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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 DJRumpy (1345787) on Friday March 19, 2010 @07:40PM (#31545624)

    I'm not stock monkey either, but I think this has to do with freedom of information. Specifically that once Morgan Stanley publishes their stock upgrades and downgrades, it's pretty much public information. That fact that this information has been barred is the item of interest.

    From the Morgan/Stanley side, it might be appropriate to call it a trade secret. From the end user side, it becomes common knowledge so unless there are agreements with each user not to leak the knowledge, it seems like this law is invalid to my eyes. It seems to me that they are legislating a solution for Morgan/Stanley's lack of security.

  • by u38cg (607297) <calum@callingthetune.co.uk> on Friday March 19, 2010 @07:44PM (#31545658) Homepage
    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....
  • Trade Secrets? (Score:5, Insightful)

    by Alaren (682568) on Friday March 19, 2010 @07:45PM (#31545668)

    I haven't read the ruling--just the article, which does not mention trade secrets--but the word "misappropriation" suggests to me that this case was decided under a trade secrets analysis (or something similar under a federal securities regulation of some kind). Reading between the lines, it looks like theflyonthewall.com was engaged in soliciting "leaks" and publishing them before the information could be communicated to clients.

    The current (well-supported) suspicion of banks and stock traders gives the whole article a sinister patina, e.g. "the banks were keeping upgrades and downgrades secret, but theflyonthewall was exposing the information before the brandy-and-cigars set could fully exploit it!"

    But if we put momentarily overlook Wall Street's well-earned reputation for behaving as clannish and psychotic as possible, the solicitation and publication of trade secrets (or the like) is generally frowned upon. I think there are some interest public interest/private interest issues raised by the practices involved, but it doesn't appear to have any legal implications for online information providers generally--just those who obtain their information in inappropriate ways.

  • Stupidity (Score:2, Insightful)

    by StylusEater (1206014) on Friday March 19, 2010 @07:52PM (#31545734)
    From the Article:

    The banks welcomed the ruling. Merrill spokesman Bill Halldin called it a "milestone in regaining control over the distribution of our proprietary research and preserving the value of our investment ideas for our clients."

    Hrm... so if I were to publish my proprietary information online, our say, outside of my house, then people read it and used it before I could make money from it I can sue them for losses? Wow! what a novel idea banks!

    I've got a better one, why don't you lock the content away behind a login and share it with it client until you believe it be of insufficient value, then release it? Brilliant!
  • by Alaren (682568) on Friday March 19, 2010 @08:14PM (#31545956)

    A more fair ruling would say they have to release the reports publicly at the same time they tell their clients.

    At which point they would no longer have any clients. Why pay for the report when the report is free? And then--why generate the report if no one will pay for it?

    I was wrong about the legal analysis, but right about the fact that there is nothing sinister going on here. I'm not a fan of Wall Street OR the "hot news" doctrine, but I enjoyed reading this opinion. I think the court ultimately got it right.

  • Re:Trade Secrets? (Score:3, Insightful)

    by danlip (737336) on Friday March 19, 2010 @08:15PM (#31545966)

    Stock ratings are not facts. They are at best opinions, although I think it would be better to describe them as works of fiction. And works of fiction are subject to copyright :-)

  • by hedwards (940851) on Friday March 19, 2010 @08:18PM (#31546000)
    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.
  • by hedwards (940851) on Friday March 19, 2010 @08:26PM (#31546052)
    On what basis? What you're suggesting is that insider trading isn't wrong or horribly damaging to the functioning of the markets. It's basically just a variation on the pump and dump stock scams dressed up to look legitimate. People buy and sell when the ratings change, despite there being no good reason to base it on a change of ratings.

    You can gussy it up all you like, but it's definitely not behavior which should be allowed if we're to have a stock market that functions as anything other than an elaborate scam.
  • Easy Solution... (Score:4, Insightful)

    by BlueStrat (756137) on Friday March 19, 2010 @08:28PM (#31546070)

    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

  • 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. :)

  • Re:No (Score:3, Insightful)

    by Alaren (682568) on Friday March 19, 2010 @08:51PM (#31546232)

    The fact that person X has indicated opinion Y, is an objective fact.

