Failing the IQ Test
I’ve tried to warn you people. I even wrote this memo in 2005, written as bluntly as I can put it, addressed to all you "Public Company Employees About to Engage in Insider Trading in Advance of ‘Big News’ About [Your] Companies." But do you listen?
Well, maybe some of you do but then I see yet another case like this one in which, according to the SEC’s complaint, an employee of a public company learned on the job in January 2007 that his employer was about to make a tender offer for another company. The SEC alleges that the employee then called his wife, who bought 12,000 shares of the company to be acquired the next day and, over the next few days, they collectively bought 900 call options for that company. When the tender offer was publicly announced less than a week later, the couple allegedly "jointly realized illegal profits exceeding $1,000,000." Now, less than six months later, they’ve both been sued by the SEC.
My 2005 memo tried to hammer home some basic insider trading concepts. Things like:
- The SEC at least takes a look at the trading that precedes every merger, earnings surprise or other announcement that causes a significant rise or fall in the price of a company’s stock. Every one.
- If there is unusual trading activity preceding a rise/fall in a company’s stock, the SEC will immediately obtain the names of the traders involved. That means your name.
There’s more if you care to read it, but to reiterate what I stated in closing that memo, "this is an IQ test and every one of you employees (or directors) of public companies whose names show up on this list are failing. Just stop it."
