[floam]

> The misappropriation theory of insider trading covers anyone who trades on material non public information sourced through a trusted relationship regardless of any fiduciary duty to the company. For example, if I tell my personal attorney a non public fact about the company I work at, and they trade on that information, they absolutely can be found guilty of insider trading despite having no relationship to the company at hand.

Huh. The lawyer example works because attorneys have a very specific, enforceable duty of confidentiality. Swap that relationship out and the conclusion may change. As written, the comment slides from "duty-based misuse of information" to "any private knowledge you shouldn’t have," which is not the same thing.

A lawyer (not my lawyer) gave me his off-the-cuff opinion on this scenario:

A pharmacologically-literate clinical trial participant for a novel new drug strongly suspects he did not receive the placebo/comparator drug, based on the subjective effects, plus their own pharmacology knowledge, experience with the placebo, and the research on the candidate drug.

However, this drug was not therapeutic for him, the side effects were onerous, or perhaps he believes the trial will be halted. Whatever their reasoning behind his inference, no details of others’ experiences were leaked to him, blinding was maintained; protocol was followed. He didn’t base this on a lab readout.

Based on his understanding of published research on the candidate drug, and projecting from his lived experience as lab rat, he believes this trial should disappoint shareholders. At the very least, shares may be priced too high.

Can the participant, based on this inference, invest $$$ shorting the pharma firm? This drug is considered the firm’s last best hope.

Their answer was yes, basically. He can trade on this non-public info.

[colinmorelli]

This scenario seems very different because nobody gave the person any material non-public information at all, they simply deduced it from their experience participating in the trial. This feels similar to the question of "can a passenger on the Boeing jet with the door plug that blew out trade on that information" to which the answer appears to be yes.

Misappropriation theory is the following: > The misappropriation theory of insider trading is a form of insider trading where an individual trades stock in a corporation, with whom they are unaffiliated, on the basis of material non-public information they obtained through a breach of a fiduciary duty owed to the source of the information

The important part, which you're right was unclear in my comment is that the recipient of the information must have a fiduciary relationship with the source of the information, even if they do not have one with the company in question at all. That's the distinction.

[floam]

Yeah, that is the axis.

And turns out I didn’t just stumble upon an unconsidered edge case because I got accepted into a drug trial and activated my galaxy brain:

Allan Norwich, The Clinical Trial Research Participant As An Inside Trader (J. Health Law, 2006).

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1485012