1 00:00:00,040 --> 00:00:02,279 Speaker 1: Well, now it's time for our daily Bloomberg Law Brief, 2 00:00:02,320 --> 00:00:05,240 Speaker 1: exploring legal issues in the news, and today, Bloomberg Law 3 00:00:05,280 --> 00:00:10,000 Speaker 1: host Jew and Grasso discusses insider trading Churches against Deerfield Partners. 4 00:00:10,240 --> 00:00:14,200 Speaker 1: The allegations have brought the information Highway between Washington, d C. 5 00:00:14,680 --> 00:00:18,000 Speaker 1: And Wall Street into the spotlight. She speaks with Robert Hawkeett, 6 00:00:18,000 --> 00:00:21,560 Speaker 1: a professor at Cornell University Law School, and Eugene Assault 7 00:00:21,760 --> 00:00:25,400 Speaker 1: is a professor at the Harvard Business School. Bob start 8 00:00:25,480 --> 00:00:28,920 Speaker 1: us off by telling us about the case. Sure, so, 9 00:00:29,040 --> 00:00:31,560 Speaker 1: on the one hand, it's got a classic insider trading case. 10 00:00:31,560 --> 00:00:33,440 Speaker 1: On the other hand, it's also an instance of a 11 00:00:33,520 --> 00:00:35,880 Speaker 1: new what appears to be a new trend in insider trading. 12 00:00:36,320 --> 00:00:38,200 Speaker 1: So it's a classic in the sense that you've got 13 00:00:38,280 --> 00:00:41,080 Speaker 1: somebody who's an insider to a particular agency that is 14 00:00:41,120 --> 00:00:43,239 Speaker 1: going to make decisions that are going to have an 15 00:00:43,240 --> 00:00:46,040 Speaker 1: effect on the price or the value of certain firms 16 00:00:46,280 --> 00:00:49,159 Speaker 1: and thus on the prices of those firms securities. That 17 00:00:49,320 --> 00:00:52,720 Speaker 1: insider then reveals some of the inside information that he 18 00:00:52,760 --> 00:00:55,680 Speaker 1: has before it becomes public, in this case, about two 19 00:00:55,680 --> 00:00:58,880 Speaker 1: months before it becomes public. Those to whom he reveals it, 20 00:00:59,120 --> 00:01:01,680 Speaker 1: of course trade the securities in question because they have 21 00:01:01,720 --> 00:01:04,560 Speaker 1: an informational advantage relative to other traders out there. Class 22 00:01:04,600 --> 00:01:06,640 Speaker 1: in center, which is classical. The one cent in which 23 00:01:06,680 --> 00:01:09,120 Speaker 1: it represents an instance of a new kind or a 24 00:01:09,120 --> 00:01:12,040 Speaker 1: new variant of insider trading is that there seems to 25 00:01:12,080 --> 00:01:14,640 Speaker 1: be an increasing reliance now on the part of insider 26 00:01:14,720 --> 00:01:19,319 Speaker 1: traders on consultants who used to be employed by the 27 00:01:19,400 --> 00:01:23,039 Speaker 1: particular agencies whose decisions they're sort of getting access to 28 00:01:23,160 --> 00:01:25,959 Speaker 1: in advance. Um, the thought seems to be that using 29 00:01:26,000 --> 00:01:29,480 Speaker 1: these consultants will sort of insulate the insider traders, as 30 00:01:29,520 --> 00:01:32,320 Speaker 1: we're finding now it's not actually going to be insulate 31 00:01:32,360 --> 00:01:35,760 Speaker 1: them at all. Eugene, is there a fine line to 32 00:01:35,959 --> 00:01:41,760 Speaker 1: cross between so called political intelligence and insider trading? Yes, 33 00:01:41,800 --> 00:01:44,720 Speaker 1: I certainly think there is. I mean, what you see 34 00:01:44,760 --> 00:01:48,160 Speaker 1: the individuals in this case doing, and very much by 35 00:01:48,160 --> 00:01:51,160 Speaker 1: many of their emails, looks and kind of feels like research. 36 00:01:51,280 --> 00:01:53,480 Speaker 1: I mean, they were pretty open about their conversations and 37 00:01:53,640 --> 00:01:56,960 Speaker 1: trying to understand the date and the size of changes 38 00:01:56,960 --> 00:01:59,320 Speaker 1: in payments, the kinds of things that people and analysts 39 00:01:59,360 --> 00:02:01,920 Speaker 1: are trying to get better understand how what's going to 40 00:02:01,920 --> 00:02:04,000 Speaker 1: happen to AFFIRM in the future. And so if if 41 00:02:04,000 --> 00:02:07,880 Speaker 1: these hedge fund analysts actually approached a CEO or an 42 00:02:07,920 --> 00:02:11,680 Speaker 1: investor relations officer and found this out from an executive, 43 00:02:11,880 --> 00:02:14,280 Speaker 1: so supposed the CEO said, you know, I'm really worried 44 00:02:14,280 --> 00:02:17,399 Speaker 1: about the reimbursement rates over the next year. We think 45 00:02:17,400 --> 00:02:20,520 Speaker 1: medicaid might actually change those. Uh. That would actually be 46 00:02:20,680 --> 00:02:23,639 Speaker 1: a fair game under our current system of rules. Um, 47 00:02:23,880 --> 00:02:26,079 Speaker 1: what could happen is could be a reggae de violation 48 00:02:26,160 --> 00:02:28,400 Speaker 1: from the standpoint of AFFIRM if it was considered material, 49 00:02:28,720 --> 00:02:30,880 Speaker 1: but wouldn't lead to an insider training charge for the 50 00:02:30,880 --> 00:02:34,240 Speaker 1: individuals that are receiving the information. But we see in 51 00:02:34,240 --> 00:02:37,200 Speaker 1: this case the fact that they actually acquired this information 52 00:02:37,919 --> 00:02:40,760 Speaker 1: via someone in the government actually led to a you know, 53 00:02:40,800 --> 00:02:44,640 Speaker 1: a much more serious charge for for everyone involved. And 54 00:02:44,639 --> 00:02:47,760 Speaker 1: that's Eugene silt As, a professor at the Harvard Business School, 55 00:02:47,800 --> 00:02:50,840 Speaker 1: and Robert Hawcket, a professor at Cornell University Law School, 56 00:02:51,000 --> 00:02:53,320 Speaker 1: speaking at Bloomberg Law host jud Grasso. You can listen 57 00:02:53,320 --> 00:02:55,920 Speaker 1: to Bloomberg Law weekdays at one pm Wall Street Time 58 00:02:56,000 --> 00:02:57,760 Speaker 1: here on Bloomberg Radio.