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Wed Oct 28 2009 16:29:56

Is eBay Seller Data Considered Insider Information?

By: Ina Steiner

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A case of illegal insider-trading made headlines in October, with Galleon Group LLC's co-founder Raj Rajaratnam accused of paying for inside information used to make profitable stock trades. Rajaratnam told the firm's employees that he was innocent, but the case is bringing attention to the issue.

In an article in AOL's Daily Finance, a blogger) suggested that eBay sellers - and even authors of books about eBay - had "the potential to gain access to significant details pertaining to quarterly earnings of some of these companies."

The suggestion seemed preposterous - with millions of sellers in hundreds of categories in many countries, how many sellers would you have to speak to in order to gain access to information that would show in what direction eBay earnings were headed?

However, Wall Street analysts regularly speak not only to eBay sellers, but also trade organizations and vendors who have aggregated sales data from many top vendors, and they do it in the open. I wondered how government regulators would view these discussions, and how sellers and third-party vendors could protect themselves.

A Wall Street analyst I spoke to said analysts feel comfortable speaking to sellers and vendors about their sales. This person said it would only become a problem if a seller or vendor passed along information that an eBay executive had told them about eBay sales. For example, there's no problem in a seller revealing how their sales in a particular category are doing, but if that seller passes along information they obtained from someone at eBay about how the category as a whole is performing - let's say, the category is up 100 percent, that would be a problem.

Here's the definition of insider trading, and you can find some examples on this page:

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. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.

eBay and other public companies take steps to avoid revealing material information to individuals, here's a link to information about Regulation FD:
 
Regulation FD (Fair Disclosure) is a new issuer disclosure rule that addresses selective disclosure. The regulation provides that when an issuer, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the issuer's securities who may well trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or non-intentional; for an intentional selective disclosure, the issuer must make public disclosure simultaneously; for a non-intentional disclosure, the issuer must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.

Some Wall Street firms pay sellers for their time in better understanding the issues. If eBay makes a change, analysts want to know how sellers think it will affect them. They are often shocked, according to the analyst I spoke to, that people spend so much time speaking to them, in many cases for no compensation or no public acknowledgment. (Some firms pay sellers and experts for their time, others do not.)

Why do sellers and vendors speak to analysts? Power, the analyst said. They tell eBay, "if you don't talk to me, I'll go to Wall Street." It is also a way to bring attention to problems at eBay.

And what about cases where eBay does provide information about upcoming changes to certain parties: members of its Voices program (sellers and buyers), and third-party vendors who need to prepare their software to make sure it works with eBay's platform? eBay requires these individuals to sign NDAs (Non Disclosure Agreements), and if someone releases that information and has signed an NDA, eBay could sue them.

An eBay spokesperson replied to our inquiry via email. "We require that NDAs be signed whenever nonpublic information will be disclosed, including but not limited to a requirement that all Voices members sign NDAs. Those prohibit the disclosure of information for any purpose."

The eBay book-author in the above-referenced AOL blog post commented that he had no access to such information, and wrote, "All the consulting firms I work with require consultants to sign agreements stating, among other things, that they will not reveal sensitive financial information that has not yet been made public. I take that pledge very seriously."

Another issue of course is whether it's appropriate for parties who have access to eBay information under NDA (or Amazon.com information, for that matter) to even hold shares, since there could be an appearance of illegal insider trading.

I asked a series of specific questions to David S. Ruder, Professor of Law Emeritus at Northwestern University School of Law who headed the Securities and Exchange Commission from 1987-89. Here's his email response:

Insider trading involves the purchase or sale of corporate securities using non-public material corporate information by persons having a duty to the corporation not to disclose that information. Persons having that duty include corporate officers, directors, and employees and other persons who have entered into confidential relationships with the corporation, such as lawyers and accountants. If the person disclosing the information obtained it from a source other than the corporation, that person may be breaching a duty of confidentiality to the source of the information and, if so, will be violating the insider trading laws by "misappropriating" the information.

A person who purchases or sells a security based upon information received from an individual who is violating a duty not to disclose the information will be violating the insider trading laws as a "tippee" if the person knows or strongly suspects that the "tipper" is violating a duty not to disclose the information.

Regarding eBay, the primary question will be whether the information is material.

