Insider Trading With The Big Boys


There may be a new way to go down for insider trading on the horizon and it has a wicked cool name: the “Big Boy Letter.” The BBL, Jenny Anderson writes in today’s Times is a way for buyers and sellers to first say “We are all big boys here, so let’s not sue each other” and secondly, “Now that that’s out of the way, who wants to trade on some info the market doesn’t have?”
Simple enough: the Big-Boy protects investors with the off the record information from being sued by the buyer. Problem is, sometimes the stock is sold in the market and proceeds to plummet and that leaves people angry and litigious. (Related: Carney and I have a Big Boy letter that states that I can’t take legal action, should I incur any splinters).
Next month, a Texas hedge fund will argue that Smith Barney (Salomon Smith Barney) took it for a ride vis-à-vis one of these BBLs, when SSB sold in excess of $20 million of World access bonds to Jefferies. Barclays also has an impending trial.
For now, lawyers can’t come to a consensus on the legality of deals using the Big-Boys, and, oddly, the Securities and Exchange Commission has not yet weighed in (is Chris Cox going through some sort of a personal crisis?).

Howard Seife, head of the bankruptcy practice at Chadbourne & Parke, said: “If I am the buyer and I want to resell, it would be prudent for the new seller to enter into a big-boy letter. You are protecting yourself to the new buyer in the chain.”
Others disagree. “The existence of a big-boy letter is not a material fact that needs to be disclosed in connection with a sale,” said Mr. Block from Cadwalader, Wickersham & Taft.

The outcomes of these cases will surely play a pivotal role in the way individuals go about committing crimes in the future. We don’t really have an opinion either way: it’s your life, do what you want. But a name change is in order—“Mature Adult Letter”? “Mutually Beneficial Prosecution Avoidance Letter”? “Jail Isn’t Conducive to Our Lifestyle Letter”? “Arby’s Letter”? You can do better.
Side Deals in a Gray Area [NYT]