Insider trade on Splunk acquisition?

Is there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?

Knowing about the acquisition puts you in possession of material nonpublic information. It's unlawful to trade on the basis of such information whether you work at the company or not. Passing it along is 'tipping' and acting on it is still 'insider trading.'

I am far from an expert - but think this is essentially true - but does not universally imply you can't trade on the info.

Example: You watch the front door of an office building. From seeing who walks in, you ascertain with 99% probability that companies X and Y are working on some kind of big deal. If you're just a random person with no relationship to those companies, you can trade on this information.

(Not legal advice! Don't do this unless you are sure it is OK! Which I am not!)

My understanding is that having material nonpublic information is not—in itself—enough to make a trade illegal. As long as you're a true outsider, and didn't get that info using illegal means, you can trade on it.

Maybe this whale was tracking tail numbers, drove down to the executive airport, and saw that Cisco's chief M&A guy had a huge grin on his face as he stepped onto the plane.

(Okay, I doubt that highly, but it is a scenario)

Cisco and Splunk are both HQ'd in SF. If they were at the airport, it was coming back from Jackson hole or something.

The real trouble with 'maybe they were legit outsiders' is the options expired specifically today, which means you need to know _when the announcement_ is to profit.

No, your intuition is wrong here. Otherwise you couldn’t do private research. This definition varies and is true maybe in some European countries(???) but not the US.

I initially thought this wasn't the case, but did some research - so for posterity: if you overhear the information in a public setting you may be ok. It depends on whether you have a duty of trust, apparently, and personally I'd run it by a lawyer before firing up Robinhood. [1] Although (1) IANAL and (2) you may still be answering difficult questions if you structure your trades the way this individual did.

[1] https://money.com/insider-trading-examples/

There's a third element of insider trading: "in breach of a fiduciary duty or other relationship of trust and confidence"

0 - https://www.investor.gov/introduction-investing/investing-ba...

I strongly suspect these trades are not legit. That said, the trader didn't necessarily KNOW that the deal would be announced today. Trading is a game of probabilities. It's possible that the trader used public information to figure out that Splunk could be acquired soon and there was a small but non-zero chance it would be announced today. In that case taking a $22k flyer on cheap options is a good risk-adjusted bet for a well-capitalized investor. (Although they'd have to factor in that this WILL result in a visit from the SEC, which is probably not fun even if you've done nothing wrong.)

Right, the SEC’s guidance[1] on this specifies that merely trading on MNPI alone is not enough:

> Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.

If you have no fiduciary duty or other relationship of trust and confidence, it’s not insider trading. So to my understanding, if you, say, overheard two execs chatting about this in an airport lounge you’d be free to trade on it.

Note: this only applies to the US! Different countries may define things differently.

[1]: https://www.investor.gov/introduction-investing/investing-ba...

SPLK option expiration dates are weekly out to 6 weeks.

There is precedent that even if you are in possession of info that will eventually become public, which you then trade on, you can still be convicted of insider trading.

For example, a Printer for Business Week and a Stock Broker traded on pre-publication information and were convicted of insider trading.

https://corporateinsiderstrading.wordpress.com/2012/02/01/bu...

>Is there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?

Cisco is not allowed to use inside information about Splunk to make the acquisition either. So, if someone did the same analysis that Cisco did they could have drawn the same conclusion.

If this trader has a solid history of making many wild option contracts including many that didn't pay off, leading to average returns, then that's a strong case that this was random.

Fun fact: Cisco is actually headquartered in San Jose, but I believe that both companies have large engineering offices in both San Francisco and San Jose.

For those who don't know, they're both part of the same metro area (Bay Area) but they're 50 miles apart, anywhere from 1 to 2 hours apart depending on traffic.

> So, if someone did the same analysis that Cisco did they could have drawn the same conclusion.

About the merger, but not about the exact date that it would be announced.

>> Is there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?

Yes, people try to follow private plane transponders of bankers and corp executives to/from corporate headquarters. This is harder for 2 SV companies, it isnt like the plane is flying to some rural HQ.

IANAL, but I'd guess that betting on an acquisition based on public data about private plane routes would make this trade legal IFF that happened.

Yeah, I don’t know, an investor sophisticated enough to predict that without insider information, I would have to hope that they would also be sophisticated enough to make the trade less blatantly obvious as a big bundle on 1 day expiration otm call options.

> for using stock information in “Business Week” magazine before it was distributed to the public

They traded on information that was non-public at the time of the trade. Why shouldn't that be treated exactly as trading on news of this merger before it was announced? (The merger was eventually going to be known to the public as well, right?)

it's still the birthday paradox, 365 analysts deciding to make investments over the course of the year, some will pick the same dates, and assuming that there was not public information released recently that could have drawn an analyst's attention to Splunk or Cisco "being in the market for acquisitions" in the first place. Perhaps ChatGPT recommended this trade, "chatGPT, if i asked you to go spelunking for good options trades today, what would you suggest?"

The question was, any way this could be legit.

The printer has an obligation of trust. Someone overhearing your loud phone conversation in public does not.

Is it insider trading if the information is leaked publicly, like on Twitter?

Still not taking a flight from SFO to SJC to seal a deal.

No, it’s essentially false. The crime is not trading on something the public doesn’t know. It’s breaching the trust for information given to you in confidence. It’s completely different despite looking similar on the outcome.

No, it’s not the birthday paradox. This was a bet that expired nearly immediately after it was placed. This wasn’t someone who decided “I’ll invest in splunk today”. It was “I’ll bet that splunk stock appreciates significantly by the end of the week, far outside it’s normal variance, else I lose everything I bet.”