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Federal Judge Bars Instant Publishing of Analysts' Stock Tips
An anonymous reader writes "Big Banking firms Barclay's Capital, Morgan Stanley, and Merrill Lynch successfully obtained an injunction against theflyonthewall.com, Inc., preventing them from immediately publishing the firms' stock upgrades and downgrades. This case could have far-reaching consequences concerning internet communication and publication of news." Here's some interesting analysis from Paul Levy, via Dave Farber's Interesting People list.
Basically, this company was publishing the results of various investment bank's research before their clients could read and act upon it. The legal reasoning behind it could equally be applied to Google News republishing other people's headlines, for example. More seriously, it means that effectively, you now have a sort of "copyright" created by the courts on factual information that you possess. I leave it to slashdotters to come up with ways this might be abused....
[FUCK BETA]
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Obviously these reports will affect prices, so you tell clients, wait a bit so they can react, and then tell the public. That's market manipulation plain and simple. A more fair ruling would say they have to release the reports publicly at the same time they tell their clients. But then this is a Manhattan federal judge who knows who he works for ;-)
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It appears that theyflyonthewall.com can appeal after one year. Apparently the judge saw the fact that the bar was basically making up for lack of security on the financial institutions part.
From TFA: "The judge said Theflyonthewall.com may apply in one year to lift the injunction if the banks do not take reasonable steps to halt the unauthorized distribution of research."
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Sort of like the trade secret that the big boys get to buy on a current price knowing what it will be in a short period of time. Wall Street really is filled with crooks and thieves. Barring analyst recommendations from being published in that respect is largely pointless. The recommendations are for institutions anyways, and are not generally made on any basis useful to the small time investor.
Theflyonthewall.com just moves it's servers & business outside the US. I hear Antigua might be a good choice, since they've already gotten a WTO judgment against the US and so wouldn't be quick to cooperate with the US to take down the site.
It looks like the US government is determined to drive businesses, particularly internet-based or -dependent businesses, to other countries. Then they whine about trade imbalances and people wonder why business is fleeing the US.
Strat
Progressivism (aka US 'Liberalism'): Ideas so good they need a police/surveillance-state to enforce.
Let's be clear on this, the issue has nothing to do with having up-to-the-second stocks news or not. It has nothing to do with an RSS aggregator having a feed from a news site.
It is about a news aggregator publicly disseminating PRIVATE information - buy/sell is professional advice and not news. Professional advice is subject to a two-party contract - it can be given confidentially. This is leaked advice.
Usually leaks aren't much of a problem because there's copyright and so on, they can't just reproduce the detail necessary to completely steal your advice usefully. But, in this case all that's really interesting is the company name and whether the word after it is "buy" or "sell". The entirety of the substance can be in the article. Contrast this with say the problem with the leak being that it is embarrassing - here the "news" is not the substance of the advice as advice, it is the fact that it is embarrassing.
Secondly, absolutely key to the value of that information is extreme timeliness. It only has value if you have that information before most other people, after which point the information becomes obsolete. Thirdly, the person giving the advice is also of high importance. "Sell Microsoft" has a greatly different value as information when Merrill Lynch says it than say, Bob down the pub. So people were paying thefly to get Merrill Lynch's advice more cheaply than buying it from Merrill Lynch.
The point the judge upheld is that thefly were not announcing news, they were reproducing a private professional opinion - and an opinion that was of value because of whose it was. Nobody wanted this as some retrospective news about some event, they wanted to know this information for the exact same reason and no other reason than those for which Merril Lynch's clients were paying for it.
This is little different than say, someone finding out the Coke formula, setting up a factory and marketing it as Coca Cola. The one difference is that in this case the product is "knowledge". The judge seems to have been quite savvy in differentiating the "product" and "knowledge" elements on the basis of the extent that timeliness was important.
Remember when that Hulk film from 2003 blamed the internet and texting for ruining opening it's weekend?
Will movie studios now ask for opening weekend injunctions on news sites too from reporting on plot/story and whether it sucks or not, before most theater-goers had a chance to watch it?
I mean, while we limit freedom of press for business concerns, we might as well see what other industries would like.
1. There are a couple of dudes, who just make up the latest “trends”.
2. Which of course is where they have their money in.
3. Now the dumb people who listen to them buy those s(t)ocks.
4. And the prophecy fulfills itself. (Yep, that’s the “...” point in all those plans.)
5. PROFIT!
Of course in stocks, after it starts to rise because of the dumb people, the more intelligent got a real reason to invest, and so it goes even higher. In fashion on the other hand people do it because they are such losers that they think they would be left out and not accepted otherwise.
So it’s all rigged. But if you know a bit of social engineering, and are really full of yourself, you can be a rigger too.
My motto: I don’t follow trends. I MAKE them. (And so should you. :)
Any sufficiently advanced intelligence is indistinguishable from stupidity.
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This is not a case of insider trading, it is aggregation and analysis of publicly available information being used to facilitate smarter trading amongst their clients. Most of those clients are long-term investors, and insider information is almost exclusively used for short-term gains. While there may be overlap in legal and illegal activity among firms and clients, there isn't really a case to be made that this is an example of that sort of thing.
Yes, there is a lot of scummy behavior on Wall Street. It helps to not be confused as to what terms like "insider trading" actually mean when discussing it though, because it detracts from actual meaningful discussion.
The whole point of having a stock market is to get money to the people who can make the best use of it. What this ruling does, as far as I can tell, is impede that process by preventing the dissemination of useful information about who can make the best use of investment capital. In short, while this might or might not be a good ruling from the standpoint of enforcing the law as it exists today, it runs completely counter to the whole point of having a stock market. There should be absolutely no impediment to disseminating as widely as possible information about publicly traded stocks unless it is for an exceptionally good reason (like national security level good).
Going even further, by restricting information like this they are essentially allowing the major players in the stock market to manipulate stock prices. I tell my clients that I will claim stock X will go up and the market listens to me. I do this in such a way that my clients can by their stocks first. Stock goes up because I say it will and I'm a major player. Then my clients sell their stock making a nice tidy profit, all the while I have less incentive to provide good advice because assuming I'm even vaguely plausible this scheme will work. The law is protecting this kind of thing when it should be prohibiting it!
Specifically that once Morgan Stanley publishes their stock upgrades and downgrades, it's pretty much public information.
That's not what was happening. Theflyonthewall.com was publishing information before it was made available, so that their subscribers could benefit from it before the clients of Morgan-Stanley et al.
God invented whiskey so the Irish would not rule the world.
So the judge knows the actual barring is baseless, but is doing it to protect these rich banks and their advantages for long enough for them to fix their leaks.
I thought judges were here to uphold laws, not temporally wipe their ass with the 1st amendment in favor of big banks.
There was a case, something like "WWW Communications v. INS," where WWW and INS were both news organizations/aggregators in World War I. One was basically scraping the others' content, reading its headlines on the east coast and selling them on the west coast the same day that the information came out. The Court said that the scrapers were "attempting to reap what they did not sow," I think, creating a sort of prepossessory property interest in the information.
The idea is that if a domain scraper can copy all news content on the web, take away the advertisements, and not pay anyone for it, then there won't be an incentive for people to go to the effort to gather the news in the first place. It was obviously more legitimate in the pre-digital age, and doubly so during a world war, when it was MASSIVELY difficult to assemble transcontinental news on a daily basis, but the point still stands to some degree.
-- IANAL, this isn't legal advice, and definitely isn't legal advice for you. Also, Squee!