In my own personal experience, people are most often mistaken about what is insider trading due to a combination of a vague sense of unfairness and a lack of background knowledge about the reasons for insider trading laws and the exact harm those laws are designed to prevent.
Matt Levine has written extensively about this and it's all quite interesting!
Stock buybacks used to be illegal, until they weren't. Very relevant in the current market. Not insider trading as such, but a form of manipulation that one might consider related.
Thanks for the pointer! It seems... symmetrical(?) that if corporations can sell stock, they should be able to buy it back. It's not a whole lot different from a dividend in practice, it's just cash flowing from the corporation to the owners of the corporation. The commentary on that article about not investing back into the company isn't particularly convincing, to me anyway, just because there are lots of times that its better for anyone but the company to have the cash, especially if the company can't think of anything better to do with it than buy back their own stock. And it's not like the money disappears in a puff of smoke, presumably the shareholders reinvest the proceeds.
I'm sure my analysis is naive and missing something, but on first glance, this doesn't strike as a problem anywhere near as bad as insider trading.
Nope, you're absolutely right. The main difference between stock buybacks and dividends are the tax implications – and what they signal to the market.
Dividends tend to be "sticky" since changing them all the time gives investors little certainty over what they should expect to receive (and if there's anything investors like is certainty)
Buybacks signal management (a) has no better source for capital and (b) probably thinks the stock is currently undervalued (i.e. it's a good time to buy back cheap shares).
Companies very often do not have projects to invest with a return higher than their cost of capital, and any reasonable CFO who finds themselves on that position should pay back its equity holders who risked their money by investing in this company with a given expectation on returns
Many things were illegal until they weren't, but we don't go around suggesting there's a nefarious reason behind their legality.
The really honest argument is that buybacks are taxed in a special manner, and this difference between taxes on income and taxes on capital gains is what's really driving income inequality in the U.S.
There have been some rather weird price moves in some stocks relating to various congressional committees apparently tipping off people before the info was publicly released.
While I can't find it right now I recall studies that showed that the typical return on a Senator's investments was at least 11% greater than would be expected which is a data point to take into consideration.
I do agree it is all very interesting and will read more of his works when I have time.
I don't think that's a very accurate description of the situation. There's no specific law against insider trading. Insider trading restrictions arose out of case law rather than legislation. Enforcement of the law changes as judicial interpretations changes, but judges don't get lobbied. The strictest that insider trading law has ever been was 2009-2013.
Prior to 2009 insider trading cases were generally clear cut situations like an accountant telling a trader about an upcoming merger in exchange for a bribe. Then Preet Bharara started pursing insider trading cases very aggressively, punishing people for being downstream of insider information, even when they didn't know the original source, and no one was bribed.
Starting in 2014 judges started pushing back on this broad interpretation of insider trading rules. Recently a 2013 guilty plea for insider trading was vacated because the behavior he admitted to is no longer considered against the law. Again, this isn't because of lobbying, but because judges have decided that the correct view of insider trading is the one that existed prior to 2009, not the broader one that Preet Bahrara pushed for. Even the laxer standard for insider trading that judges have returned to make the US stricter than most countries in enforcing insider trading.
Politicians aren't considered insiders in the traditional view of insider trading. Trading on Congressional information, which you alluded to, was legal until 2012, when it was banned not coincidentally while insider trading law was expanding in other ways.
Insider trading tends to be done by individuals or small groups of friends. I doubt that any of them would consider it beneficial to individually pay for lobbyists.
