Photo: Associated Press
Apple analysts are getting dragged into the FBI’s huge investigation of hedge funds and insider trading, the Wall Street Journal reports.The FBI’s investigation is based on the idea that these big funds are getting access to “experts” who provide material non-public information. With this information, the funds can make decisions on investments that the general public can not make.
In theory, this is insider trading, and it’s illegal. But, it’s sort of a grey area. Here’s a definition from an ex-SEC official given to the Journal:¬† “Insider trading basically comes down to where you know or ought to know that the person from whom you’re getting this information has a duty to someone else to keep it confidential…If you go in and pay the mail clerk to give you special information, that’s not proper.”
The second part is cut and dry. Don’t pay for illegal information. The first part is less so. As reporters we get tips about information that probably should not be public, but we print them anyway.
How does this affect Apple analysts? Well, they spend countless hours tracking down tips about Apple’s supply chain in Asia to make forecasts for the company’s sales.
Just last week, for instance, an analyst citing channel checks said Apple would make 48 million iPads next year. That’s certainly not information Apple was providing for the public. So, the analyst had to do SOMETHING to get that information. He then sold that information as part of a report.
He would also presumably be available for private meetings with hedge funds to talk about what he’s hearing. This (it seems) is a problem, according to the FBI. (Our colleagues at Clusterstock have done a wonderful job covering the whole insider trading scandal here.)
At the risk of sounding wildly naive, we must say it’s crazy for the FBI to think these experts can provide much true material information on Apple. The track record of the so-called experts is not exactly stellar. They often times seem to be grasping at straws or making predictions based on sketchy contacts at Asian suppliers.
Especially with regards to Apple. If we trusted the experts, we’d think there was an iPhone with a touch sensitive back casing, that the iPad was originally being released to Verizon, that Apple was going to make a 7″ iPad, or any number of other predictions proven wrong time and time again.
For Apple, the fact of the matter is the company is doing well. Buy the stock, watch it go up.
There are probably cases where the SEC or FBI needs to watch out for illegal information, but if it’s going to go after Apple analysts for routine, often inaccurate, channel checks it seems silly to us.