FOR those of you who appreciate the nuances of insider trading and other securities laws, the following question will probably give you goosebumps:
Does the the buyer of securities sold via a big-boy letter have an obligation to inform the next buyer about the existence of the letter?
After reading this tremendous article in the New York Times, I’m just a little surprised that there would seem to be confusion over this point in the legal community.
Legalities aside, the ethics of the situation should be clear as day to anyone who can tell right from wrong. But obviously I have a clearer sense of ethics than many bankers and securities lawyers.
So what is a big-boy letter? The Times says they are “typically used when an investor has confidential information about a stock or bond and wants to sell those securities. By signing the letter, the buyer effectively recognizes that the seller has better information but promises not to sue the seller, much like a homebuyer who agrees to buy a house in “as is” condition.”
I must confess, I didn’t know that.
The biggest irony of all is that it’s a hedge fund that’s complaining it’s the victim of Gekko-esque tactics involving an undisclosed big-boy letter. Fascinating stuff.