Problem: Insider trading isn't about illegally obtained information. The SEC defines insider trading as:

> "Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security."

So if I hack into someone's server and steal a bunch of secret financial data, and use that to trade, then I am trading based on illegally obtained information, but I am not committing insider trading, because I have no fiduciary duty or relationship of trust and confidence.

Conversely, if I'm a director of a company being acquired, and I trade on my knowledge of the acquisition before it is announced, my knowledge was not illegally obtained, but I am violating a fiduciary duty to the company.

As a general rule (there are exceptions!) insider trading never involves illegally obtained information. It's either illegal information I wasn't meant to know, or it's information I was meant to know but wasn't meant to trade on.

(Note that the news recently broke of a Ukrainian hacking group that was stealing unreleased press releases and selling them to traders. Headlines almost universally called the group an "insider trading ring", but what they seem to have committed was wire fraud[1]. The SEC is gamely trying to pin some security fraud charges on them, because that's what the SEC does, but the plain text of the underlying law is against them, and that theory has yet to prevail in court.)

In the Dell/hedge fund case the New Yorker is talking about, it seems clear that the Dell analyst had a fiduciary duty to Dell, although he was never charged with insider trading, probably because he didn't trade. And the hedge fund guys clearly traded, but they didn't have a fiduciary duty to Dell. Nor could prosecutors point to some sort of exchange where the Dell guy swapped insider information with someone who then traded. If the information had been stolen, then it might still have been a crime (even if not insider trading). But apparently, it wasn't stolen.

In short: Insider trading is about trading in violating of a fiduciary duty or a relationship of trust and confidence. It's not about trading based on illegal information. This is true despite the fact that a lot of people sort of think it would make sense if it was otherwise.

[1]: http://www.nytimes.com/2015/08/18/business/dealbook/hacking-...

Edit: A further point of clarification; insider trading law is written to protect a company from the misappropriation of their secrets by insiders for their own benefit. In the example being discussed, it's intended to protect Dell from being harmed by their investor relations guy (Rob Ray, in this case), and it clearly allows the prosecution of Ray if he used Dell's material nonpublic information for his own benefit. Except, in this case, there's no accusation or evidence that he did; he seems to have been trying to use Dell's information for Dell's benefit, and didn't benefit personally at all. That's actually legal. (Well, Dell actually has some rules on what they can let their investor relation's people share, but if those rules were violated then Dell or Ray would be in trouble, not the people they told, and it still wouldn't be insider trading.) But as far as insider trading law goes, the only real possible victim is Dell (it was their information), and the only real possible criminal was Ray, or maaaybe a close relative of Ray, a golf buddy, roomate, etc., or maybe someone who paid Ray to victimise Dell. But Bharara didn't go after Ray or anyone who knew Ray, and he didn't phrase the issue in terms of the damage done to Dell, and that was fundamentally at odds with how insider trading law works.

What Bharara seemed to want is a law that protects small investors from hedge fund traders, not a law that protected Dell from Ray. He's not obviously wrong to want such a law, but he was wrong to think one existed. In any case, keep in mind when discussing insider trading law as it currently stands: It will make ZERO sense unless you remember that it was written to protect Dell from people like Ray, rather than mutual funds from people like Steve Cohen. Even if Dell doesn't really need to be protected from their own investor relation's flaks, and mutual funds really need to be protected from Steve Cohen.