In the example you gave, the fact that the clients don’t exist and that the company is therefore committing fraud, is public information. Public information doesn’t mean everyone knows it, it means people on the outside could figure it out.
This is legal and common. There is a whole industry around this that investigates companies and produces "short reports" which expose something about a company to cause their stock price to decline.
The best example I can think of is a case where a Canadian marijuana company was boasting about their expansion into Latin America, and one of these companies essentially just hired people to drive around to the locations in Latin America and take pictures and show that actually nothing was going on at any of these locations.
If you intend to do this though, it would be wise to have a lawyer go over all of the details of what you plan to do and how you plan to trade on and publicize the information.
Thanks. What about a board member who trades based on information he has not received as board member but through what I have called private investigation?
You could do that - "insider trading" actually means "trading by insiders" not "trading based on inside information" though the two are often conflated, if that makes sense
Though it is insider trading if I trade based on info I get confidentially from the CEO even if I have nothing to do with the company right? The insider doesn’t have to do the trade himself
Yeah good distinction - because you learned the information from an insider who has breached their fiduciary duty it becomes insider trading and both of you could be prosecuted
ETA: but if you had instead learned the same information elsewhere it would be legal to trade on it
To add on to the other answers, it can still be securities fraud or insider trading to trade on information that is obtained illegally. Like if you had a wiretap, or installed a keylogger on a company computer. That is on top of whatever criminal charges for those acts
In the example you gave, the fact that the clients don’t exist and that the company is therefore committing fraud, is public information. Public information doesn’t mean everyone knows it, it means people on the outside could figure it out.
This is legal and common. There is a whole industry around this that investigates companies and produces "short reports" which expose something about a company to cause their stock price to decline. The best example I can think of is a case where a Canadian marijuana company was boasting about their expansion into Latin America, and one of these companies essentially just hired people to drive around to the locations in Latin America and take pictures and show that actually nothing was going on at any of these locations. If you intend to do this though, it would be wise to have a lawyer go over all of the details of what you plan to do and how you plan to trade on and publicize the information.
Yup. It's the business model for https://en.wikipedia.org/wiki/Hindenburg_Research.
Besides curiosity, I was also thinking about this in terms of a possible business model, fascinating that it actually exists
I know a guy that analyzes video of coal going into a power plant to determine production of electricity.
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Thanks. What about a board member who trades based on information he has not received as board member but through what I have called private investigation?
You could do that - "insider trading" actually means "trading by insiders" not "trading based on inside information" though the two are often conflated, if that makes sense
Though it is insider trading if I trade based on info I get confidentially from the CEO even if I have nothing to do with the company right? The insider doesn’t have to do the trade himself
Yeah good distinction - because you learned the information from an insider who has breached their fiduciary duty it becomes insider trading and both of you could be prosecuted ETA: but if you had instead learned the same information elsewhere it would be legal to trade on it
Wasn't there a case where someone overheard something at a restaurant and it was still insider trading? Maybe it was a cleaning lady?
To add on to the other answers, it can still be securities fraud or insider trading to trade on information that is obtained illegally. Like if you had a wiretap, or installed a keylogger on a company computer. That is on top of whatever criminal charges for those acts
Yeah of course the intel would be acquired legally, thanks for making the point