Forbes: LeBron Can Purchase Part of Knicks

[TheBigBoss]

Actually this could be an incentive to Chris Bosh now that I think about it. I mean if Bosh announces his signing to the Knicks, then 48 hours later buys his stocks in MSG. Now the stock wouldn't really do much from his signing, however, if LBJ signs two weeks later then Bosh would have just made a good investment.

[SWN]

If he's going to do something illegal anyways, Lebron might be just as well off financially shorting MSG stock then signing with another team...

[Bubstubbler]

A lot of people have no idea what they're talking about. You have to be an INSIDER to be charged with insider trading.

Definition of "insider"
In the United States, for mandatory reporting purposes, corporate insiders are defined as a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities.

Lebron is not breaking the law, he's just being a smart businessman. On the other hand, if James Dolan went out and bought a large amount of shares then he would get charged with Insider trading.

No, you are wrong...and it has been explained to death. Heck, I have an article with court cases that show how wrong you are on the Bulls board....you don't have to work for said company.

But let me give you an example I just made up:

Let's say there is a huge pending court case regarding a company that wants to go forward with a new (but dangerous) product...or regarding some huge merger (that may or may not be a monoply)....the point being....the outcome of this could have a huge positive or negative impact on the stock of said company.

The JUDGE in this case goes out the day before....and buys $100,000 worth of stock in that company...and then rules on the case the next day. Now, that judge does not work for either company...but had MATERIAL KNOWLEDGE NOT AVAILABLE TO THE PUBLIC....he knew which way the case would go...and profited from it.

Are you trying to say that such a move is legal? Swap the judge with Bron, the company with MSG, and the ruling with his choice on July 1st.

There ya go...

1) that judge would not be guilty of insider trading, but rather of exploiting his governmental position for profit. that's still illegal, but it's not insider trading.

2) lebron is not a government employee exploiting his position for profit; therefore, your analogy is off-base and provides no support for your position.

[Bubstubbler]

If I were LeBron's lawyer, or at least PR rep, I'd advise against buying stocks before joining, cause the last thing LeBron needs is a legal battle to distract from his NBA career. It's still valuable for him to buy the stocks after joining, since he, as a member of the team, has indirect control over how well the stock can do, thereby minimizing the risk in his investment.

Yeah, even if LeBron doesn't buy any stock until a week after joining the team, odds are still good that the stock price will probably be waaay higher 5 years down the road (after multiple championships?) than it will be a week after he signs.

This is also a way to get superstars to sacrifice a bit of guaranteed salary to go to ny, on the bet that they'd make far more money overall (maybe extra endorsements, too, on top of gains from stock). Point being, imagine if the following were to transpire:

1) LeBron, Wade, and Bosh all sign deals with ny starting at $12M with max raises.
2) Trade Curry/Gallinari for Baron Davis
3) Some mega rich vets sign for cheap, looking to exploit the stock ownership angle (and have fun winning rings). Shaq, Ray Allen, and Jermaine O'Neal would be good examples. They might make vet min in salary but earn $20M off the stock.

Davis
Wade/Allen
LeBron
Bosh
Shaq/Jerm

[BubbaTee]

A lot of people have no idea what they're talking about. You have to be an INSIDER to be charged with insider trading.

Definition of "insider"
In the United States, for mandatory reporting purposes, corporate insiders are defined as a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities.

Lebron is not breaking the law, he's just being a smart businessman. On the other hand, if James Dolan went out and bought a large amount of shares then he would get charged with Insider trading.

That's like saying if Microsoft was about to merge with Apple, which would result in increased value of MS stock, that Steve Jobs couldn't be charged with insider trading if he used his knowledge of the merger to load up on MS stock before the merger was announced. After all, Jobs doesn't work for MS.

Dudes who are trying to say this isn't legal always seem to be a little unsure of themselves in their convictions. They say stuff like "do you really think the SEC would allow that?" or "do you really think he can get away with this?". If you are going to be so adamant about something, try ending your "statement" in something other than a question.