The analyst with whom I spoke also said it's common practice for CEOs to meet with analysts and their clients privately and not webcast it. (Not limited to eBay's CEOs or any one industry.) If CEOs or other executives inadvertently disclose non-public material information at these events or at conferences, for example, the company is required to file an 8K (see Regulation FD above). Whether that always happens or not probably depends on the company, the CEO, the nature of the information, and other circumstances.

Professor Ruder forwarded me a primer on insider trading published by Katten Muchin Rosenman LLP that said a person can be a "temporary insider" if he or she enters into a special confidential relationship with the issuer and, as a result, is given access to confidential information.

After doing research, but keeping in mind I'm not an SEC attorney, I come way believing the answer to the headline of this post is no - that seller data obtained from sellers themselves is not considered insider information - but that if obtained from an eBay "insider" - employee or not - then it is, and likewise for any such marketplace.

Updated 10/29/09 to include eBay's response.
 




Comments (35) | Permalink

Readers Comments

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Buck Efay

Wed Oct 28 18:02:27 2009

The only data any of us unwashed sellers can tell them is sales are down down way way on down! They can come here & see that anytime they want:)

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: matza

Wed Oct 28 18:22:12 2009

One thing I as a seller would like to contribute is:

Wherever you see Donohoe employed Short the stock or sell whatever you own in it immediately.

One only has to look at what Meg Whitman did right before her choice of replacement took over. She had such confidence in Donohoe's abilities she sold billions of dollars worth of stock the very week he was to take control.

Now that is insider information!

Why isn't she in prison like Martha Stuart was? She knew exactly what she was doing and why she was doing it. Donohoe's whacky disruption was bound to fail and she knew it. His failing would also make her look like a bigger success story. She scripted this whole fiasco like a hollywood movie.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

This user has validated their user name. by: Ming the Merciless

Wed Oct 28 19:23:14 2009

They're looking for insider activity in all the wrong places.

Is there a small seller blogger here who talks to Wall Street?

Is ebay paying any of their pet sellers to contact and talk to Wall Street?

Are some them the Skips and Randys of the world?

If these analysts aren't on the take, then why is their 'analysis' normally inconsistent with the reality of the ebay marketplace?

Information obtained from an ebay insider or employee, contractor, or consultant is only one kind of illegal insider activity.

Since that's the case, then Richard Brewer-Hay should be investigated and indicted for comments he made earlier this year on his blog.

Further, whoever it is inside ebay who leaks to analysts before the earnings call should also be investifated and indicted.

If anyone was following the stock, it went up BEFORE the earning call before some analysts were reporting that ebay would show a "sliver" of growth. No where could they have the information to formulate this opinion.

Most Wall Street brokerages and banks, most analysts, and most of the corporations are hopelessly corrupt and only re regulation with vigorous oversight an restore the integrity that is sorely lacking.

Get rid of employee stock options altogether OR tax them as income when issued. Then make sure they pay the appropriate amount of capital gauns taxes based on their incomes.

Don't forget that it's been reported that Meg Whitman, when accused of insider stock trading, said something like "Why not? Everyone else is doing it."

Keep filing those complaints with the SEC, and here's where and how:

Securities and Exchange Commission
100 F Street NE
Washington, D.C. 20549-0213

Help make The Ho and The No the 21st century version of Mattel's Ruth Handel!

DEATH to ebay corp. in 2009.

   http://www.sec.gov/divisions/enforce.shtml

(above link includes information about insider trading and sending tips and complaints)

1. Insider trading:

http://www.sec.gov/divisions/enforce/insider.htm

2. Tips and Complaints: http://www.sec.gov/complaint.shtml

3. Online complaint forms:

http://www.sec.gov/complaint/selectconduct.shtml

Rememb
er,
snail mail is better than email because snail mail carries more weight.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

This user has validated their user name. by: Ina

Wed Oct 28 20:15:31 2009

Two more snippets from the Primer:

"Material information" generally is defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of an issuer's securities.

and:

nformation is non-public until it has been effectively communicated to the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC or appearing in The Wall Street Journal or other publications of general circulation, or on a quotation service such as Bloomberg, would be considered public.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: On Lies and Secrets

Wed Oct 28 23:14:30 2009

I think Meg Whitman was in trouble for ''stock spinning'' - a financial practice, now banned, where investment firms offered company executives **personal** shares in IPOs as a personal reward for giving that investment firm their **company's** business.  

