a question about insider trading

Burtletoy

Okay, so I work for a contract manufacturing biotech. I think my company is terribly mismanaged. I also know that a publicly traded company is having their new drug, which we are making, has an FDA audit coming.

I think we will fail this audit, because I have no faith in the leadership group and I no longer have faith in the manufacturing groups that will be making this product (a group I recently transferred out of, because I think the fda audit will fail)

I don't work directly on the product. I don't work directly with the FDA. I have no actual evidence about the failure of the audit outside of the number of people that are quitting the company in droves and lack of faith in anyone in management to fix anything.

If I decided to short the company stock that has a contract with us, based on my feelings about our companies leadership and their lack of competence, would that be insider trading?

I don't know anything about the drug. How if effects people. What the drug treats. What else the company makes besides this candidate. How any trials for this drug went. Etc. I am a low level manufacturing grunt. I don't know things.

If I short the stock, because I hate my company and think we are terrible, will I be putting myself at risk for insider trading?

dlinfiniti

is this information public? if not, then it is insider trading

Powerpuppies

It has to be material information. It's possible what you want to do is totally legal but it's probably pretty hard to find out with any certainty

Burtletoy

My company making the product is public information, yes. Me disliking my company is something I tell everyone, personally.

All new drugs get manufacturing audits before approval so that is also public information.

Hevach

Is knowing/expecting the audit will fail public? That's the part that would get you in trouble.

Edit: this could fall into a gray area... It might be worth discussing with your broker or a lawyer. Factors: do you know for a fact this audit will fail, is it in your job to know, or do you just think the place is a clown show and is all around fucked, is there no real way you can be sure, and does the trading have to be on non-public fact (the audit failed), rather than your own prediction or supposition (the audit might fail).


Also, remember you haven't actually lost money on a stock until you sell it or the company folds while you wait for it to rebound.

BlazeFire

If I were you, I wouldn't be trusting any advice I get from the internet on this one. Talk to a lawyer. Or just stay away from it entirely and then there is no risk.

Jasconius

if you are not a corporate executive, answer to the board, present to the board, or interact with shareholders in any way, it is highly unlikely that you would be pursued for insider trading

also, by reading your message you do not currently *own stock*, which makes it even less likely

you are making a stock transaction based essentially on your opinion, not a fact.

if you had information from an authoritative source that the company WILL fail the inspection, then that would be insider trading

if you knew the exact nature of the audit and new a specific element of that audit that the company would fail in a precise way, that would possibly be insider trading

you THINK they will fail because of your perspective and negative opinion of your employer, and you're not even sure why other than you dont like them. you can't go to jail for that, just like I can't go to jail for buying my own companies stock because I like them or have confidence in them

ceres

There might be just enough information here that if someone really wanted to they could figure out where you work and/or what product you're talking about. I don't know for certain, but it may be worth it to consider editing your OP slightly.

zepherin

Generally you are not considered an insider. There are specific definitions where you have to disclose any trades involving a specific company and your family is under increased scrutiny. Now you wouldn’t be the first person to bet against their company because they think morons are running it, and if that’s it you are find, if a confidential memo comes out that says they’ll fail the audit it’s probably a crime, if you feel you are because people are leaving And your company is being run by idiots that’s likely not breaking the law.

Now there is risk as well. If the FDA audit has a simple “cure list” and they knock it out with a consulting firm and can show compliance, you’ll lose your shirt.

Unknown

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Orogogus

zepherin wrote: »

Now there is risk as well. If the FDA audit has a simple “cure list” and they knock it out with a consulting firm and can show compliance, you’ll lose your shirt.

I work on the medical device side, not pharma, but I have to agree with this. Companies "fail" FDA audits all the time, it's not the end of the world. If you look at the medical device warning letters every week, a huge number are for companies who don't have a quality system in place, or didn't even bother registering with the FDA. I have to assume that doesn't happen so much in pharma, but companies that are at least trying are ahead of the game. I really don't think the FDA goes into inspections with the goal of shutting companies down; if a company does what zepherin said, they'll try to work with the company to get the deficiencies squared away. Also, the initial inspections can be astonishingly lax (again, for medical devices); I imagine it's only more so now when COVID-19 has thrown their inspection schedule way out of kilter.

That's for manufacturing, though. If the clinical studies going in weren't up to scratch, the FDA can and will tank the whole thing.

zepherin

Orogogus wrote: »

zepherin wrote: »

Now there is risk as well. If the FDA audit has a simple “cure list” and they knock it out with a consulting firm and can show compliance, you’ll lose your shirt.

I work on the medical device side, not pharma, but I have to agree with this. Companies "fail" FDA audits all the time, it's not the end of the world. If you look at the medical device warning letters every week, a huge number are for companies who don't have a quality system in place, or didn't even bother registering with the FDA. I have to assume that doesn't happen so much in pharma, but companies that are at least trying are ahead of the game. I really don't think the FDA goes into inspections with the goal of shutting companies down; if a company does what zepherin said, they'll try to work with the company to get the deficiencies squared away. Also, the initial inspections can be astonishingly lax (again, for medical devices); I imagine it's only more so now when COVID-19 has thrown their inspection schedule way out of kilter.