It's called a rhetorical question.

Meanwhile, the people who are SURE it is indeed legal, are just that: sure of themselves. Which means they actually know the answer.

People are SURE about a lot of things. At one time people were SURE the Earth was flat. That must mean they were right!

[truth serum]

^What I meant by that is that they can actually back their claims with facts and tangible evidence.

[willbcocks]

If I were LeBron's lawyer, or at least PR rep, I'd advise against buying stocks before joining, cause the last thing LeBron needs is a legal battle to distract from his NBA career. It's still valuable for him to buy the stocks after joining, since he, as a member of the team, has indirect control over how well the stock can do, thereby minimizing the risk in his investment.

Yeah, even if LeBron doesn't buy any stock until a week after joining the team, odds are still good that the stock price will probably be waaay higher 5 years down the road (after multiple championships?) than it will be a week after he signs.

This is wrong. Speculation will almost immediately cause the stock's price to adjust accordingly. In fact it already has, as pointed out earlier.

Lebron would be doubling down on his own success. He would have more direct influence over his risk, but there's no reason to suppose this would changes his odds of financial gain.

[richboy]

That's like saying if Microsoft was about to merge with Apple, which would result in increased value of MS stock, that Steve Jobs couldn't be charged with insider trading if he used his knowledge of the merger to load up on MS stock before the merger was announced. After all, Jobs doesn't work for MS.

Steve Jobs would only know about a merger because he was an insider. Would be aware of the talk between the two companies.

[BubbaTee]

^What I meant by that is that they can actually back their claims with facts and tangible evidence.

People are citing the SEC's own webpage.

Plus, even the Forbes writer isn't proposing that Lebron should buy stock before he signs. All the Forbes writer said was that Lebron could own MSG stock at some point. At no point did the article say that Lebron can use material, non-public knowledge to game the market.

[richboy]

Problem is not anyone has come up with an example where someone has been charged with insider trading in a similar situation. Where the person was not part of the company at all.

[panthermark]

Problem is not anyone has come up with an example where someone has been charged with insider trading in a similar situation. Where the person was not part of the company at all.

Yes they have.... Too many people are taking the word "insider trading" as finite. The courts have expanded the meaning of the word "insider"...which explains why some people say it is legal becuse he is not part of the company, or owns 10%, ect....and why some of us are saying it does not matter, the courts are set up to evolve and adapt. If I were representing Bron, I would tell him not to risk it. Insider trading is an umbrella term for wire fraud, proxies, manipulation, misappropriation, ect...

http://www.sec.gov/news/speech/speechar ... pch221.htm

The Second Circuit again addressed the misappropriation theory in the 1986 case of United States v. Carpenter.31 The case centered on a columnist for the Wall Street Journal, whose influential columns often affected the stock prices of companies about which he wrote. The columnist tipped information about his upcoming columns to a broker (among others) and shared in the profits the broker made by trading in advance of publication.32 In upholding the convictions of the columnist and the broker for securities fraud under Rule 10b-5 and mail and wire fraud, the Second Circuit rejected the defendants' argument that the misappropriation theory only applies when the information is misappropriated by corporate or constructive insiders, holding "[T]he misappropriation theory more broadly proscribes the conversion by insiders' or others of material non-public information in connection with the purchase or sale of securities."33

The case was appealed to the Supreme Court. The Supreme Court unanimously agreed that Carpenter engaged in fraud, but divided evenly on whether he engaged in securities fraud.34 But in unanimously affirming the mail and wire fraud convictions, the Court quoted an earlier New York decision that ruled: "It is well established, as a general proposition, that a person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit but must account to his principle for any profits derived therefrom."35

[LLcoleJ]

How would it look to MSG shareholders if Lebron Inc sunk money into a stock they own and then saw the price move up,only to then watch Lebron Inc take his money out right away. That is not really ownership confidence.

