Diamondback Capital Management
Steve Cohen’s Brother-In-Law’s New Hedge Fund Will Be Up-And-Running By The Time You Get Your Last SAC Redemption ChecksBy Jon Shazar
You’re only guilty of criminal insider trading, in America,1 if:
- you trade on information that is material and nonpublic, and
- some other stuff.
The other stuff is mostly stuff that only a lawyer could love, but man do they love it. It consists most importantly of the rule that the person who gives you the material nonpublic information needs to have done so in breach of some duty to keep the information secret and in order to get some personal benefit for himself. If a stranger just wanders up to you and says “I’m the CEO of Smerbafife and it’s a giant fraud, gotta go,” and you trade on that: you’re probably good.
This doesn’t help very often, though, since the personal benefit for the tipper doesn’t have to be an explicit bribe, or an explicit anything; just a desire to spice up your friendship with some material nonpublic information can qualify.2 (Also: usually there are bribes. You start with casual venting of frustrations and the next thing you know you’re accepting bags of cash in parking lots.)