Just yesterday we were mocking Melissa Mahler for being one of the most inept insider traders of all time. The former Nixon Peabody lawyer not only broke all the rules, but she only made $5,800 for her misguided efforts.
Serendipitously, the M&A Law Prof Blog tipped us off to a Bloomberg piece that inspired us to add something productive to the conversation.
After the jump, tip #6 for Wannabe Insider Traders (and, more importantly, a heads up for those at the firms involved in the deal in question).
Most of our advice has been focused on being careful with your sources (e.g., Tip #2 – Don’t trade on your own deals; Tip #3 – Don’t trade in your clients’ stock; and Tip #5 – Don’t trade on information you stole), because they’re the first place the investigators look.
We’ve also cautioned about whose accounts to use (Tip #1 – Watch out for the watch list), because the investigators will also be rounding up names and addresses of parties involved in suspicious trades. You can’t have one of your colleagues saying “Oh, Eric Holzer, Sr., I wonder if he’s related to the Eric Holzer down the hall who worked on this deal?”
As we’ve said before, we were a little embarassed that we had to spell out such basic rules as #2 and #3. Thanks to Prof. Quinn, we’re going to take baby steps back into slightly more-sophisticated advice.
Insider’s Tip #6 for Wannabe Insider Traders: Don’t swamp the market.
Using options is a great way to maximize your returns, but you have to be aware of other factors. Like when you buy 2,539 call options, but normal volume is only about *10* options trading on any given day (and only 10 puts traded that day).
That’s what some genius did prior to announcement of Dell’s announcement that it would buy Perot Systems for $3.9 billion. The underlying stock surged 65% on Monday on the news.
We’re praying that it’s not anyone from Baker Botts or Vinson & Elkins, which represented Perot and Dell, respectively. Hopefully, it was some egomaniac from Goldman or Morgan Stanley.
We almost wish were in Boston so we could audit Prof. Quinn’s class.
By way of warning, I tell students in my Acquisitions Workshop that it’s always a bad to start your legal career by engaging in insider trading. Then we launch into a discussion of the David Li (News Corp/WSJ case) and the too-good-for-Hollywood Pacjin case and the Edelman case.
Good times, good times. Pajcin was the Goldman Sachs guy who made up a bunch of accounts in his stripper girlfriend’s name, then pretended to be her on a call to Ameritrade to get permission for his account to trade on margin. Edelman was the guy who stole information from a Weil Gotshal associate he was dating.
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Insider traders get caught in their lies all the time. The fact that you have to remind them of certain obvious points is almost funny. And these are supposed to be the smarter criminals, right?