Comment by derefr
8 years ago
I know the case. If he was literally only “growing wheat for himself” as a subsistence farmer, the commerce clause wouldn’t apply. The reason it applies is that he was already operating a business that does interstate commerce.
Such a business, when it makes a choice to not execute a sale that it would have had an opportunity to execute, has “mens rea” for that act’s effects on interstate commerce—because such companies keep track of such things, and their decisions are driven by such metrics.
It’s just like insider trading: not executing a trade that would have otherwise (i.e. given only public knowledge) been in your best interests to execute, where you didn’t execute it because of corporate-internal knowledge, is still just as illegal as the reverse. In either case, since it’s your job as a trader to be aware of the effects of both executing and not executing trades, either “act” can be said to be the result of an explicit, intentional choice you made.
(Of course, that’s different from just not executing a trade that you would have had no particular reason to execute. You can’t blame someone for insider trading just because they don’t short a stock, if they don’t already have a pattern of shorting stocks!)
In all such cases, the guilty party is a more abstract type of actor than an individual (e.g. a corporation; an accredited investor) and their guilt is driven by the fact that such actors behave predictably according to some preference function, such that it’s clear where such actors act against that preference function both through explicit action; and through inaction.
Or, as a formalism: when it’s 100% of your job, as an agent in a system, to decide whether to make deals, then a lack of a deal, together with evidence that you considered the deal, can be regarded as an explicit choice you’ve made to not make that deal.
> I know the case. If he was literally only “growing wheat for himself” as a subsistence farmer, the commerce clause wouldn’t apply. The reason it applies is that he was already operating a business that does interstate commerce.
Are you sure about that? I don't know that much about the law, but I've always heard of this case specifically because the excess wheat he was producing was for his own consumption.
Wiki seems to agree with this, not mentioning anything about his having a business that I see (although I only skimmed the article and may have missed something).
Yes, the amount grown in excess of the law was for his own use; but the amount grown conformant to the law was for sale.
There may not have been an incorporated entity beyond just the farmer as farmer; but, sole proprietorship+ or corportation, there was still a separate abstract entity from the federal government’s perspective whose function was to trade in wheat (a “trading entity” or “Doing Business As” entity.) The farmer was—again, from the federal government’s perspective—the employee and sole shareholder of that entity; and that entity did business selling wheat.
+ (Sole proprietorships are a “hack” of the public API by which individuals interact with the tax system, allowing them to track their DBA revenue and expenses as part of their individual income and expenses. From the government’s perspective, though, when it comes to trade law rather than tax law, there’s always a company on both sides of each trade. In the case of sole proprietorships—including the case of, say, two neighbouring farmers bartering—the trade is just being executed by two "companies" whose identities are foreign-keyed to the individual sole shareholders' identities.)
Under this model, the amount grown in excess of the law was, effectively, grown by a business that sells wheat, and then given to the business’s sole shareholder in place of pay. That transaction caused the shareholder to not have to buy wheat on the market, which means the business made a choice to make this deal, when the business—as an entity that sells wheat—had a responsibility to know that it was breaking the excess law by doing this.
"It’s just like insider trading: not executing a trade that would have otherwise (i.e. given only public knowledge) been in your best interests to execute, where you didn’t execute it because of corporate-internal knowledge, is still just as illegal as the reverse."
Can you provide a citation for that? Every definition I've read (eg. [1]) says that for it to be insider trading, there must be a trade. It doesn't necessarily have to be done by you (eg. U.S. vs. Rajaratnam [2], where an insider was convicted of passing information to a friend for relationship goodwill), nor do you have to be the insider (eg. Martha Stewart [3]) but some exchange of tangible property for financial benefit must have taken place.
It seems very problematic, from an enforcement perspective, to criminalize not doing something, particularly when it comes to trading. I don't see how you could ever prove "would be in your best interest to execute, given only public knowledge", given that the whole point of a trade is that one counterparty believes that it's in their best interests to own the security at the sale price while the other party believes it's in their best interests to not own the security. If there's any market liquidity at all at that price, it implies there's a difference of opinion over whether the security is worth owning. It also seems problematic to try and infer whether your lack of an action was because of inside knowledge or whether it was because you were restricted from stock transactions because of insider trading laws (ironically) or whether you just had too many other things going on to bother trading.
[1] https://www.investor.gov/additional-resources/general-resour...
[2] https://www.businessinsider.com/can-you-be-guilty-of-insider...
[3] https://en.wikipedia.org/wiki/ImClone_stock_trading_case
I was thinking specifically of a case mentioned previously here on HN, where someone cancelled a monthly scheduled partial stock-liquidation event on corporate-internal news that the company's value would change. IIRC the law said that this was insider trading: there was an evidence trail proving that the trade would have been executed, if not for corporate-internal knowledge.
I guess you could phrase this more clearly as: never investigating a trade in the first place can't be insider trading; but proposing/planning/scheduling a trade and then cancelling that trade, can be insider trading. Where, as well, choosing to execute a competing trade can be considered to cancel the trade that would have been executed in its place.
Ahh but that’s because the point of putting the trades on automatic is what allows insiders to trade even though they have inside information. As soon as you put trades on manual you’re opening yourself up to use inside information.
I don’t remember the story, but you can imagine a situation where you scheduled a big buy a year in advance right before earnings. You’ve done this consistently for a few years, and it’s paid off for you. The company has grown consistent quarter after quarter. Only now, this year right before the earnings call, you cancel the purchase.
Now tell me, do you think the company’s earnings exceeded expectations?
How do you reconcile this with Gonzales v Raich? https://en.m.wikipedia.org/wiki/Gonzales_v._Raich