Insider trading on physics secrets
DOI: 10.1063/PT.5.010102
The press releases I receive every Thursday from Nature include the following warning, which, lest a reporter overlook it, is always displayed in bold type:
This document, and the Nature papers to which it refers, may contain information that is price sensitive (as legally defined, for example, in the UK Criminal Justice Act 1993 Part V) with respect to publicly quoted companies. Anyone dealing in securities using information contained in this document, or in advance copies of a Nature Journals content, may be guilty of insider trading under the US Securities Exchange Act of 1934.
I must have glanced at that paragraph hundreds of times in my 14-year career at Physics Today, but I never gave it much thought until this past Tuesday. That’s when I read a news story in the New York Times about the arrest on charges of insider trading of Cheng Yi Liang and his son Andrew Liang.
The elder Liang worked as a chemist at the Food and Drug Administration. Times reporter Diana Henriques wrote
The criminal complaint accused him of using that database to get an early look at F.D.A. decisions on companies developing drugs and then working with his son to trade on that knowledge, buying stock ahead of good news and selling it before bad news was announced.
The complaints assert that the defendants made just under $2.3 million in direct profits and avoided an additional $1.3 million in losses.
Nature‘s press releases go out a full week before the papers they tout are published. With the above warning about insider trading in mind, I asked myself if I could have profited illegally from any of the Nature papers I’ve written about over the years. The answer is, probably not—for two reasons.
First, physics research is typically so basic and so far from commercialization that it can be difficult to identify which companies will eventually benefit. Scientists at Bell Labs invented the CCD, but AT&T, the labs’ corporate parent at the time, didn’t make as much money from the invention as did Fairchild Semiconductor, which brought the first CCD cameras to market, or Sony, which succeeded first in mass-producing them.
Second, even if a company does commercialize its own invention, the payoff is likely to lie far enough in the future that publication of the underlying research won’t influence the company’s share price for some time, if ever.
Looking over my Physics Today bibliography, I found these three stories that covered research published in Nature and conducted in industrial labs:
- “Light-Emitting Diodes Reach the Far Ultraviolet,” Physics Today, July 2006, page 15.
- “Novel Medical Imaging Method Shows Promise,” Physics Today, September 2005, page 21.
- “New Silicon-Based Device Modulates Light at 1 GHz,” Physics Today, April 2004, page 24.
The industrial labs were those of, respectively, NTT in Atsugi, Japan; Philips Research in Hamburg, Germany; and Intel Corp in Santa Clara, California.
Thanks to Intel’s NASDAQ listing, I could check the company’s past performance. On the day the Nature paper appeared, 12 February 2004, Intel’s share price was $30.74. The next day it fell to $30.16. Now, as I type these words, it’s $20.09.
