Insider Trading Redux

Last week I wrote a post about potential difficulties in identifying insider trading.  The post and the comments are worth a read – if for nothing more than to illustrate how cloudy the topic can be.
Today, NYT Dealbook’s Andrew Ross Sorkin visits the subject, with another interesting case:
“Have you heard about the railroad workers charged with insider trading?
Late last month, the Securities and Exchange Commission brought an unusual and colorful insider-trading case: It accused two employees who worked in the rail yard of Florida East Coast Industries and their relatives of making more than $1 million by trading on inside information about the takeover of the company.
How did these employees — a mechanical engineer and a trainman — know their company was on the block?
Well, they were very observant.
They noticed “there were an unusual number of daytime tours” of the rail yard, the S.E.C. said in its complaint, with “people dressed in business attire.”
The case is raising eyebrows — and some important questions — about what constitutes insider trading at a time when the government is taking a tougher line against Wall Street and white-collar crime.”
“The S.E.C. claims that Mr. Griffiths and Mr. Steffes acted on more than a hunch. The commission says that “shortly after the tours began, a number of F.E.C.R.’s rail yard employees began expressing concerns that F.E.C.R. was being sold, and that their jobs could be affected by any such sale.”
The S.E.C. also claims that Mr. Griffiths was asked by the company’s chief financial officer for a “list of all of the locomotives, freight cars, trailers and containers owned by F.E.C.R., along with their corresponding valuations, which she had never requested before.” Florida East Coast Railway, or F.E.C.R., was a wholly owned subsidiary of Florida East Coast Industries.
Is all of that material information? Clearly, it is all nonpublic. But without being told directly that a deal was in the works, did the men actually have inside information?
Sorkin relates a good rule of thumb, pretty much the same as the one I proffered in the comments of my previous thread: “A safe maxim might be: “If you have to ask if it’s right or wrong, it’s probably wrong.”

EDIT: thanks to commenter UrbanAnalyst for pointing me toward the official SEC complaint.  It’s a must read for anyone wanting to comment intelligently on the details of this case.  


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