A few weeks back, the Intel CEO sold all the company shares he was allowed to. Yesterday, it was reported that a big security flaw existed in virtually all Intel processors sold in the last decade. Intel has known about it for several months and has informed the OS vendors so they could publish patches before the vulnerability was made public, as is the custom in these cases. This looks to my non-lawyer eyes like blatant insider trading. Is it?
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What would be the point in holding shares if you aren't allowed to buy/sell them based on whatever knowledge you have? By nature of their work, CEO-shareholders virtually cannot avoid insider trading — unless they deliberately act contrary to their interest.– GreendrakeJan 3, 2018 at 10:30
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1Sure, but I feel there should be a difference between thinking the company will do good (or bad) for a number of reasons, the state of the market, a great new string of hires, some patent expiration; and knowing there will be a hit because of a reason hidden to the public for security reasons. Again, IANAL, that's just my civilian feeling.– NicoJan 3, 2018 at 11:23
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2Whilst I don't exactly agree with @Greendrake that insider information is meant to be used, it's certainly true that a CEO will have a lot of information and judging what is important isn't always clear. I think you made the mistake a lot of techies made, that it was obvious that the bottom would fall out of Intel's share price. Now, a few weeks later, Intel is trading at heights it hasn't seen since the dot-com bubble and you think the CEO should be prosecuted for selling shares?– richardbJan 27, 2018 at 19:53
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1@richardb well, hindsight is 20/20, isn’t it? But my point was that this is not regular CEO knowledge. It followed responsable disclosure procedure; i.e. it was discovered by independent researchers who disclosed it only to Intel so they could fix it before revealing it to the public. And it seemed reasonable to assume that discovering a big flaw on every item you sold of your flagship product over the last decade would impact the consumer - and invester - trust. Looks like it didn’t though, maybe because it turned out that it also affects their concurrents, which they didn’t know.– NicoJan 27, 2018 at 20:24
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1Typically for C level officers, shares are bought and sold based on schedules filed well in advance of the actual event, making manipulation unlikely - it looks like this is the case here: ”It was made pursuant to a pre-arranged stock sale plan (10b5-1) with an automated sale schedule. He continues to hold shares in-line with corporate guidelines." stuff.co.nz/business/world/100514862/…– user28517May 13, 2020 at 19:18
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1 Answer
The accusation would be the crime of securities fraud ("insider trading" is legally meaningless), under 15 USC 78j(b). There is a bit more elaboration in 17 CFR 240.10b5-1. That law prohibits using "any manipulative or deceptive device or contrivance in" in connection with a securities transaction. Under 15 USC 78ff, violation of the law can result in a fine of up to $5 million and 20 years, thus it is a crime. As a crime, the standard of proof required is must higher than it in for a civil forfeiture (which can be as low as "reasonable suspicion"). In the US, and pursuant to the Due Process clause, that requires proof beyond a reasonable doubt, that is (from in re Winship), "proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged".
The statute itself does not state the elements that must be proven to secure a conviction, but they can be discerned based on jury instructions (which are circuit-specific). The 9th Circuit instruction is here. You can see that there are 4 specific allegations that have to be chosen between, and the prosecutor has to have at least alleged one of those prohibited acts (so that the jury can decide if the prosecution has proven beyond a reasonable doubt that the accused did that thing).
The evidence you have presented could constitute "reasonable suspicion", but not "proof beyond a reasonable doubt". If we had a different standard of proof in criminal trials, where it was sufficient to just suspect based on a small bit of evidence that a person may have done something prohibited, then the conclusion could be different. Or, if you had stronger evidence surrounding the sale, your argument might carry a bit more weight. In other words, criminal prosecution is based on quite a lot of specific and objective evidence about what happened. An example of the kind of evidence and allegations required to get the ball rolling can be seen here; for "insider trading" specifically, look here (this case is based on an FBI investigation, where an agent will presumably testify to hearing the defendant state a plan to violate the law).
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I'm not a lawyer, but why do you say this doesn't meet the "beyond a reasonable doubt" threshold? The CEO knew about the vulnerability. The information hadn't been released publicly. It could be assumed that disclosure of the vulnerability would hurt the stock price. That sounds like "beyond reasonable doubt" to me.– DanielFeb 7, 2019 at 16:27
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2There are a number of reasons: lack of evidence of actual knowledge by the individual, plausible alternative motivations ("I decided to diversify", "I needed cash for a new house"). A juror might ignore reasons given to disbelieve the accusation on ideological grounds, but the standard doesn't say you have to believe the guy is actually innocent, it says that you are not absolutely certain that he is guilty, that there really is no alternative explanation for the facts.– user6726Feb 7, 2019 at 16:42