There is a good description of the ''stock spinning'' situation, Meg Whitman's involvement and her (IMO, lack of) ethics reported in an article in the Sacramento Bee from earlier this year:

http://www.sacbee.com/politics/story/1887681-p2.html  

This is an interesting article that includes analysis of Whitman's actions by many experts in business ethics.

An interesting (and funny) editorial take on Meg Whitman's ethics appeared in the Huffington Post earlier this year:

http://www.huffingtonpost.com/chris-kelly/meg-whitman-week---w
ednes_b_202767.html


Such is the nature of the integrity of ebay senior management...

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Buck Efay

Thu Oct 29 00:09:06 2009

You can't spell integrity with Ebay. It's a shame Pierre is such a waste and can't do anything to grab control of his idea. I guess like every other billionaire he's too busy practicing onanism to worry about the great unwashed anymore.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

This user has validated their user name. by: Ming the Merciless

Thu Oct 29 14:23:17 2009

Ebay employees making statements on ebay blogs read by users, investors, business media, and analysts should be considered public information.

However, it seems far more likely that selected analysts (those who consistently issue positive reports about thid failing corporation) are getting illegal insider information not so much for sellers but from off the record telephone conversations (emails would be too dangerous, and they better not have used their cell phones) with ebay executives.

That's just my opinion based on many years of watching this triumverate cartel of corporations, their toadies, and hack media work hand in hand to deceive investors.

DEATH to ebay corp. in 2009.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Buck Efay

Thu Oct 29 15:34:20 2009

Start by bugging Sandcrab Aggarwaghd's phone! He's the only one still in love with Feebay, but even he expressed dismay at how much the gap had widened between Ebay and Amazon!

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Mike

Thu Oct 29 15:58:10 2009

ebay is joke! They should be paying me to use their site. I think they made enough money from ripping people off. Now i hear they want to increase their prices again! haha yeah right. I stopped using them long ago and now use  sellbits.com . Almost the same thing without the headaches.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: R.M.

Thu Oct 29 16:48:56 2009

I just checked sellbits.com and, unless I'm mistaken they have a total of 47 items listed on the site. I admire a new beginning site, but we need something with the power to attract ALOT of buyers.  Comes back so far to the big three -- bonanzle, ecrater and ?????

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Enough Z Nuff

Thu Oct 29 18:14:20 2009

Big 3 ? I have stuff listed on ecrater for 3 months, 1 sale. On another note 1 + years on ioffer and not a single sale.

I am most disappointed about, as I had high hopes for ecrater.

I've faced the fact, eBay is the only game in town for what I do, but my sales are dead versus what they were.

If ecrater advertised, but how ? It costs nothing to list

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: buck efay

Thu Oct 29 19:03:11 2009

I have a couple sales a week on Ecrater & yeah it would be nice if they advertised, but the results do show up higher in Google then Ebay!

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Et tu, Brute!

Thu Oct 29 19:18:08 2009

Etsy is the place to be, but no, it is not for everyone, that is true.  For handmade, craft supplies, and vintage, it is fabulous.  Many men and women earn there income now on Etsy.  

I personally, that's personally, know a single mom of three growing kids -- and we know how expensive growing children are -- quite her day job because she grew her Etsy shop and was able to do so!

With high name celebrities such as Martha Stewart, Rosie O'Donnall, Rachel Rae, and on and on, singing the Etsy praise, and super great set up from the get-go, reasonable fees, it is THE place to go!  I can't count how many sales I've made where a person came in off Google, did a sign up and purchase!  

Exactly a year ago in October 2008, I checked the International traffic ranking of Etsy with Alexa.com and it was at about 1200.  Today it is at 413!

No other site comes anywhere CLOSE to Etsy!

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Et tu, Brute!

Thu Oct 29 19:21:33 2009

By the way, Ebay's International traffic ranking has been in the top twenty for years, but the last year has been slipping.  No longer in the top twenty, a couple weeks ago it was placed at 22.  And I see today, it has slipped another notch to 23!

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: nora

Thu Oct 29 20:04:41 2009

I can't tell if there's insider stock trading going on, but what looks a little strange to me is the sale of Skype to Silver Lake Partners.

