

Warren Buffett No. 2′s “Inside Trade” Wasn’t Illegal - JacobIrwin
http://finance.yahoo.com/blogs/daily-ticker/warren-buffett-no-2-inside-trade-wasn-t-20110404-090204-589.html;_ylt=AvOxAvjkfUPbLD00Fakl5Z27YWsA;_ylu=X3oDMTE2dmNsaGhtBHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDd2FycmVuYnVmZmV0?sec=topStories&pos=9&asset=&ccode=

======
zzleeper
I'm not so convinced:

1) "didn't hurt anyone": Sokol learned about Lubrizol while on his duties at
Berkshire. After all, that's what Berkshire pays him for, to research
interesting investment opportunities. By buying before Berkshire, he front-
runned the firm using Berkshire's private information (aka, what he knew as #2
in the firm).

2) "trading laws should be abolished... insider trading helps.. individual
investors" There are some academics that think so, but the academic consensus
is in the other way. For instance, several studies have shown that on the days
were insider trading is less likely to ocurr, bid-ask spreads are lower.

~~~
Yzupnick
Do you mind linking to these studies? I am genuinely interested in reading
them.

~~~
zzleeper
Sure:

The bid-ask spread paper: "the black period is associated with a bid-ask
spread narrower by about 2 bps"

[http://scholar.google.com/scholar?q=related:bZ0CEWMhg4YJ:sch...](http://scholar.google.com/scholar?q=related:bZ0CEWMhg4YJ:scholar.google.com/&hl=en&as_sdt=0,34)

<http://www.cib.espol.edu.ec/Digipath/D_Papers/38570.pdf>

Another well cited but controversial paper:

[http://foba.lakeheadu.ca/gradojevic/5079/meulbroek(1992)_ins...](http://foba.lakeheadu.ca/gradojevic/5079/meulbroek\(1992\)_insider.pdf)

[http://scholar.google.com/scholar?cites=3127308622037385070&...](http://scholar.google.com/scholar?cites=3127308622037385070&as_sdt=5,34&sciodt=0,34&hl=en)

From those two, you can build your way up to the more current papers using the
"Cited by" feature. For more quality, focus on papers written on the more
known journals (eg: journal of finance, journal of financial economcs, RFS,
and so on).

Also, see the 1997 SCOTUS ruling on insider trading:

<http://en.wikipedia.org/wiki/Insider_trading#Court_decisions>

<http://www.law.cornell.edu/supct/html/96-842.ZO.html>

IANAL, but their "misappropiation" argument can arguably apply in this case.

Cheers

------
monochromatic
Here's the key to this article:

> Tamny believes that insider trading laws should be abolished, on the grounds
> that they are vague and inconsistent. Tamny also believes that insider
> trading helps, rather than hurts, individual investors, because it results
> in information more quickly being factored into stock prices.

There's no argument here for why Sokol's actions don't constitute insider
trading, and there's only a conclusory statement that they didn't harm anyone.
I don't really see why it wouldn't be considered insider trading, and I think
there's a good argument that he's breached his duty of loyalty to Berkshire.

------
RuadhanMc
Headline is somewhat misleading. This guy doesn't think that insider trading
laws should exist ergo it wasn't illegal.

------
ChuckMcM
If I could, I would vote 'east' (not hackerish) [1] on this news.

[1] <http://news.ycombinator.com/item?id=2403696>

