Let's say I'm a skilled PI who has, through detailed investigation followed a paper trail back and discovered that Soylent Green is people! (err..spoiler warning?)

I am now aware of information that is not public knowledge, but I have not 'stolen' it from a company, as I have generated this knowledge through personal investigation and research. However, I was only able to prove something was wrong after capturing photos while doing surveillance of a suspected location, so my knowledge is not just deduction from publicly available records.

I'm now in the process of trying to get the local news agency to take me seriously and warn everyone about the news. However, while I do this I also decide to short sell Soylent LTD, after all I need to cover my own business expenses somehow. If it's relevant let's say I have strong evidence that my investigation and leaking of the knowledge was originally done out of an honest intent to warn people about the company, since intent of leaking information seems to matter in case law (the 2014 court case).

Could I be found guilty of unlawful insider trading for short selling the companies stocks?

  • If you already owned stocks and sold them (which would not qualify as a short-sale) then I think you would be fine. If you purchased shorts after you had the knowledge with the intent on exposing the company and making a profit, then I think this could be an issue.
    – Ron Beyer
    Commented Jan 3, 2020 at 23:45
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    @RonBeyer - but a claim would not be based on whether he already owned the stocks, whether or not the transaction would be called a short-sale, nor on if he acted "with the intent on exposing the company..." Rather, the law defines insider trading as a person/entity making a trade in any security on the basis material nonpublic info which was obtained in a breach of duty of trust or confidence (see legacy.pli.edu/product_files/Titles/4553/…). Also like Dale said, it doesn't sound like the info is "nonpublic." Would need the facts
    – A.fm.
    Commented Jan 6, 2020 at 10:12
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    @A.fm. A "breach of duty or trust" does not cover information discovered personally through legal means. That phrase means information given by the company to a person in confidence about something that would not otherwise be public information. If he discovered this on his own, through legal research, it would not be insider trading. It may not be insider trading for one of the sales I said (which I didn't mean to imply), but it may fall under some other kind of fraud.
    – Ron Beyer
    Commented Jan 6, 2020 at 13:07
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    Surveillance from a public location (eg taking photos from the street, or from overhead) is not insider information, regardless of whether it is published or not. Stated differently, if you are doing independent investigation, you have no obligation to make your research public.
    – mongo
    Commented Jan 6, 2020 at 14:40
  • @RonBeyer - "...it would not be insider trading." Maybe. Depends how OP supposedly got the info. He suggests the info is "not public info" but he generated it through investigation and research. If someone at the company disclosed it to him (interviews are often used by private investigators), then it may indeed be insider trading.
    – A.fm.
    Commented Jan 6, 2020 at 17:05

2 Answers 2


This is not insider trading

To be an insider in the USA you must be a company officer, director or a beneficial owner of more than 10% of a class of the company's equity securities. You aren’t any of those.

Or you are an “insider” if you trade based on non-public information in breach of a position of trust. The company’s lawyers and accountants, for example. Or if you obtain the information from an “insider” where the insider is behaving unlawfully, leaking it to you for example.

You are not an insider if you receive non-public information outside a position of trust, for example, if you hear the CEO and COO discussing precisely why they won’t eat the company’s product at the table next to you in the cafe.

In any event, the information you describe is public assuming your “investigation and research” was conducted lawfully. For example, by going through their trash or observing their operations from a place where you are permitted to be. Just because it took a lot of effort to collect it and analyse it to reach your conclusion doesn’t make it non-public.

  • 1
    Confused by your answer's title & your answer. OP asks if he could be guilty and you answer "Yes" but it sounds like you give an explanation for "No." Regardless, although your description of an "insider" is correct, the parts that suggest OP did not violate the law are not accurate for several reasons. Insider trading laws do not apply strictly to corporate officers. Instead, they extend to any corporate employee, particularly w/r/t the tippers/tippees. Also, misappropriation theory doesn't require being officer. Depending what the info was and how OP got it, he could be a tippee and liable
    – A.fm.
    Commented Jan 6, 2020 at 10:33
  • @A.fm. I’m answering the headline question which I now note is opposite to the one in the body. I hate it when they do that!
    – Dale M
    Commented Jan 6, 2020 at 11:47
  • Is it also insider trading if (for example) I work for Apple and I short sale Samsung because I know of a game-changing product about to be released by Apple? Is that scenario covered by your second paragraph? Thanks!
    – James
    Commented Jan 6, 2020 at 15:10
  • @DaleM Ah. Gotcha. Under US law, we'd have to know how OP supposedly got the info he in the scenario he put forth. If he got it from someone at the company, we almost certainly have insider trading. One need not be said insider to violate the insider trading laws.
    – A.fm.
    Commented Jan 6, 2020 at 17:05
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    @Acccumulation if you want to ask a question, ask a question. Then post a comment directing us to your question.
    – Dale M
    Commented Sep 22, 2020 at 5:35

In the USA, trading shares based on information that is not available to the public is strictly illegal. The SEC will come after you if they figure it out. The source of the information doesn't matter.

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    It seems like this cannot be strictly true. What if I were to prove some mathematical theorem or discover some new physical law or invent a new chemical compound or produce some novel treatment for a disease. You're confident it's a violation of law or regulation to trade on this information before making it publicly known? What if it's a secret formula for diet cola without an aftertaste? Do I have to tell people the recipe or just that it's better? In any case am I liable if they don't believe me?
    – Patrick87
    Commented Jan 4, 2020 at 0:27
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    Citation needed. Commented Jan 4, 2020 at 5:06

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