Matt Levine, Columnist

Watch Out for Shadow Trading

Also the end of Diem and a tontine SPAC.

January 26, 2022 at 4:59 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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Let’s do some insider trading hypotheticals.

I can tell you the answer to Scenario 4, I think. (Nothing here is legal advice!) Under pretty well established U.S. law, this one is illegal. This is called the “misappropriation theory” of insider trading, and the rough idea is that Amalgamated “owns” this information about its merger plans and you have “misappropriated” it by trading on it. In a sense you have front-run Amalgamated, your employer: Amalgamated is looking to buy BAWF stock (in a merger), and you buy it first and then flip it to Amalgamated (in the merger) for a profit. In theory your front-running might drive up the price that Amalgamated has to pay, so in an economic sense you really are stealing from Amalgamated.