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Federal Judge Bars Instant Publishing of Analysts' Stock Tips 133

Posted by timothy
from the you-can't-say-that-just-yet dept.
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.
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Federal Judge Bars Instant Publishing of Analysts' Stock Tips

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  • by Alaren (682568) on Friday March 19, 2010 @08:08PM (#31545906)

    So the decision is not exactly sizzling reading, but it is available here [uscourts.gov].

    I was wrong in that the court did not address trade secrets per se, but an "unfair competition" analysis coupled with the "hot news" doctrine mentioned in Levy's analysis. I'm not a big fan of the "hot news" doctrine and I think it is a good example of bad copyright law, but the court applies that law correctly (in my opinion) and, more importantly, the court's decision seems sufficiently supported by the unfair competition claims even without reference to the hot news doctrine.

    In short, you're wrong about it not being illegal to disseminate leaks for profit.

    I keep hitting paragraphs I want to blockquote here, but there are simply too many of them. The opinion is well-written. I'm law-trained (not a lawyer... yet) so I may be underestimating its complexity, but it is one of the clearer opinions I've read in a while. I highly recommend you give it a read. It probably won't convince you, but it may temper your anger somewhat.

  • by DJRumpy (1345787) on Friday March 19, 2010 @08:08PM (#31545908)

    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."

  • by DaveGod (703167) on Friday March 19, 2010 @08:40PM (#31546144)

    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.

  • by Fjandr (66656) on Friday March 19, 2010 @08:48PM (#31546206) Homepage Journal

    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.

  • Re:No (Score:2, Informative)

    by mysidia (191772) on Friday March 19, 2010 @09:27PM (#31546434)

    This is in part because commercial speech is not as closely protected by the First Amendment as other kinds of speech.

    The 1st amendment says congress may not abridge the freedom of any type of speech. There is no exception for commercial speech, and specifically:

    "Congress shall make no law [...], or abridging the freedom of speech, or of the press; "

  • by corbettw (214229) <corbettw@noSpAm.yahoo.com> on Friday March 19, 2010 @09:54PM (#31546564) Journal

    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.

  • Re:No (Score:3, Informative)

    by Alaren (682568) on Friday March 19, 2010 @10:06PM (#31546620)
    My point is that there is a difference between how you (and many others) think the law should be interpreted, and how it is presently interpreted. Indeed,

    several Supreme Court justices agree with you. [wikipedia.org]

    But.

    [While t]hat's an entirely defensible position on the matter . . . . the fact remains that it is not the law of the land. That doesn't make it right, necessarily, but it does mean that the things you assert in your post are not true--they are at best aspirational.

  • by dmomo (256005) on Friday March 19, 2010 @10:12PM (#31546650) Homepage

    Sure. The "couple of dudes" thing happens. But you're giving the impression that this is how the overall market works. "There's a small number of people driving the whole thing". "It's all rigged".
    No. For the most part, it's "rigged" by an amazing feedback system of entity-less market forces.
    These "couple of dudes" you speak of.. they might make out well, but, they hardly make a bump in the grand scheme. And most of these people fail.
    And the ones who succeed... I'd love to think that they are ruining the game for all of those "dumb investors". But I highly doubt it. Conspiracy exists in all aspects of the world, especially where there is money. But it's not running the stock market. The Market runs the stock market.

    Interesting comparison to the fashion industry, though. It's definitely true with respect to the "demand" aspect.

    I would love to see how your skills of counter-culture help you win big at the stock market! You're right. The people who really win big, tend to invest contrarily. However, I think the biggest losers are among the contrary. It's all risk-management. In stocks, you hear about the big winners and the big losers. But on average, most people do, well, average. I'd mod you up if I could. You got me thinking and rambling.

  • by Anonymous Coward on Friday March 19, 2010 @10:52PM (#31546894)

    Because they have different "levels" of clients. Ones that are hooked up and get it earlier, ones that are slightly hooked up that get in next, and lastly the ones they do not really care about but the since they collect fees from them for a services, they hook them up eventually. The higher your level, the higher your potential gain is from that information. By the time the average investor hears about it, the people that were hooked up already have positioned themselves to profit from the them.

  • Re:Analysists?? (Score:3, Informative)

    by Areyoukiddingme (1289470) on Friday March 19, 2010 @10:56PM (#31546924)
    Use Firefox to post then. It has built-in spell check in text edit boxes. It's no help for grammar, but Slashdot's grammar Nazis aren't nearly as attentive as the spelling Nazis and it looks to me like you don't have many issues when it comes to constructing sentences. Firefox underlines misspelled words in wavy red. Its dictionary isn't what I would call comprehensive, and it has very few entries for jargon or acronyms, but for most vocabularies, it does just fine.
  • by Oxford_Comma_Lover (1679530) on Saturday March 20, 2010 @01:48AM (#31547612)

    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.

  • by professionalfurryele (877225) on Saturday March 20, 2010 @08:38AM (#31548776)

    If they want to keep this information private then they can do so. Just don't tell anyone it, or only tell people with whom them have agreements not to disclose the information. If they also conduct no trades based on the information then no one will know it.

    If they wish to keep the information secret they have a simple solution, do nothing with it which would require making the information public. Which is better, having less information available due to a reduction in 'research' of the market or enabling outright manipulation of the market using schemes like the one that was protected by this ruling?

  • by Hognoxious (631665) on Saturday March 20, 2010 @09:05AM (#31548912) Homepage Journal

    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.

    It's not information (in the sense of facts), it's opinion and analysis. Opinion and analysis that the bank has paid money to have performed. It seems perfectly reasonable therefore for them to restrict access to it.

    Typical crapdot summary. It has nothing to do with "publication of news" at all.

  • by Hognoxious (631665) on Saturday March 20, 2010 @09:46AM (#31549136) Homepage Journal

    Sorry to interrupt your enraged rant, but this isn't insider trading.

    If the information in question was unpublished factual knowledge (i.e owning an iPad causes/cures AIDS) then it would be.

    However it isn't, as would be obvious from reading TFA. These are tips (i.e. our boffins think that because of [econobabble here] Apple is a good buy).

Don't steal; thou'lt never thus compete successfully in business. Cheat. -- Ambrose Bierce

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