around a week or so after. And you are not allowed to trade GOOG options at all while an emlpoyee, not even outside of those trading blackout windows. There are additional blackout windows as well, but that's beside the point, and I don't remember them off the top of my head. And that's just for a run-off-the-mill software engineer working on an internal infra product that isn't some super-top-secret thing.

Or if you are in a position where you can sabotage it somehow (introduce a bug in an update that calls the HCF instruction)...

An employer should be (and AFAIK is) free to contractually obligate you not to front-run their own trading strategies. There’s no need for a federal criminal statute that, as far as I can tell, isn’t even primarily motivated by this use case.

That might be true in some abstract sense, but it sets up some really perverse incentives. No one, especially investors, wants to legalize insider trading.

> This is a good opportunity to point out that insider trading is a victimless crime.

It is a "victimless crime" in the same sense as selling someone a house is, fully knowing that a pipe in the basement is going to burst 6-12 months later and not disclosing it to the buyer (which would've made the house value go down, if the buyer knew it).

That "someone who would have happily bought it at the same price or possibly a higher price" is someone who wouldn't have done it, knowing what the insider knows, they would've waited. And the same is true for "insider knowledge that is related to something good about the company that's going to happen soon and pump the share price", you wouldn't sell your shares for as cheap as they are if you knew what the insider knows.

The ridiculous thing is that selling an house without disclosing known effects is perfectly legal in England (caveat emptor) as long as you didn't lie if specifically asked. I.e. you do not have to volunteer the information.

> That "someone who would have happily bought it at the same price or possibly a higher price" is someone who wouldn't have done it, knowing what the insider knows, they would've waited.

If you are the prevented from selling a particular house without disclosing some fault in the house, the buyer is prevented from buying that particular house. On the other hand, if I am aware of some fault in Apple Inc. and am prohibited or prevented from selling my AAPL shares, the buyers whom I would have sold to will not only still buy AAPL shares from someone else, they will likely pay a higher price for them!

Again, if the law required corporations to publicly reveal, as soon as possible, any and all insider information that may potentially influence the company’s market valuation, that would be one thing. Instead, not only are they not required to do that, but the information is not even allowed to leak out onto the markets in the form of insider sales which would depress the stock price and tip off investors that, even if they don’t know exactly what it is, that something is wrong with the company.

I remember reading that a journalist dig into some gossip about a business found there to be credible evidence of malfeasance, sold the stock short, published the article, and was convicted of insider trading. I cannot find any of the details, but I recall reading this somewheres. Insider trading is whatever the govt said it is, which is why Martha Stewart went to jail, and walk street bankers just pay fines.

I wonder if the same would be true of the media that learn of events before they are publicized.

Is it insider trading if I bought Apple puts right after an auto update that crashes my phone?

of course not - you are not an 'insider' if all you are as a customer with a bad experience - no different than you buying puts on restaurant where you think the food is terrible or even made you sick.

You’re “insider” the airplane!

It's weird that nobody mentioned Hijack miniseries with Idris Elba yet.

because that's fiction?

Casino Royale was mentioned, so no.

I'm slightly disappointed that the question was only hypothetical.

In 2017 someone bought put options of Dortmund football team and bomb the team bus. I guess the circumstances are slightly different.

no. this is a clickbait, bullshit, question that's been making the rounds of social media for weeks. You'd think that people here would not fall for this crap

It's not if you don't have a fiduciary duty to Boeing.

That's not correct. If you trade on information tipped to you by insiders, you are also guilty of insider trading, even though you didn't have any fiduciary duty towards the company.

If you overhear insiders discussing something, say in a restaurant, you aren't an insider (and I believe there is case law on just that point). In general, you need to have encouraged or conspired with the leaker, if I understand correctly.

Im not sure how much more inside someone could be

Inside the company Boeing, which is what counts.

Trading on your phone outdoors is always safe!

Is it insider trading if i bought Tesla puts while inside the wrecked tsla ? Seems the intituive answer is no.

It's is just a meme

"Also can someone please answer fast as we are descending very quickly"

lol no, but also ssshhhhhhhh

just dont tell anyone about it. /s

Isn't the practical answer: "it depends on which way the wind is blowing when the regulators or courts make their decisions"? If they want to get you for something, they will find a way.

Pretty much, no? Congress insider trade all the time and AFAIK they have not been reprimanded. It's OK for some to do it, but not others.

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