Once again we need to talk about insider trading. This SEC press release is about a pretty garden-variety case – allegedly, Thomas Conradt learned about IBM’s planned acquisition of SPSS from his roommate, told his friend David Weishaus, and the two of them bought lots of SPSS stock and call options and made what in hindsight probably looks like an inadequate amount of ill-gotten gains – but it teaches important insider-trading lessons both subtle and otherwise.

First, otherwise: instant messages don’t go away when you close the window! I know, weird, right? But they’re on the internet, and you can be pretty sure that if you IM your idiot buddy “I don’t want to go to jail,” (1) you will be seeing that IM in an SEC complaint and (2) you are going to jail:

Oops!1 But there is also a subtler lesson, having to do with the long and complicated path this information traveled. It started with a law firm associate who worked on the deal for IBM. He (unnamed, but called the “Associate”) was from Australia, and he had a friend (the “Source”) who was a research analyst and from New Zealand, and he told the Source. Source, in turn, had a roommate, and that roommate was Thomas Conradt, one of the dopes charged here. Here is a touching, yet legalese, description of their friendship:

As two young professionals living in a foreign country far from home, they quickly became very close friends. They stayed in close contact through frequent communications and they saw each other regularly. The Associate considered the Source to be his closest friend in New York.

The Associate and the Source frequently shared both personal and professional
confidences with one another and had a history of maintaining and not betraying those
confidences. They regularly exchanged confidential details about their personal and professional lives, relying on each other for support and advice. Based on their history, pattern, and practice of sharing confidences, each knew or reasonably should have known that the other expected such information to be maintained in confidence.

Who cares? It’s a weird little digression; the Associate doesn’t seem to be in trouble here and the Source, well, the Source is no longer of interest to the Feds:

Shortly thereafter, in November 2010, the Source confessed to the Associate that he had tipped the Inside Information to Conradt. Approximately one week later, the Associate visited the Source at the Source’s apartment and observed the Source packing up his belongings. The Source informed the Associate that he was leaving the United States and returning to Australia because, in light of the Commission’s investigation, it was his “best option.”

I feel like that would’ve freaked out Conradt, his roommate and partner-in-literal-crime? Anyway: why isn’t Associate in trouble here? The answer seems to be that he told Source about the deal in good faith: he wasn’t saying “hey, here is a deal you can trade on”; he was saying “I need a shoulder to cry on”:

[W]hen the Associate met the Source for lunch on the subsequent weekend, the Associate’s new assignment was a topic of discussion between the two men. The Associate sought moral support, reassurance, and advice from his friend, the Source.

This matters because insider-trading tippers are only supposed to get in trouble if they anticipate some kind of benefit” for their tipping. Associate wasn’t “tipping” for benefit; he was just asking for moral support.

Source, of course, had unsavory morals, and went and traded and told his IM-happy friends. And then skipped out to Australia,2 leaving them to get in trouble. And here is how they are in trouble:

At all relevant times, Conradt knew or had reason to know that the Inside Information he received from the Source had been obtained in breach of a fiduciary duty or duty of trust and confidence.

But what duty of trust and confidence? The actual “insider” here is Associate, who had a duty as a lawyer to keep this information confidential – but the SEC doesn’t seem to think that he breached that duty. That leaves Source, who the SEC thinks breached his duty as a fellow Antipodean and friend:

Based on, among other things, their history, pattern, and practice of sharing and maintaining confidences, the Source’s sophistication as a professional in the securities industry, and the Source’s knowledge of the Associate’s position at the Law Firm, the Associate expected the Source to maintain this information in confidence and to refrain from trading on this information or disclosing it to others. The Source knew or reasonably should have known that the Associate expected him to maintain the confidentiality of this information and to refrain from disclosing or trading on it.

It’s a weird little case, no? The SEC seems to have set itself up to need to prove that a friend-from-down-under duty of confidentiality exists, and that these guys knew about it.

Fortunately for the SEC, how hard can it be with IMs like that? These guys might not have been able to parse how their trading was illegal, but they were pretty sure it was illegal. Here is something that the SEC cites approvingly:

On August 19, 2008, Defendant Conradt signed an “Insider Trading Certification” for his employer, the Broker, indicating that he understood that it was “unlawful, under federal and state securities laws, for any person to trade and/or recommend trading in securities on the basis of material and nonpublic, or inside information” and that the Broker’s policy required “stringent avoidance of the misuse of inside information.”

