More fun stuff from Matt Levine's newsletter.
There are a couple of stories here, both interesting but only one important.
The inconsequential one is a ingenious variant on the paradox of the heap. As Levine cleverly points out, under certain circumstances, selling insider information becomes legal, arguably even ethical, if you can just sell the same piece of information to a sufficient number of people.
The second story is about the end result of a decades-long effort to neuter and discredit regulators. We've already discussed how this applies to the idea of insider trading, but this also needs to be seen in the larger context of this amazingly successful campaign. Lax enforcement of financial laws. Ignoring flagrant anti-trust cases. Dismissing legitimate environmental concerns. None of these things happened independently.
I'm not quite ready to kick this hornet's nest and start naming names (other than to say that the word abundance should always set your Spidey sense tingling), but most of the centrist mainstream press and an alarming number of liberal commentators and bloggers who really should know better have uncritically swallowed a line of libertarian, anti-government propaganda without ever thinking about the implications or contradictions.
All of which may have had something to do with the news story that got Levine thinking about this.
I think from time to time about the line between “investigative journalism” and “insider trading.” If you are good at befriending people who work at public companies and getting them to reveal important secret information to you, here are two ways you could monetize that secret information:
- You could trade the companies’ stock before the secret information becomes public, or
- You could publish the information in a newspaper and charge people money to read it (or serve ads against it).
The first is insider trading and generally illegal; the second is journalism and generally fine. [2] (Not legal or journalistic advice, etc.) But there are other ways that fall somewhere in between. For instance:
- You could sell the information to a hedge fund, which could trade on it and give you money, or
- You could sell the information to five hedge funds, which could trade on it and give you money, or
- You could “publish” the information in a “newsletter” with a subscriber base of 10 hedge funds, each of which pays $100,000 a month for a “subscription” to the “newsletter.”
I put a bunch of scare quotes in that last one, but I don’t really mean them. A newsletter with 10 subscribers is a newsletter, even if the subscribers are hedge funds that pay a lot. But selling the information to one hedge fund is surely insider trading. The point is that there’s a range. If you get inside information about a company and give that information to exactly one customer, who trades on the information and pays you a lot of money, that’s probably insider trading. If you get inside information about a company and give that information to 1 million customers, some of whom trade on the information and all of whom pay you $49.95 per year for a subscription, that’s probably journalism.
Somewhere in between there’s a line. There’s some number of customers that is high enough, some subscription price that is low enough, to make the thing “journalism” rather than “insider trading.” We have talked about this problem before, and my very rough guess is that the dividing-line number of subscribers is on the order of 100 (or a bit less) and the subscription price is on the order of $100,000 per year (or a bit more). If you sell information to three hedge funds for $10 million a year each, bad. If you sell information to 500 hedge funds for $10,000 a year each, fine. I cannot emphasize strongly enough that this is not advice of any kind, I have just made it up based on vibes and gut feeling, and I know of no real law about this. [3]
