Airport Use as Illegal Inside Information

I’m a bit confused by the big story in Bloomberg about David Slaine, a key informant for the recent crackdown on insider trading. It starts off with Slaine trying to claim that a money manager was illegally using airplane flight information into Teterboro Airport to profit on stocks. The claim was that his tipsters would let him know when bankers came in and out of the airport, presumably to talk to one of the numerous pharmaceutical companies in the area.

Let’s start off with whether the information is even non-public information. Perhaps the FBI has not heard of the internet. The FAA aircraft registration database is available online. You can easily search for a company’s planes. There are databases and services like FlightAware.com that will track flights based on the plane’s tail number.

There has been some privacy added back to the databases. You may be surprised that privacy push and concerns came from sport teams. Avid fans had been tracking owners’ plane flights to see who they are trying to sign as free agents or coaches.

If you lost the fight over whether the information was non-public, you also need to pass a materiality standard. You have no way to predict how the travel activity will relate to stock activity. If you mix up the target with acquirer you may get a drop in stock price. The Slaine story talks about bankers. Those bankers could just easily be coming to offer bankruptcy financing as they could be to trigger an event that would increase the stock price.

Lastly, you need to prove some obligation to keep the information confidential. I don’t see how that obligation exists for airport personnel.

The information sounds a lot like the old story of fund managers who would count cars in a retailer’s parking lot as a way to estimate sales. Lots of cars would likely mean better sales numbers.

This leads back to the tricky part of expert network firms. At one extreme, fund managers were explicitly paying for and extracting confidential, material, non-public information from company insiders. The complaint against Martoma is an example of the illegal kind. On the other extreme is a fund manager merely trying to get a better understanding of the industry, the issues, the opportunities, and the companies involved in an area. This is perfectly legal. From this side, the fund manager may be able to find some external factors of correlation that could lead to movements in a company’s stock price. The retail parking lot is an example.

But airport use? That does not seem to offer much insight. I guess the FBI was desperate to get any sort of insight into insider trading, even if it was not insider trading.

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