So that’s kind of wrong! But it’s probably a good idea to follow that policy anyway.

SEC Charges Two Brokers with Insider Trading Ahead of IBM-SPSS Merger for $1 Million Profit [SEC and complaint]

1. Incidentally, do you think all those “f***”s were originally “fuck” or “f***”? They probably spelled it out, but if they’re like some banks where IMs with curse words get flagged, maybe not? Maybe they thought they were being super-sneaky by IMing about their insider trading while not using words that flag the IM monitoring system? Though I’d guess “jail” is one such word.

2. Wait wasn’t he from New Zealand? So confused.

40 comments (hidden to protect delicate sensibilities)
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Comments (40)

  1. Posted by F9_Calculate | November 29, 2012 at 3:22 PM

    Jemaine: It doesn't matter what country someone's from, or what they look like, or the color of their skin. It doesn't matter what they smell like, or that they spell words slightly differently…some would say, more correctly.
    Sinjay: Yeah…
    Jemaine: Let me finish. I'm a person. Bret's a person. You're a person. That person over there is a person. And each person deserves to be treated like a person.
    Sinjay: That's a great speech. Too bad New Zealanders are a bunch of cocky a-holes descended from criminals and retarded monkeys.
    Jemaine: No you're thinking of Australians.
    Bret: Yea that's Australians.
    Sinjay: No, no, no, New Zealanders. You throw another shrimp on the barbie and ride around on your kangaroos all day.
    Bret: No, no, no, that's Australians.
    Jemaine: You're thinking of Australians. That's not us.
    Sinjay: [Aghast] I've totally confused you with Australians? I – I feel terrible. Your accents sound similar.

  2. Posted by FKApmco | November 29, 2012 at 3:33 PM

    Speaking of IBM, did you hear Apple are developing an even smaller iPad for children to use? Working title is iTouch Kids.

    Shecky Pedo

  3. Posted by Conradt | November 29, 2012 at 3:36 PM

    what's in it for moi ?

    more money than you would ever believe

  4. Posted by grammar police | November 29, 2012 at 3:38 PM

    "is developing"

    Just a caution this time since I am a fan of your work

  5. Posted by ANZ MD Via UBS | November 29, 2012 at 3:44 PM

    "Antipodean" Well, after learning what that means I think I'm about tapped out for productive time at the office.

  6. Posted by FKApmco | November 29, 2012 at 3:45 PM

    Thanks GP. I can't edit it but I do stand corrected.

  7. Posted by grammar police | November 29, 2012 at 3:49 PM

    Trust me…the pleasure was all mine

  8. Posted by Jeff Epstein | November 29, 2012 at 3:52 PM

    Are they looking for a spokesperson? I'm sure I can find a black turtleneck around here somewhere.

  9. Posted by Nit picker | November 29, 2012 at 3:54 PM

    "They probably spelled it out, but if they’re like some banks where IMs with curse words get flagged, maybe not?"

    From the Journal:

    "Even swear words spelled with asterisks are out."

    -Just happy to help

  10. Posted by Guest | November 29, 2012 at 3:59 PM

    I have some thoughts about the X's and O's of the programming

    – Jerry S., Greene State Correctional Institution

  11. Posted by Guest | November 29, 2012 at 4:01 PM

    Informal poll: is the following funny, offensive, both, or neither?

    Me: I heard your accent – are you from Australia?
    Her: No.
    Me: Kiwi?
    Her: No!
    Me: I give up – where are you from?
    Her: OK – who do the Australians hate most in the world?
    [long pause]
    Me: You're an Aborigine?

    (She looked outraged/offended…but years later I still think it's funny.)

  12. Posted by AussieGrrrl | November 29, 2012 at 4:10 PM

    Funny, clever, not offensive. And she clearly wasn't an Aussie because they would laugh.

