Is Spying on Corporate Jets Insider Trading?

Frank Gaglione | Stone | Getty Images

One of the stranger aspects of Bloomberg's story about the FBI's Tip Machine, also known as former Morgan Stanley director David Slaine, is that one of his original tips involved a fund manager who was allegedly paying off people to discover who was coming in and out of Teterboro Airport, the small New Jersey airport catering to many New York area private corporate jets.

There are a number of things that makes this a strange start for a relationship that has led to the conviction of nearly a score of people on securities law violations. But the number one thing is this: paying off people to provide tips about the traffic at the airport is not illegal. And neither is trading off of those tips.

Most people who work at Teterboro are unlikely to be under any duty of confidentiality. They may freely discuss the who was using the airport, even if those people happen to be Very Important Investment Bankers. They may even speculate on what may have brought the VIIBs to Teterboro and buy and sell stocks based on that information.

What's more, buying that information is not illegal. Since the person originally possessing the information had no duty of confidentiality, there's no illegal tipping going on. Without any illegal tipping, there's no restriction on trading on the information. If the fund manager was, as Slaine claimed (and the fund manager denied), trading healthcare stocks based on this information, that was very likely perfectly legal.

There are, of course, some exceptions. Security personnel at check-points may be under a duty of confidentiality not to reveal information they garner from reviewing IDs. Airline employees may also be under a duty not to reveal this information. But these are a small subset of all sorts of other people in and around the airport who could supply the information to a fund manager looking for an edge.

This seems to be a case of confusing someone obtaining material, non-public information for the purposes of trading with the illicit acquisition of that kind information.

What makes this situation even more absurd is that paying off people at the airport would have been completely unnecessary. You don't need to pay anyone to track traffic at Teterboro. You can do it all on the web.

Here's a quick tutorial. The first thing you do is go to the FAA aircraft registration database. Every single plane the flies in the United States is registered in the database. You can look up a plane's registration numbers by its owner's name. What you get is a registration number that begins with the letter N.

The next thing you do is go to a service like, enter the tail number into its private plane tracker. What you get is a page with the departure, arrival, and duration information about all of its recent flights.

Let's say you want to know where executives from SAC Capital are flying. Type SAC Capital into the FAA database and it spits out a Gulf Stream IV with registration number N498QS. Enter that number into FlightAware and you learn that the SAC Capital plane flew from Palm Springs, Florida to Hawaii's Kona International Airport on November 23rd. The plane traveled to the Boeing Field/King County International Airport in Seattle the next day, where it spent most of Thanksgiving week. It departing on Friday, November 30th for Dallas. On Monday, December 3, it left Dallas for Las Vegas.

Now you have to be cautious about this sort of thing. The plane we're tracking here is only partially owned by SAC Capital, according to FAA records. There are nine other owners of the plane listed, including the Wilmington Trust Company. So you have to do a little bit more deductive detective work to determine which owners are most likely to have used the plane to reach which destinations.

The corporate owners of planes hate that this information is available. They would prefer to have their flight information blocked from public viewing. But the Department of Transportation has ruled the "privacy concerns" are not legitimate reasons to hide flight information. Instead, companies must provide written certification detailing security threats that justify concealing the flight information.

Back when I was at DealBreaker, we had a regular feature called "Planespotting." We regularly tracked the planes that belonged, in whole or in part, to notable people in finance and business, inviting readers to speculate the reasons for various flights. Why, we wondered, was United Healthcare making so many flights between Teterboro and St. Paul? What was the Gulfstream IV owned by Thomas H. Lee Management doing in Denver? What had the SAC Capital Gulfstream been doing up in Boston?

We invited our readers to try to formulate serious and humorous reasons for these trips. Perhaps so-and-so had a mistress in this city. Or an executive loved the golf course in another city. Or, maybe, the guys from private equity company X were flying into a certain city to have takeover talks with the local distressed public company. For some reason that I don't quite recall, we started measuring trips according to the number of "dead hookers" that could be on board. It was fun.

To get back on track, my point is that it would be almost impossible to violate securities laws by tracking traffic at Teterboro because that information is not even non-public. It's public information available for anyone who takes the time to search a couple of websites.