Whatever: I think today's charging of one of his former analysts and his room mate for insider trading in Herbalife is a bad case of SEC over-reach.
US insider trading rules first require that someone breach a position of trust regarding the company that is being traded. In the Mark Cuban case - which the SEC ultimately lost on appeal - Mark Cuban was told by the CEO of Mamma.com that the company was going to need to do a secondary offer. Mark Cuban sold his stock and was charged with insider trading.
The whole case swung on whether Mark Cuban had agreed to be bound by the CEO into not trading the information he was given. The SEC could not prove that he had so agreed and so Mark Cuban had not breached any position of trust he had been put in by the company and hence was not guilty of insider trading. I blogged extensively about the Mark Cuban case here and again when the SEC lost the case here.
In the recent Herbalife an analyst at Pershing Square knew in advance that Pershing was going to do its "hit piece" on Herbalife. The analyst had a duty to Pershing Square but did not have any duty to Herbalife and was not an insider in Herbalife.
The analyst tipped his room mate who traded the stock. The room mate made about fifty grand.
Both were charged with insider trading - but neither was in a position of trust with respect to Herbalife and neither had inside company information.
As stated the analyst clearly had a duty to Pershing Square - and I think it is incumbent on Bill Ackman to sue his analyst if the analyst acted contrary to his obligations to Pershing. But it is not a case which should involve the SEC. It is not insider trading.
My guess is that the SEC put Bill Ackman through hell on this one.
For once - and I suspect it is only once - I am on his side.
Post script: I did not read the source material accurately. The analyst was not charged. It was the roommate as tipper and a friend as tippee. However either way I find it extremely hard to work out what duty was breached.
The only person here with a written duty was probably the analyst at Pershing.