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Let's say I'm a skilled PI who has, through detailed investigation followed a paper trail back and discovered that Soylent Green is people! (err..spoiler warning?)

I am now aware of information that is not public knowledge, but I have not 'stolen' it from a company, as I have generated this knowledge through personal investigation and research. However, I was only able to prove something was wrong after capturing photos while doing surveillance of a suspected location, so my knowledge is not just deduction from publicly available records.

I'm now in the process of trying to get the local news agency to take me seriously and warn everyone about the news. However, while I do this I also decide to short sell Soylent LTD, after all I need to cover my own business expenses somehow. If it's relevant let's say I have strong evidence that my investigation and leaking of the knowledge was originally done out of an honest intent to warn people about the company, since intent of leaking information seems to matter in case law (the 2014 court case).

Could I be found guilty of unlawful insider trading for short selling the companies stocks?

Rodrigo de Azevedo
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dsollen
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2 Answers2

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This is not insider trading

To be an insider in the USA you must be a company officer, director or a beneficial owner of more than 10% of a class of the company's equity securities. You aren’t any of those.

Or you are an “insider” if you trade based on non-public information in breach of a position of trust. The company’s lawyers and accountants, for example. Or if you obtain the information from an “insider” where the insider is behaving unlawfully, leaking it to you for example.

You are not an insider if you receive non-public information outside a position of trust, for example, if you hear the CEO and COO discussing precisely why they won’t eat the company’s product at the table next to you in the cafe.

In any event, the information you describe is public assuming your “investigation and research” was conducted lawfully. For example, by going through their trash or observing their operations from a place where you are permitted to be. Just because it took a lot of effort to collect it and analyse it to reach your conclusion doesn’t make it non-public.

Dale M
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In the USA, trading shares based on information that is not available to the public is strictly illegal. The SEC will come after you if they figure it out. The source of the information doesn't matter.

gnasher729
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