Matt Levine, Columnist

Money Stuff: Insider Trading on Securities Fraud

February 4, 2020 at 5:27 PM UTC

Matt Levine is a Bloomberg Opinion columnist. A former investment banker at Goldman Sachs, he was a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz; a clerk for the U.S. Court of Appeals for the 3rd Circuit; and an editor of Dealbreaker.

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Programming note: Money Stuff will be off tomorrow, Feb. 5, back on Thursday.

If you are a senior executive at a public company, and the company is doing a big securities fraud, and you own a lot of stock in the company, when should you sell that stock? Presumably the stock is overvalued, because of the fraud, so if you sell now you will get a good price for the stock. If you wait, people might discover the fraud and then the stock will go down. On the other hand, the fraud has worked so far, so the likelihood is presumably pretty good that it will keep working for a while, and the stock will be even more overvalued tomorrow than it is today. So it’s not a huge rush. The best time to sell the stock is right before people discover the fraud.