    Clever, but no--at least not entirely. Consider the Seinfeld trivia case [wikipedia.org], in which the publisher's defense was, "It is an objective fact that actor X said Y in episode Z."

    This reasoning was rejected.

    Then your first ammendment right guarantees you can tell your friends...

    Not entirely. In particular, if your analysis of Obama's approval rating is something you figured out for profit in the regular course of business, and I'm in direct competition with you, then unfair competition laws may prevent me from "tell[ing my] friends." This is in part because commercial speech is not as closely protected by the First Amendment as other kinds of speech.

    ...when a person is a public figure, or an organization is a large corporate entity, whose every word is of public concern --- then the fact they expressed an opinion, is an objective fact, that should fully enjoy the ironclad protection of free speech rights provided by the 1st amendment of the US constitution.

    That's an entirely defensible position on the matter. But 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 Estanislao Martínez (203477) on Friday March 19, 2010 @08:52PM (#31546242) Homepage

    The "players" in your story are the stocks. But the folks complaining about the rapid dissemination of analyses are the middlemen--in your gambling analogy, this would be the house, the folks who want to rig the game in their favor.

    I think the court decision here is correct. If the house sells exclusive quick access to its analyses, it's only reasonable for them to demand that they buyers don't republish it too quickly; the information makes it out in end eventually anyway. The republishers are basically leeching off the brokers' analyses.

    It's important to point out how little important this is in the grand scheme of things. Stock analyst reports are no better than random at predicting stock performance. Timing the stock market doesn't produce superior returns, nor does short-term trading. Paying for ultra-quick access to these reports in the expectation that they will help you time the market is not a good idea.

    Basically, to continue your analogy, the house is selling their predictions about which card's gonna be drawn next. You can pay the normal fee, or you can pay extra if you want them to tell you sooner than they tell everybody else. If you pick the second option, however, the object if you go around and publish your early-access info.

  • by professionalfurryele (877225) on Friday March 19, 2010 @09:18PM (#31546382)

    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!

  • by PCM2 (4486) on Friday March 19, 2010 @09:30PM (#31546450) Homepage

    It is about a news aggregator publicly disseminating PRIVATE information - buy/sell is professional advice and not news.

    Errrm... but...

    • If I'm a CEO and my lawyer tells me to put the money I've embezzled in the Cayman Islands and the Wall Street Journal finds out about it, that's professional advice and not news.
    • If I'm the mayor of my town and my wife is leaving me because I've been philandering with prostitutes, that's private information (to the family, and pertinent to the divorce proceedings) and not news.
    • If I'm a private contractor and I'm hired by a government to write a report detailing radiation leaks in nuclear power plants around the country and some reporter gets a copy of that report, that's private information and not news.

    You get my drift. Where does it end?

  • Re:No (Score:3, Insightful)

    by jackbird (721605) on Friday March 19, 2010 @11:18PM (#31547038)
    So you're in favor of repealing the laws against fraud and false advertising?
  • by Miseph (979059) on Friday March 19, 2010 @11:37PM (#31547140) Journal

    If only we could set up a system where intelligent, educated individuals with knowledge in both the subject at hand and the law in general could sit down and, after careful deliberation and hearing the advice of people on both sides of each issue, come to some sort of a rational decision intended to balance between competing interests.

    Perhaps we could give these individuals a fancy title, like arbiter, or decider... I don't know, something classy and prestigious to go with their important and honorable function. We should name the places and circumstances under which they operate something special, too, something that inspires respect and tradition... maybe forums? Also, we should have a bunch of levels of it, so that we can mitigate the effect any one bad decision or individual has, then let people make some sort of dispute if things aren't decided their way and they feel something wasn't appropriately dealt with.

    Anyway, it could be a really cool system. Somebody should write up a document, and we could vote on whether or not to make that the highest law of the land.

  • by joocemann (1273720) on Saturday March 20, 2010 @12:57AM (#31547412)

    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.

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