February 20, 2008
The Financial Times reports on a trend in entrepreneurship towards a "shotgun" approach to developing new business ideas:
The quest to develop the internet's next big thing can be full of unexpected twists and turns. PayPal, the online payments service, started as a way of transmitting payments securely between Palm Pilots. Its founders realised that there was an even bigger opportunity in online payments - and went on to sell the company to Ebay for $1.5bn (Â£767m).
Flickr, the photo website, grew out of a multiplayer online game being developed by its founders. Game Neverending never saw the light of day, but Flickr went on to be acquired by Yahoo, sparking a wave of interest in "Web 2.0" sites.
With such tales in mind, some entrepreneurs factor the unexpected into their business models, eschewing business plans that rely on a single big idea. Instead, they set up companies in which small teams of engineers work on several ideas simultaneously. The hope is that one or two will take off - a "shotgun" rather than a "sniper" strategy.
Unlike previous incubators like Idea-lab, which supported entrepreneurs who successfully pitched plans to Idea-lab, and which relied on venture funding and spun out successul firms as soon as possible, a few new entrepreneur shops like Ooga Labs develop their ideas in-house and are self-funded. To foster teamwork, Ooga has a cross-equity ownership structure: "We have five different companies at Ooga Labs and everyone owns equity in each of the projects regardless of which one they're focused on," says founder James Currier.
Read the whole article here.
Posted by: Paul Rose
February 18, 2008
Theft and Insider Trading
Posted by: Paul Rose
In Friday's New York Times, Floyd Norris discusses a case in which a hacker obtained material, non-public information and made $296,456 in trading profits. Do insider trading laws require him to forfeit the gains?
This situation exists because of a strange anomaly in American securities laws. A person who legally obtains insider information — as a corporate official or an investment banker, for example — will almost certainly break the securities law if he or she trades on the basis of that information before it is made public.
But it is far less clear that someone who illegally gets their hands on such information will have violated the securities laws by trading on it. The securities law used to bring insider trading charges — Section 10(b) of the 1934 Securities Exchange Act — talks of “a deceptive device or contrivance,” and it is not clear that there is any deception involved in simple theft.
It goes back to fiduciary duty. Reminiscent of Chiarella, in this case District Court Judge Buchwald ruled that because there was no duty owed to the victims of the theft, there is no deception on which a 10b-5 claim could be based. The SEC argued to no avail that the required element of deception was satisfied by hacking into the system, which was only for use by authorized persons. Norris quotes Donald Langevoort, who has written extensively on insider trading (including a treatise) as asking: “Did he commit fraud? Yes. Was it for the purpose of obtaining a trading advantage? Yes. Why should that not reach the level of the statute?” From a policy perspective, I agree with Professor Langevoort. However, the fiduciary duty requirement will likely continue to prevent such a result under U.S. law--as Norris notes, an act of Congress would seem necessary to ensure such activty falls under the insider trading laws.
(hat tip: Justin Kilgore)