Insider trading

I think I'm confused as to what exactly is insider trading. To my understanding it is having and acting on information that would affect a public company's market valuation before said info is made public.I was reading Pershing squares 2015 annual letter and came across this: "In order to protect our investment and help stabilize the company, we implemented a straightforward plan. First, we put ourselves in a position of influence and gained access to inside information. Steve Fraidin, our Vice Chairman, was invited to join the board on March 9th along with two other new directors: Dr. Fred Eshelman, a pharmaceutical industry entrepreneur, and Thomas W. Ross, former president of UNC and a former Superior Court judge.Since Tuesday of last week, beginning a few hours after Valeant's earnings call, two members of PSCM's investment team have been spending time at Valeant so that we can have a better understanding of the company's operating performance, verify management's revenue, earnings and cash flow guidance for 2016 and build our own financial model for the company. Bill Ackman attended board meetings as an observer beginning on Thursday and through the weekend, and officially joined the board on Monday morning. We have been given access to information and to management necessary for us to conduct due diligence and assist the company."I know activists asking for board seats is common, but how is this not insider trading-especially based on how it's worded?

Comments (11)

  • Intern in IB-M&A
Oct 28, 2021 - 10:03pm

I thought it was a troll. How does Ackman this motherfucker keep getting away with it?

Oct 29, 2021 - 12:22pm

Some of the funds I have worked at routinely get restricted (sign NDAs, receive MNPI) on public companies in which we have had investments. We simply become restricted from trading in that company's securities until either (a) the information we received is disclosed to the public ("blown out") or (b) the information we have becomes stale.

Most Helpful
Nov 2, 2021 - 12:02am

It's not illegal to possess MNPI. It's illegal to profit from trades in a security while in possession of MNPI associated with the company that issued the security. If they restricted themselves while in possession of MNPI, then it's not illegal. Some funds, such as mine, are routinely in possession of MNPI as a part of our business (NDAs signed, over-the-wall on confidentially marketed financings, etc.). Of course, we are restricted from trading in those names while being in possession of the MNPI.

Fun fact though, a recent case that the SEC is bringing against an insider of a company will test whether any derivative trades while in possession of MNPI is illegal. That will make things much more confusing if that is successful.

Nov 3, 2021 - 2:44am

Will keep an eye out for the verdict here. Could be pretty impactful

  • Investment Analyst in HF - EquityHedge
Nov 7, 2021 - 10:38am

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