I am a flight attendant on a private jet and I hear a bank CEO
discussing a merger or a buyout. I proceed to purchase that stock
before the announcement. The CEO did not tell me to buy it, I just
If you are a flight attendant on a private jet that is operated by one of the principals, probably including a bank, attorney, consultant, broker, etc., in the merger or buyout, then you probably have a fiduciary duty to safeguard the information and are prohibited from trading. Please see: http://www.kiplinger.com/article/investing/T052-C008-S001-would-you-be-guilty-of-insider-trading.html
You’re a janitor at a major company. You hear members of the company’s
board convening outside the room you’re cleaning and decide to hide in
the closet. The board okays a deal to sell the company for a fat
premium to the current share price. You load up on the shares. Illegal
Definitely. This is not a public place, and “you’d be in a position to
understand that confidential information was being disclosed, which
changes the calculus,” says Andrew Stoltmann, a Chicago-based
Also see: http://meyersandheim.com/how-to-win-an-insider-trading-case/
However, between these two extremes of a bystander with no duty to the
corporation and a corporate officer with a clear duty to the
corporation stood a whole group of people such as printers, lawyers
and others who were involved in non-public transactions that did not
necessarily have a duty to the company whose securities they traded.
To address this group of people the courts developed the
misappropriation theory. The misappropriation theory covers people who
posses inside information and who are prohibited from trading on such
information because they owe a duty to a third party and not the
corporation whose securities are traded.
Yours is the perfect example. You owe a duty to your employer to operate in its best interests.
As for the broader, more common example, where you overhear information in an elevator, restaurant, in line at the coffee shop, etc., trading on such information was found not to be insider trading in SEC v. Switzer: http://law.justia.com/cases/federal/district-courts/FSupp/590/756/2247092/
In this case, Mr. Switzer overheard information at a track meet and traded on it with profits. The court found:
The information was inadvertently overheard by Switzer at the track meet.
Rule 10b-5 does not bar trading on the basis of information inadvertently revealed by an insider.
On the basis of the above findings of fact and conclusions of law, the
court orders judgment in favor of defendants.