Big Lots case adds to insider trading debate

Bob Moon Nov 23, 2010

Big Lots case adds to insider trading debate

Bob Moon Nov 23, 2010


Tess Vigeland: Yesterday we told you about a sweeping investigation into alleged insider trading on Wall Street. It involves the research that institutional investors buy to help make their investing decisions. The question is how far that research strays into the territory of insider information.

Well an example is being played out right now in a lawsuit brought by the discount retail chain Big Lots. It’s accusing a Florida-based research firm of going too far to dig up trade secrets, and put together information that damaged the chain’s stock price.

As our senior business correspondent Bob Moon tells us, this court case could affect the depth and quality of stock market research.

Bob Moon: Big Lots is pursuing its lawsuit at the same the federal prosecutors are pressing a broader insider trading investigation. But the retailer’s action is aimed squarely at what some Wall Street experts say has become common: Ferreting out closely-held information on the health of a business.

Big Lots executive Chuck Haubiel says it’s not fair to most of the company’s stockholders.

Chuck Haubiel: What we’re concerned about is making sure that we prevent providing information on a non-public basis to select investors, as opposed to providing a level playing field for all of our investors.

Tom Ajamie is a securities law attorney who is not involved in the Big Lots case. He says there’s a fine line between inducing executives to leak secrets, as the retailer claims, and public information.

Tom Ajamie: You might count the number of customers showing up at a store, how busy the traffic is, but that’s different from going to a senior executive who has precise information, that if it’s revealed, actually can move the price of a stock.

Company executives could face legal action for leaking that kind of information. But up to now, researchers have largely worked without repercussion. The Florida research firm in this case declined comment today. But Jacob Frenkel, a former federal prosecutor, says it may have just been asking simple questions.

Jacob Frenkel: Speaking to corporate insiders is a long-used tool of reporters, investigators, and researchers on behalf of market participants.

But given the fresh focus on insider trading, Frenkel is sensing a fear that market information may suffer.

Frenkel: It has never before been a violation of law to obtain and provide quality research.

Frenkel says he hopes the crackdown on insider leaks doesn’t leave the investing public at a disadvantage.

I’m Bob Moon for Marketplace.

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