Say I’m on a flight sitting next to an IB analyst. They’re grinding away on a merger model, and I can see the companies involved in the model (assume this is a given, even though a project name would probably be used). It is not publicly known that these companies have retained a bank. I have no idea if something will ever be announced, and if so which direction the markets will move. Knowing this, can I trade on the information I’ve acquired?
Purely hypothetical
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I'm guessing you probably would not be allowed to technically, the work that the analyst is working on is supposed to be confidential to the bank obviously and so it'd be considered insider trading. However, I imagine it'd probably be impossible to prove that you actually committed fraud unless you're painfully retarded with how you went about it.
Note - I know you say this is hypothetical, but in the case that this actually happened and you decided to post it on WSO seeking advice, don't actually process the trade. The 2 most common ways insider traders are convicted is through trading records and communication records. There's a good chance the SEC would be up your ass if you actually did this considering that you've posted on a public forum
You would get in trouble - 1/10 idea
Yes
How do the SEC even prove this stuff? Surely for example, let's say you were WFH at your parents house and your dad read your laptop screen and then told his friend who traded off the info. How do they even check that? (Would never do this just curious how they regulate it)
In terms of finding insider traders, they look for drastic changes in trading volume.
If you've been unlucky enough to actually be subpeonad by the SEC, they then would look at your previous trades and see if the trade in question is aligned with your previous investing practices. They screen based off of things like the size of the trades, the industries in which you usually trade in, or if you've even traded at all. It's a pretty big red flag when someone with no trading history randomly places a shit ton of deep OTM calls with few months till expiration on a company that was set to be acquired in a few months.
Also if you get flagged for a trade they can look into your communication records like emails and texts and shit.
This is partly why code names are used instead of actual company names. So I doubt this hypothetical IB analyst is working on a merger model for a live deal.
Yes, that would be considered in insider trading. The analyst or has a responsibility to keep the information private. which this person did not do. The person who trades on the inside information also would violate the law.
Not if you’re a member of Congress.
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