Insider trading confuses many people but few react quite like Mark Rosenblum, who has this to say about Thomson Reuters:
By an agreement between THOMSON and the ... University of Michigan, the Product [i.e. the Thomson Reuters/University of Michigan Surveys of Consumers] is compiled by the University of Michigan, and released by THOMSON in 3 tiers.
The tiered release provides a bimonthly release of information to "ultra low-latency" subscribers at 2 seconds before 9:55am, followed by "desktop" subscribers at 9:55am, followed by release to the public at 10:00am. ...
On or about May 10, 2012, Richard Turner, a THOMSON employee, e-mailed THOMSON employees, stating that the Product provided "potentially market-moving information" to the "ultra low-latency" subscribers who received the Product at 2 seconds before 9:55am. ...
At or about this time, ROSENBLUM formed the reasonable belief that the Product's tiered distribution violated securities laws barring insider trading.
So: do you agree with him? Hold that thought.
On June 29, 2012, ROSENBLUM disclosed to an FBI agent that THOMSON'S tiered-release involving the Product, on the basis of his reasonable belief that the tiered release violated federal securities laws (the "Report"). [Sic throughout]
Also on June 29, 2012, ROSENBLUM notified his managing director, the president, general counsel and the THOMSON employee Ethics Hotline that he had contacted federal investigators regarding the Product's tiered release.
Hmm. What? I submit to you that if you see bad behavior going on at your company you have about two choices:
- Option 1: Call your boss, general counsel, ethics hotline, president of your company, whoever and say "there is bad behavior here and we should fix it!," or
- Option 2: Write your company off as hopelessly corrupt and call the FBI.
Some situations call for Option 1, some for Option 2, and probably some for Option 1 followed, after a decent interval of time, by Option 2. Option 2 followed immediately by Option 1 is never right. "Hey, president of the company, it's Mark, I work in sales, I don't know if you remember me, we met at my orientation? Anyway, just wanted to say: I just called the FBI on your ass, scumbag!"
Oh obviously they fired him and now he's suing them for violating whistleblower laws. I don't know enough about those laws to know if he'll win, though it seems absurd, but I submit to you that even if he does win Thomson Reuters won't regret it, you can't really keep him around can you?
Anyway I asked up above if you agree with Rosenblum's allegedly reasonable belief that the tiered distribution violated insider trading laws. I mean, the answer is "no," which you can pretty much tell by the fact that Reuters was never charged with anything. But really I don't care what you think, I care what Rosenblum thought. What could he have been thinking? Here is some critical information that I withheld from you:
At all relevant times, ROSENBLUM was employed by THOMSON as a Redistribution Specialist selling millions of dollars in financial data to THOMSON'S customers. The purpose of this information was to assist in making investment decisions.
So. Deep breath. All right, let's take this slow:
- You sold financial data.
- It was used "to assist in making investment decisions."
- You sold millions of dollars worth of that data.
- Like, for millions of dollars.
- Presumably the people who paid you the millions of dollars got valuable financial information to inform their investment decisions.
- When I say "valuable" I mean worth millions of dollars.
- And the people who didn't pay you, didn't get that valuable information.
- Or alternatively they got that valuable information later, when it was less valuable.
- Millions of dollars less valuable.
What did you think you were doing? Like, someone - the University of Michigan, let's say - decided to develop a proprietary body of information and sell it, and they negotiated a commercial agreement with Thomson Reuters, who are in the business of selling information, with the goal of maximizing the value of that information, and Thomson Reuters did just that. And you're surprised that the information would be market-moving, or that people who paid more for it would get it sooner?
This case is silly but there've been other recent rumblings about for-profit data providers getting in trouble for providing data for profit. The rhetoric of the "level playing field" that is often trotted out in insider trading cases does a lot of damage, because it gets vaguely extended to those data providers, and of course there is no level playing field, and telling people that there is is a good way to get them to try to beat the market instead of indexing like a human. There is, over some restricted domain, a level playing field in material information about individual companies that comes from those companies. This isn't that.
Beyond that, there is a tilted playing field where you pay for your spot. Some people get valuable, perfectly legal sell-side research because they are clients of the banks that provide it. Some people pay expert networks to get expert views on companies and industries, and probably sometimes that's not just code for insider trading, though I wouldn't bet my life on it or anything. Some people pay Reuters millions of dollars for valuable information, and get it. Others pay Reuters even more money for the same information, two seconds earlier. Some people do much the same thing with NYSE, paying more to get more information about public market trades.1 Some people pay $2,000 a month for a Bloomberg terminal. Are they paying for a level playing field?2
Still, the perception continues in some circles that the federal securities laws are intended to create a level informational playing field. You can understand why it exists, but it's weird that it could spread to a data salesman at Thomson Reuters. He's the guy in charge of making the playing field less level.
Oh by the way how market-moving was that information? Meh. Here's the 30 surrounding minutes of the S&P on June 29, 2012, the day Rosenblum narc'ed on Reuters and also coincidentally the day that Reuters released the Michigan Survey of Consumers, with an Index of Consumer Sentiment reading of 73.2, a miss versus expectations of 74.1:
So if you got the disappointing data at 9:54:58, sold the market at 9:54:59, and covered at like 9:56: profit! In fact everyone who sold in the first, like, minute did well, with earlier sellers doing better - as long as they bought it back in the next minute. By the time of the public release at 10am, the market was up and continued rising, despite the negative consumer sentiment. The lesson for speedy computers is unclear, though there would seem to be profits to be had. The lesson for humans who want to try their hands at trading just-released economic data is clear, though: give up. The market is stacked against you.
Ex-Thomson Reuters Employee Claims Insider Survey Leaks [Bloomberg]
Rosenblum v. Thomson Reuters [via Bloomberg Law3 title="But now you can have it for free. You're welcome." name="call03"]
1.All of these things occasionally run into selective-dissemination problems, and they're always troubling. The thing where NYSE can sort of sell faster access to data, but maybe not, makes no sense. The thing where Goldman can tell some clients about research ideas before other clients, except when it can't, makes limited sense.
3.But now you can have it for free. You're welcome.