We’ve previously talked about how immortal beings might find it difficult to amass significant wealth simply by virtue of living a long time. This post marks the first in a series on how other common superpowers might be used to make money in the short term.
One way to make (or lose) a lot of money is via the stock market, and several superpowers lend themselves to taking advantage of the market: telepathy, enhanced senses, invisibility, and time travel, just to name a view. Each of these could be used to come across valuable information without necessarily breaking any other laws (e.g. without trespassing). For example, someone with Superman-level enhanced hearing could easily overhear a boardroom conversation, and an invisible person could similarly overhear sensitive conversations in public places. The question, then, is whether using any of this information would run afoul of insider trading laws.
(Note: do not try any of this at home, at least without consulting a competent attorney in your jurisdiction.)
I. Insider Trading
There are three major theories of insider trading liability. First, one cannot trade on material, nonpublic information if one owes a fiduciary duty to other traders in the marketplace. Chiarella v. United States, 445 U.S. 222 (1980). This covers the most common types of insider trading: corporate insiders who trade on confidential information or who give confidential information to an outsider in breach of a fiduciary duty. See also Dirks v. S.E.C., 463 U.S. 646 (1983).
The second theory is “misappropriation.” ”The misappropriation theory holds that a person commits fraud “in connection with” a securities transaction, and thereby violates § 10(b) and Rule 10b–5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” United States v. O’Hagan, 521 U.S. 642, 652 (1997). This, then, covers the case in which the source of the information is a patsy rather than complicit. It still requires that the misappropriator owe the source a fiduciary duty, however.
The first two theories are based on applying common law theories of fraud to the SEC rule against fraudulent trading. The third theory is based on Rule 14e-3, which specifically forbids a certain type of insider trading. ”Rule 14e-3 prohibits any person who is in possession of material nonpublic information relating to the commencement of a tender offer, acquired directly or indirectly from either the bidder or the target company, from trading in target company securities. It also makes unlawful passing on any such information where it is reasonably forseeable that the recipient will trade.” Donald C. Langevoort, 18 Insider Trading Regulation, Enforcement, and Prevention § 1:10. On the one hand 14e-3 is broad because there is no requirement of a fiduciary duty, but on the other hand it is narrow because it only applies to tender offers (e.g. mergers and acquisitions).
So, now that we have a rough idea of what constitutes insider trading, let’s see if any common superpowers can allow someone to acquire material, nonpublic information without running afoul of any of these theories.
II. Superpowered Reconnaissance
The first thing to do is to forget about using insider information to take advantage of a potential merger or acquisition. Rule 14e-3 would almost certainly apply, so our hero (or villain) will have to stick to other kinds of valuable information (e.g. an R&D breakthrough or a pending product recall), and that’s the context we’ll assume for the rest of the post.
In general, merely overhearing something (e.g. a conversation between company employees) in a public space is not a violation under the first two theories because there is no fiduciary duty being broken: the recipient owes the company and its shareholders no duty, and the employees aren’t improperly tipping off the recipient. So enhanced senses and invisibility would seem to be a good fit.
Telepathy is more problematic. As we’ve discussed before, telepathy may run afoul of a person’s right to privacy. Would discovering information about a company be highly offensive to a reasonable person? Would it matter if the victim was a regular employee of a giant company or an emotionally-invested founder of a small business? It’s hard to say how a jury would react. It is not clear to me whether this kind of privacy violation would be sufficient to trigger insider trading laws, however. The law prohibits the use of deception to acquire insider information, and telepathy could qualify, though it seems a bit strained. S.E.C. v. Dorozhko, 574 F.3d 42 (2d Cir. 2009) (holding that computer hacking to obtain insider information may be “deceptive device or contrivance” prohibited by Rule 10(b) and Rule 10(b)-5).
Time travel seems to be the cleanest of all: the superpowered schemer could simply wait until the information was public, then travel back in time and use it profitably. This suggests the scheme in Primer might have been legal.
The previously mentioned prohibition against deception suggests that shapeshifting, psychic manipulation, and other forms of trickery wouldn’t work.
With the right superpowers and a little luck it may be possible to profit from the stock market without running afoul of insider trading laws. Has this ever been tried in the comics?