Thursday, November 25, 2010

Channel Checks


The scope, scale and focus of the insider trading investigation continues apace.  Of the reports we have read, we wanted to quickly highlight something from the tech industry which shows a different direction.

According to "Fast Company", analysts who cover Apple are being investigated for using possible "channel checks":

Apple analysts on Wall Street are under increased SEC scrutiny for insider trading, centered on the "normal" habit of channel checks--working out what Apple may be up to by speaking to its suppliers. Is this unfair? Or are the analysts really cheating?


We're used to reading analyst reports about Apple that cite Apple's (mainly Far Eastern) suppliers, leading to rumors about how many units of such-and-such an iDevice are being sold, or if components of an upcoming piece of Apple hardware can tell us what capabilities it will have--thus revealing information about how it'll fare against its competition. Wall Street analysts use these data to form opinions about how Apple's business will perform in the future, and thereby guide their clients on whether to buy or sell Apple stock. The rest of us use their data to learn about upcoming Apple gear, and you can be sure Apple's rivals pay attention for the same sorts of reasons.


But the Securities and Exchange Commission is now busily involved in scrutiny of this "channel check" habit, on the grounds that it's a form of insider trading. The argument runs that Apple's suppliers should be keeping this information confidential, and are probably breaking their confidentiality agreements with Apple by revealing any facts. By involving themselves in this NDA breaking, the analysts are accessing privileged information in exactly the same way they'd be committing insider trading if they recommended stock activity based on information leaked from inside Apple's executive team.


So, in this analysis, will we reach a point where speaking to a janitor at a Taiwan fab plant to get a sense of production volumes is a criminal act - equivalent before the law to receiving a copy of Apple's draft 10K 2 days before it's issued direct from the firm's CFO?  We seem to be reaching the law of unintended consequences very quickly.
We like how Fast Company concludes:

Is this too much of an expansion of the SEC's powers? We know Apple's a hot topic in terms of investment, but we wish that the authorities treatment of intellectual property laws was as sensitive to the intricacies of the dynamic world of high tech as the SEC is--then we'd see less patent trolling, like the anti-Apple cases that are popping up all the time.

No comments:

Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.