  13. Posted by guest | November 29, 2012 at 4:11 PM

    I submit to you a proposal: Go play in traffic

    – Everyone

  14. Posted by guest | November 29, 2012 at 4:12 PM

    v v v

    The comment down here

    v v v

    – drunk guest

  15. Posted by Cookie monsta | November 29, 2012 at 4:13 PM

    FKA is funny

  16. Posted by Guest | November 29, 2012 at 4:15 PM

    Speaking of permanency with regard to communication, here's a pro tip for guys out there: You know that girl in the office who gave you her number when you asked? You know how you've asked her out like 3-5 times but she made excuses on why she couldn't? You know how you text her once every couple weeks and she either doesn't respond or her responses are very brief? You have no shot, SHE THINKS YOU'RE CREEPY and forwards those texts you send her to me, in the form of a screenshot, to laugh at you. And laugh we do. Guys using smilies in general is a weird combo of painful/hilarious, guys putting NOSES on their smilies :-) is next level humor. Just shy of the nose smilies on the humors scale is the random workplace selfies dudes send to uninterested girls. Even after you delete that 1-sided conversation, she still sends them to guys like me and her girlfriends and laughs. You may be wondering how to tell if a girl is interested? In 2012 it's easy as ever: if she doesn't respond OR you haven't hung out with her within two weeks of texting her, save yourself the embarrassment, activate that emoji keyboard and delete her number. Or don't and continue to provide her friends with entertainment.

  17. Posted by PippyLongSausage | November 29, 2012 at 4:30 PM

    If she's sending those convos to you, odds are you're in the friendzone just like this guy…which means you are not getting laidddd bro.

    See you tonight at Brother Jimmys.

  18. Posted by NakedShort | November 29, 2012 at 4:30 PM

    ( . Y . ) or GTFO

    ; – )

  19. Posted by PermaGuestII | November 29, 2012 at 4:35 PM

    Suuth Ayfrikan I'd guess

  20. Posted by Alt_EST | November 29, 2012 at 4:36 PM

    Associate & Wollensky

  21. Posted by IANAL | November 29, 2012 at 4:39 PM

    I miss Miss Drury and her take on this.

  22. Posted by agreatdaytothink | November 29, 2012 at 4:40 PM

    "guys like me"….please clarify. Thanks. :-)

  23. Posted by guest | November 29, 2012 at 4:41 PM

    Matt, I promise I won't tell, but honestly did you use your access to illegal information at Goldman to finance your ability to write on Dealbreaker incessantly on insider trading laws? You doth protest too much, methinks!

  24. Posted by Chick | November 29, 2012 at 4:41 PM

    It's true, we do send them to girlfriends and even other guys.

  25. Posted by Guest | November 29, 2012 at 4:50 PM

    Guys like me… the guys that get to actually have sex with her. Sometimes I'll hear her laugh at her phone and ask what's so funny. Then she'll show me her phone and it's a text that says "Good morning :-)" and we share a laugh. Then I tell her to go make me some ricotta blueberry pancakes for breakfast.

  26. Posted by Dingo | November 29, 2012 at 4:53 PM

    Just took my pants off.

  27. Posted by PermaGuestII | November 29, 2012 at 4:53 PM

    (oYo) > (.Y.)

  28. Posted by MP. | November 29, 2012 at 5:00 PM


  29. Posted by MP. | November 29, 2012 at 5:03 PM

    Hey Matt Taibbi, researching for a new article?

  30. Posted by Papa John | November 29, 2012 at 5:25 PM

    Thought I was the only one with a pepperoni nipple fetish

  31. Posted by Guest | November 29, 2012 at 5:39 PM

    English, actually.

  32. Posted by You Moron | November 29, 2012 at 6:00 PM

    Please go on about this access to "illegal information" Matt had at GS, do you think they just have servers full of kiddie porn or treasonous materials they're passing to the Chinese in there?

  33. Posted by Texashedge | November 29, 2012 at 6:22 PM


  34. Posted by Strine Lixbro | November 29, 2012 at 6:23 PM

    The two bludgers mentioned are headed to the back of the Bourke. No sixual riferinces were mentioned but it woont surprise me if both bodgies cracked a fat with each other from time to time. Hope they protected their dongers with a franger!

  35. Posted by juniormistmaker | November 29, 2012 at 6:45 PM

    Bahhaha. You sir, are as fruity as your pancakes.

  36. Posted by Lax Brew | November 29, 2012 at 9:41 PM

    No way, brew.

  37. Posted by Guest | November 29, 2012 at 10:00 PM
  38. Posted by Friendzone Quant | November 30, 2012 at 9:14 AM

    1)"guys like me" == "male friends she thinks are gay".
    2)If you ever were hypothetically in a position ask for ricotta blueberry pancakes for breakfast it would merely reinforce that impression.

  39. Posted by Ed Wuncler III | November 30, 2012 at 11:17 AM

    Bitches love smiley faces.

  40. Posted by Trey | December 3, 2012 at 3:52 PM

    Beautifully done.