On the news this morning there was a headline about 40 cases of Hep A confirmed in assocition with some smoothie Cafe.
If you’re a doctor (and a CFA charterholder) and happened to see all 40 of those patients and determined that the common denominator was a publicly traded food joint (vis a vis Chipotle), I’m assuming it would be considered part of your mosaic to short the company before the information becomes public, rather than insider trading?
of course that’s Mosaic
Yikes! I’m not clear this would fall into mosaic theory at all and may be illegal outside of insider trading rules. Additionally, I imagine the doctor would have a potential violation of his medical ethics (and may be subject to sanction by his medical licensing body) if he traded against confidential patient information regardless of the materiality of any particular case. Also, I’m no HIPAA expert, but you may have some kind of issue there as well.
A little info: https://depts.washington.edu/bioethx/topics/confiden.html
Edit: Also consider, Mosaic theory is intended to apply to outsiders picking up and putting together a bunch of pieces of non-material, non-public information. It’s not intended for insiders with a duty of confidentiality to grab as much non-public information as they can to trade against. An insider breach of his confidentiality obligations is a violation, regardless of if the violation involves a single iota of non-material information.
mosaic for sure. now, if this doctor was also a CFA Charterholder and a research analyst and is going to publish a note on his findings AFTER he traded, then he’s got problems
Good point. Even if the doctor hadn’t been a charterholder I am sure his actions would be a violation.
The doctor could’ve arrived at the conclusion on his own unless he was told by a company insider… This clearly falls under Mosaic theory. It’s the same thing as if a phone technician figured out a common problem associated with the iPhone and traded on this conclusion. No violation whatsoever.
A phone technician has no duty of confidentiality towards his iPhone. A doctor-patient relationship is bound by professional conduct and confidentiality issues, much like a lawyer or a financial manager.
I don’t see how confidentiality was breached in this case, he did not tell anyone about the client’s condition, he simply observed a trend in a group of clients, arrived at a conclusion on his own and acted on this information. It’s perfectly fine to piece together non-material private information under Mosaic.
Take a look at United States v. Willis 737 F. Supp. 269 (S.D.N.Y. 1990):
http://law.justia.com/cases/federal/district-courts/FSupp/737/269/1446518/
Only thing the case has in common with the hypothetical in question is both are doctors, that’s where the similarity ends:
Weill discussed his effort to become CEO of BankAmerica with his wife. Weill’s wife was a patient of Dr. Willis.[1] Mrs. Weill discussed her husband’s efforts to become CEO of BankAmerica with Dr. Willis prior to the public announcement of Weill’s interest in Bankamerica. She also disclosed to Dr. Willis that Shearson had agreed to invest in BankAmerica if Weill succeeded in becoming its CEO.
This information clearly constitutes material non-public information similar to insider knowledge on a potential merger, not even close to the one we are discussing.
^ reminds me of a time I went to court. some young lawyer declared his client was in the right because of some past precedent. the judge stared at him for 10 seconds and said “yes I and all the senior lawyers in this court are well aware of that ruling. it is totally a different situation with your client” 3 minutes later… he lost everything. lol
Read Section I(B) again. They are establishing that a physician can be considered an insider under misappropriation theory even if they are not a corpoate insider. This would mean that mosaic theory should not apply to information used by the physican.
To be a little clearer, you need to differentiate between classic I/T liability and misappropriation theory (there’s a third theory I won’t get into). CFAI doesn’t really go into the distinction in their material and just try to say that you shouldn’t use MNPI no matter how you get it (which I guess is ethical in some senses, but is also overbroad and does not track U.S. law in regard to insider trading). Unfortunately, it also glosses over a really important concept, which is that for a violation to occur the information traded on has to be in breach of a relationship of trust (that’s why law firms, consultants, accountants, printers and now doctors can’t trade on client confidential information, even though they are not corporate insiders).
You should note that, in some cases, one MAY legally trade on MNPI; what Willis is saying is that a doctor-patient relationship ain’t one of them.
***Nothing in the foregoing constitutes legal advice.***
Key difference is whether or not the information is material non-public information, the misappropriation theory is great and all but doesn’t really apply if the information is non-material and non-public information.
I love that you are into this stuff. I think we will have to just respectfully disagree on materiality’s relation to misappropriation theory. If you are interested in differing views on it, you may take a look for some of Donald Langevoort’s stuff (I think he is at Georgetown Law). He’s done a lot of thinking and writing on the matter.
Thought about going to law school actually and double majored in philosophy back in college so this kind of stuff always piques my interest hehe
Mosaic theory is piecing together public, non-material information. Though the information collected by the doctor may have been non-material it was not public was it? It was in his office, where patients came in with privileged information about their condition.
I think you may have mistyped, Mosaic Theory relies on the aggregation of public and non-public, non-material information. Anyone can trade on public information regardlss of how material it is. The problem that I see is that the doctor has a relationship of trust and confidentiality with his clients. By trading on the basis of the information gained through the breach of that relationship, he has misappropriated that information from his clients.
Be careful with the term “privileged”; it means something totally different and irrelevant (i.e., generally, that you can’t compel its production to a court or other body).
Yes looks like I muddled up the mosaic theory. Agree that the main motive is the relationship of trust here, even before CFA comes in.
I love the dialogue on this so far.
I am unconvinced that this actually breaches doctor-patient confidentiality - a doctor stating that, for example, “The number of patients I’ve seen in the past week with the flu has increased significantly” would not seem to be a violation - you read citations like this all of the time in the newspaper, so by extension I don’t know that this would be either. A doctor could just as well say “T_he number of patients I’ve seen with food poisoning has increased significantly today_”, and separately stating that “A lot of my patients eat at a particular restaurant” is not disclosing private information about a patient.
How about a slight change of terms - there is no longer a doctor, so doctor/patient confidentiality no longer applies.
You are in a waiting room at the hospital with 40 other people, and through talking to each one of them, you determine that they all ate at the same place within the last few meals.
Totally legal and ethical. That’s just public information and no relationship of trust and confidentiality exists. You could even extend it to a case where one person shares or discloses material information, so you don’t have to piece together non-material data points (e.g., “Chipotle’s beans gave me cancer”). You could trade on that basis as (i) the person is not an insider (classic); (ii) you are not stealing the information from him (misappropration); and (iii) the information wasn’t in a chain resulting from (i) or (ii) (tipper-tippee).
***Nothing in the foregoing constitutes legal advice.***