I took a shot yesterday at answering my own hypothetical questions involving insider trading liability for tips and trading related to Twitter “tweets.” Recognizing that I was grasping for answers and that I clearly needed to bring in heavier artillery, I reached out to Peter Henning, a law professor and frequent blogger for the New York Times’ DealBook on securities law issues. Peter graciously agreed to help me get to the bottom of these questions, and we will attempt to do that tomorrow in an online chat here at Securities Docket at 1 pm Eastern.
Please join us Thursday, July 23 at 1 pm Eastern for an interactive discussion on “Hot Tips, Twitter and Insider Trading,” as Peter and I (mainly Peter) will attempt to answer to your questions! The online discussion will take place at the following link: (here). A link to the discussion also will be posted on the front page of Securities Docket (here).
As a refresher, the questions that kicked off this discussion are below:
An executive at publicly-traded ABC Corp. learns that his company is about to be acquired at a significant premium to its current stock price. He goes on Twitter and posts the following:
“I’m about to become a rich man. My company, ABC Corp., will be acquired next week at a 50% premium to current stock price. Shhh!!”
Here are the scenarios for discussion. Assume in each scenario that many of the followers act on the tip by buying the stock of ABC Corp. that day:
(a) Executive has 5 followers, all family members.
(b) Executive has 5 followers, all strangers.
(c) Executive has 2,000 followers.
In fact, ABC Corp. is acquired the following week and the stock jumps from $20 to $30 on the public announcement, at which time the followers who traded sell their ABC Corp. stock for a big profit. My questions for you are:
- Is Executive liable for insider trading “tipping” in any of these scenarios?
- Are the followers who profited on the tip liable for insider trading in any of these scenarios?