A buddy of mine posted this on Facebook:
I was getting a tire replaced this morning at the Firestone in [omitted] and one of the customers was on a conference call on his phone. He was wearing big headphones, so we couldn't hear the folks he was on call with, but he was speaking loudly so I got the gist of the meeting: a merger between two companies, his and someone else's. I heard him say some really odd things that seemed to make no sense but I am no business dude, for all I know the non-sequiturs that flowed from his tongue mean something in the merger world...but they were odd...for the most part I zoned him out, then he said this...
"we don't want to run so fast that we drop the potatoes between the grate."
I get that he's basically saying let's be cautious and steady...but couldn't he have just said that? I lol'd...and he turned down the volume on his voice after that.
I can't wait to use this at the next staff meeting.
Like my friend, I love that expression. But I desperately want him to tell me the name of the company in question. After all, I discuss this very hypothetical in my book Insider Trading Law and Policy:
An instructive case is SEC v. Switzer,[1] which involved Barry Switzer, the well-known former coach of the Oklahoma Sooners and Dallas Cowboys football teams. Phoenix Resources Company was an oil and gas company. One day in 1981, Phoenix’s CEO, George Platt, and his wife attended a track meet to watch their son compete. Coach Switzer was also at the meet, watching his son. Platt and Switzer had known each other for some time. Platt had Oklahoma football season tickets and his company had sponsored Switzer’s television show. Sometime in the afternoon Switzer laid down on a row of bleachers behind the Platts to sunbathe. Platt, purportedly unaware of Switzer’s presence, began telling his wife about a recent business trip to New York. In that conversation, Platt mentioned his desire to dispose of or liquidate Phoenix. Platt further talked about several companies bidding on Phoenix. Platt also mentioned that an announcement of a “possible” liquidation of Phoenix might occur the following Thursday. Switzer overheard this conversation and shortly thereafter bought a substantial number of Phoenix shares and tipped off a number of his friends. Because Switzer was neither an insider nor constructive insider (do you see why?) of Phoenix, the main issue was whether Platt had illegally tipped Switzer.
Per Dirks, the critical issue was whether Platt had violated his fiduciary duty by obtaining an improper personal benefit: “Absent some personal gain, there has been no breach of duty to stockholders. And absent a breach by the insider [to his stockholders], there is no derivative breach [by the tippee].”[2] The court found that Platt did not obtain any improper benefit. The court further found that the information was inadvertently (and unbeknownst to Platt) overheard by Switzer. Chatting about business with one’s spouse in a public place may be careless, but it is not a breach of one’s duty of loyalty. Accordingly, as the court explained, “Rule 10b–5 does not bar trading on the basis of information inadvertently revealed by an insider.”[3]
So we could make some fast and perfectly legal money.
[1] 590 F. Supp. 756 (W.D.Okla.1984).
[3] Switzer, 590 F. Supp. at 766.