It would be near impossible for Lebron to stealth buy stocks at the quantity being discussed here and that with that kind of volume could undervalue the stock even with Lebron announcing his signing. To add insult to injury, he would leave a lot of shareholders holding the bag if he immediately pulled his ownership stake out.

With an average daily trade of 464,000 on a $20.00 dollar stock. I just don't see the financial windfall this get in - get out for Lebron talk/ boiler room talk.

Lebron can by stock in a company, but it would be in his best interest to go low and slow and allow his brand over time to increase the value. That is where the real money is.

----- again, William Shatner was given stock instead of money for priceline. To be the spokesman of the company, to build the brand and watch it turn profits every quarter. That is where star brands come into play. He made a reported 600 million over 10 years. Not bad.

[panthermark]

I work for an insurance/finacial company. We get a LOT of insider trading training.

It all boils down to....if you think there is a chance the SEC could come knocking on your door for any reason....don't do it.


http://attorneys.lockeliddell.com/files ... 20Laws.pdf

The first 6 or so pages sums this all up.

1. The term "insider" is VERY broad...
2. The SEC does not play around when it comes to material non-public information.

If Bron wants to be safe and still have stock in MSG...announce he is signing....wait two days...THEN by the stock.

The goal here isn't to win a court case....it is to not be in front of a judge in the first place.

The material inforamtion is a no-brainer....the "insider" is a bit muddy. But you don't want to be trying defend the accustion that Bron's fiduciary relationship started the moment he started purchasing MSG stock because he knew he was going to sign there in the first place.....and didn't tell anyone else....but used that knowledge to gain a financial advantage before he signed with them.

[Wiscfan92]

This would be so insane, but I like it. I could see him doing this, if they sign Bosh too.

[Gus McCrae]

Ask and you shall recieve:
-------------------------------------------------
In 1997 the U.S. Supreme Court adopted the misappropriation theory of insider trading in United States v. O'Hagan, 521 U.S. 642, 655 (1997). O'Hagan was a partner in a law firm representing Grand Metropolitan, while it was considering a tender offer for Pillsbury Co. O'Hagan used this inside information by buying call options on Pillsbury stock, resulting in profits of over $4 million. O'Hagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so that he did not commit fraud by purchasing Pillsbury options.[16]

The Court rejected O'Hagan's arguments and upheld his conviction.
----------------------------

O'Hagan was NOT an officer of Grand Metropolitan. He also did not have a fiduciary responsibility to the shareholders. This should hopefully satisfy richboy and the gentleman who'd mentioned that you must have fiduciary responsibility.

[towelie]

Already posted this but guess you ignored it; from the same US v. O'Hagan case:

The "misappropriation theory" holds that a person commits fraud "in connection with" a securities transaction, and thereby violates 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.

The court's misappropriation theory did expand it to nab outsiders who have no fiduciary duty, but it isn't a catch-all that can get anyone for insider trading. If, for example, you or I overhear a conversation between two CEO's at a restaurant, learn of some material confidential info, then go out and buy their stock, this is not insider trading. No duty was breached, whether to a shareholder or the source of the information.

Panthermark, your company, by virtue of being an insurance company, probably demands a very cautious approach to insider trading, cause any information you may receive from a client is likely in trust. By breaching that trust, and trading on that confidential knowledge, you can be charged with insider trading under the misappropriation theory.

But like I said before, if I were LeBron, I'd still avoid doing anything shady like buying up MSG stocks before signing, cause the last thing he needs is a legal battle. The SEC may argue that he's a constructive insider because of his intention to join the organization, and knowledge that his addition would significantly increase the stock price. But this notion that a lot of posters are spewing that any outsider trading with material non-public info is patently false. It's only insider trading for an outsider if you a) received the information from an insider (ie. Martha Stewart), or b) received the information in trust, as part of your relationship with the company (misappropriation theory).

[panthermark]

But I have to ask, who was the "insider" in United States v. Carpenter?

I guess this is where we start to get into the "umbrella" of insider trading...and the different catagories that fall underneath it (misappropriation, manipulation, wire fruaud, ect...)".

