What Qualifies As Insider-Trading Now

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Richard Bruce Moore managed to get hit by two different theories of insider-trading in two countries—without ever actually getting a hot tip.

The trading involved Tomkins, a British maker of car parts, before it received a takeover offer in July 2010 that led its stock price to rise nearly 30 percent. The circumstances by which Mr. Moore gathered the information about the offer make it hard to find any clear line that separates good deductive reasoning from illegal trading.

At the time, one of Mr. Moore’s clients was the Canadian Pension Plan Investment Board, which was planning an offer for Tomkins along with a private equity firm. Mr. Moore regularly dealt with one of the pension plan’s senior representatives about providing investment banking services. He learned there was a significant transaction involving the pension board, but that C.I.B.C. would not be involved in it.

Over the course of the next few months, Mr. Moore gleaned additional tidbits about the transaction from his interactions with the pension board representative. In this case, no one tipped him off about the deal, at least not in the traditional sense. In essence, he put two and two together after he saw the pension board representative speaking with someone at a charity event, and the representative refused to introduce them or even identify who he was speaking with. A short time later, another person identified the unknown person as the chief executive of Tomkins.

So, where are the crimes? The crimes, dear reader, are in observation and intelligence.

The S.E.C. claimed that by pulling together different strands of information about the impending deal from a client, Mr. Moore “misappropriated that information from his employer by purchasing Tomkins securities.”

The Ontario Securities Commission, however, took a different path in concluding that Mr. Moore traded improperly in Tomkins shares. In its settlement with Mr. Moore, it stated that at no time did the pension board representative “ever provide Moore with any material, generally undisclosed information.”

Instead, the regulator said he “ought not to have made use of information obtained in part by virtue of his position as an employee of a registrant prior to its general disclosure to the public.” In doing so, the commission said, Mr. Moore acted “contrary to the public interest.”

Deductive Reasoning Can Be a Dangerous Thing [DealBook]

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