That's for manufacturing, though. If the clinical studies going in weren't up to scratch, the FDA can and will tank the whole thing.

Even with clinical studies, if the product is something that is of great need but the administrative end of things is wonky or the company is small and their research is good but their sample size is small, the FDA will work with NIH and pull them across the finish line. Like with cancer treatments with lower side effects and other life saving drugs they’ll do it. If one of the big dogs shits the bed on a slightly worst sleep medication FDA will shit all over it.

Burtletoy

This would be a manufacturing audit, not anything to do with clinical studies, but thank you all for the help.

I'm probably not going to do it, cause I know that if they don't actually shut us down, even if we get an fda warning letter (I think we will), the drug could still be approved and it would probably more than double he companies current value.

And thank you for your advice about trying to hide my identity more, but the last two people that put in their two weeks notice were both offered positions in management to stay (including a recent college graduate with a bs and only one year of experience, see about in regard to inept company leadership) and they just gave me an unannounced mid-year-please-dont-quit bonus. I'm not too concerned about losing my job.

Enc

Burtletoy wrote: »

This would be a manufacturing audit, not anything to do with clinical studies, but thank you all for the help.

I'm probably not going to do it, cause I know that if they don't actually shut us down, even if we get an fda warning letter (I think we will), the drug could still be approved and it would probably more than double he companies current value.

And thank you for your advice about trying to hide my identity more, but the last two people that put in their two weeks notice were both offered positions in management to stay (including a recent college graduate with a bs and only one year of experience, see about in regard to inept company leadership) and they just gave me an unannounced mid-year-please-dont-quit bonus. I'm not too concerned about losing my job.

It's less being concerned about losing your job, and more evidence that could be used against you down the line as considering insider trading and/or setting up the company for defamation.

For sure vague up your op, if not delete it entirely.

deathnote666

Just say you wanted to buy a car, needed the money, and then changed your mind, lol! (don't use this as actual legal advice).

Cauld

I'm not a lawyer, but I doubt this is insider trading. I also don't think it's a good idea, so I wouldn't do it.

Gabriel_Pitt

Seconding the bad idea, especially the 'short-selling' part. I don't have the information the OP does, but unless failing the audit is critical enough that it will have an immediate detrimental impact on the company, that causes a stock price decrease large enough that however many(few) shares they own turns a profit, what is the chance stock prices aren't going to shift that much?

Short-selling as a dilettante is for people with money to lose. In this case, I doubt there's any chance of getting caught up in accusations of insider trading, but on the other hand, speaking of disastrous failures where short selling would be profitable, I wonder if any grunts at Theranos short sold, knowing the company was on verge of revelation and implosion, and THAT came as a red flag for investigators wanting to know 'what did they know and when did they know it?'

ceres

Enc wrote: »

Burtletoy wrote: »

This would be a manufacturing audit, not anything to do with clinical studies, but thank you all for the help.

I'm probably not going to do it, cause I know that if they don't actually shut us down, even if we get an fda warning letter (I think we will), the drug could still be approved and it would probably more than double he companies current value.

And thank you for your advice about trying to hide my identity more, but the last two people that put in their two weeks notice were both offered positions in management to stay (including a recent college graduate with a bs and only one year of experience, see about in regard to inept company leadership) and they just gave me an unannounced mid-year-please-dont-quit bonus. I'm not too concerned about losing my job.

It's less being concerned about losing your job, and more evidence that could be used against you down the line as considering insider trading and/or setting up the company for defamation.

For sure vague up your op, if not delete it entirely.

I was actually thinking about someone figuring out what the company/product is and making a note that someone there thinks it will fail to pass an audit. If it's not possible then no worries.

SatanIsMyMotor

This sounds like a bad idea on multiple fronts:
1. I'd actually argue that this is insider trading. You're basing shorting a stock on internal knowledge of information. That's pretty much categorically what all of the insider trading corp training I have to do talks about (granted IANAL).
2. Unless you're talking about buying a shit ton of stock you're looking at a pretty minimal "wind fall" in terms of how this would actually benefit you.
3. As stated above, I'm betting that your perspective on this (even with the internal knowledge) is pretty limited and may not lead to the ends you're expecting.

y2jake215

SatanIsMyMotor wrote: »

This sounds like a bad idea on multiple fronts:
1. I'd actually argue that this is insider trading. You're basing shorting a stock on internal knowledge of information. That's pretty much categorically what all of the insider trading corp training I have to do talks about (granted IANAL).
2. Unless you're talking about buying a shit ton of stock you're looking at a pretty minimal "wind fall" in terms of how this would actually benefit you.
3. As stated above, I'm betting that your perspective on this (even with the internal knowledge) is pretty limited and may not lead to the ends you're expecting.

I’m not saying it’s a good idea, but if the stock tanking is considered a longshot by the market right now, you can make a substantial amount buying puts without THAT much downside risk