The point I'm trying to illustrate for those that say it is 100% legal based on the strict definition of "insider" is not true. The scope of the term "insider" and how "misappropriation" is applied has been greatly expanded.

And while the new scope of "insider" does not mean everyone (in a strict sense), it would be nearly impossible for a pure "outsider" to obtain non-public material information in a legal manner. Two CEO's discussing a possible merger out in the open is possible...but I'm gussing such CEO's would meet in private.

What makes Bron so unusual is that he himself is the non-public material information. It is one of the rare cases where an outsider did obtain non-public material informatin in a legal manner....however...the questions remains...how much of an outsider is he? And when does he become an "insider". (This is probably why sports teams could/should not be traded on the market)

Towelie...you called such a transaction shady....and would not advice Bron to buy the stock prior to signing. That is where we agree.

Because the definition of insider and misappropriation is not black and white....his purchase of MSG stock (prior to announcing he will sign) can't be claimed as 100% legal or illegal. But, if it is shady enough to arouse this type of debate....Bron would simply be best served not touching it. He does not want to be in front of a judge trying to defend is actions when if he would have just waited to buy the stock (after he signed), he would not be standing there.

[truth serum]

How would it look to MSG shareholders if Lebron Inc sunk money into a stock they own and then saw the price move up,only to then watch Lebron Inc take his money out right away. That is not really ownership confidence.

It would be near impossible for Lebron to stealth buy stocks at the quantity being discussed here and that with that kind of volume could undervalue the stock even with Lebron announcing his signing. To add insult to injury, he would leave a lot of shareholders holding the bag if he immediately pulled his ownership stake out.

With an average daily trade of 464,000 on a $20.00 dollar stock. I just don't see the financial windfall this get in - get out for Lebron talk/ boiler room talk.

Lebron can by stock in a company, but it would be in his best interest to go low and slow and allow his brand over time to increase the value. That is where the real money is.

----- again, William Shatner was given stock instead of money for priceline. To be the spokesman of the company, to build the brand and watch it turn profits every quarter. That is where star brands come into play. He made a reported 600 million over 10 years. Not bad.

Exactly. I don' see how this is even being discussed- him buying stock before he signs, only to pull out a few days later after its value goes up. That's absurd. The idea is that he makes a sound investment in a company that he can over time, help steer the success of with his image...just like Shatner.

[junot111]

then wouldn't he also pay his own salary

[towelie]

But I have to ask, who was the "insider" in United States v. Carpenter?

Here's a link to the Supreme Court case Carpenter v. US, if you wish to read it yourself:

http://scholar.google.com/scholar_case? ... 2&as_vis=1

Quoting a relevant portion:

The District Court found, and the Court of Appeals agreed, that Winans had knowingly breached a duty of confidentiality *24 by misappropriating prepublication information regarding the timing and contents of the "Heard" column, information that had been gained in the course of his employment under the understanding that it would not be revealed in advance of publication and that if it were, he would report it to his employer. It was this appropriation of confidential information that underlay both the securities laws and mail and wire fraud counts. With respect to the § 10(b) charges, the courts below held that the deliberate breach of Winans' duty of confidentiality and concealment of the scheme was a fraud and deceit on the Journal. Although the victim of the fraud, the Journal, was not a buyer or seller of the stocks traded in or otherwise a market participant, the fraud was nevertheless considered to be "in connection with" a purchase or sale of securities within the meaning of the statute and the rule.

Again, the issue hinged on a breach of a duty of confidentiality, in this case, between the employee who misappropriated the information pre-publication and his employer, the Wall Street Journal. Yes, the law expanded to include outsiders who had no fiduciary duty, or even interest in the security traded, but there still needs to be a breach of a duty of confidentiality for there to be liability, at least under current case law.

It'd be a really interesting court case if LeBron did do this and the SEC filed suit. It's a pretty unique situation, in which a celebrity is so high-profile that he can materially affect a stock price just by joining that organization. But I don't see how a misappropriation theory fits at all.