Silver Lake has offices in Menlo Park and Cupertino. Andreessen Horowitz, based in Menlo Park, is led by Marc Andreessen and Ben Horowitz; Andreessen is a member of eBay’s board of directors.

Buyer and Seller are all on eBays board of directors. Marc Andreessen and others at eBay, sit under one umbrella and are just a little to close. There could be some behind the scenes wheeling and dealing going on there. (Like in the form of kick backs, but I’m just speculating).

I would say that the sale of Skype to someone that sits on eBay's board of directors is a little peculiar.

With eBays falling revenues and this Skype deal planning to be closed by this 4th quarter, the Skype deal coming to the rescue, eBay is suggesting the sale may add to eBays revenues, it looks like another act of desperation and not totally kosher to me.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

This user has validated their user name. by: Ming the Merciless

Thu Oct 29 20:15:59 2009

@ On Lies and Secrets

Thanks for that sacbee link. I'd lost it. I stand partially corrected -- a stock spinning scheme is insider buying/trading BEFORE a stock is initially issued rather than afterward.

And wouldn't you just know that the WORLD'S most despicable corporation, Goldman Sachs, was also involved along the the then CEO of America's most despicable corporation.

Is there anyone here except for ebay toadies who thinks the current crop of B school brats, who slept through or ditched their business ethics course, is any different?

I just find it highly problematic that regardless of where ebay stock is that it creeps up in the days and hours before an earnings call.

Next this cadre sycophant analysts parrot The Ho's pollyannish, simplistically unreal excuses for poor performance as if the ebay marketplace were thriving instead of failing.

Next, the corporate press release fed fat business media repeats these fictions thereby reinforcing in the minds of investors and those CNBC idiots that ebay is the place to invest, and of course, the stock then rises instead of falling as it should if its value were based on performance rather than a conspiracy of inflated hype.

It is nothing short of a massive, unbridled corporate/analyst/business media cabal to screw more Americans out of their 401ks, homes, savings, health care, etc. while they make still illions.

Analysts refused to discuss the Skype patent technology lawsuit and ebay's negligence in failing to buy the core patent until the blogging universe forced them to do so and then they minimized this rather significant problem to protect further erosion of ebay stock. Public acknowledgement took them months rather than the hours it should have.

I have yet to see any analyst comment on the following.

-- The Ho hinted he might sell PayPal a few weeks ago. He's currently trying to sell Skype.

--Ebay reported and analysts noted that what little growth ebay has shown in recent earnings call come from PayPal and Skype.


-- Most business media articles concerning ebay are nothing more at best than rehashed ebay press releases and at worst too often the ebay press releases are printed verbatim. There is hardly ever any balance, analysis, or other points of view expressed in the articles.

--So where does this leave ebay? The Ho had better arrange for Warren Buffet to do for ebay stock holders what he did for Wrigley last year. If not, The Ho can expect a horde noisy barbarian stockholders at the gates.

The Ho: the man who will make ebay stock certificates collectors' item wallpaper in our lifetime when sold on Amazon.

Americans are fed up with corporate arrogance and greed and are sharpening their pitch forks and soaking their torches in oil.

DEATH to ebay corp. in 2009.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

This user has validated their user name. by: Ming the Merciless

Thu Oct 29 21:14:30 2009

IF the Skype deal closes -- and that's a very big IF considering the lawsuit --the revenue will help for one quarter and will help slightly for the year.

After that, however, ebay will need to raise seller fees through the roof in order to compensate for the lost revenues Skype produced or find something else like the Bill Me Later credit card morass consumers should avoid like the plague.

If a company is profitable like Skype has been for ebay (exclusive of its price tag), why not take the long term view and let it generate revenue and eventually more than pay for itself?

"Synergies" can be highly overrated, and selling Skype is a short term fix to please Caball Street analysts.

People get on Boards of Directors because they run other companies, are friends of upper management, provide services to management, etc.

Board members are no longer appointed because they are good stewards of other peoples' money or because they have particular expertise in responsible corporate governance. Most of them are precoccupied with sucking the every red cent of profits from their own companies to worry about ebay. In turn, The Ho and others just as incompetent get appointed to their Boards of Dorectors. That's how the game works when there is no strict federal government regulatory enforcement or supervision. Caball Street gets fat and Main Street will starve if left unchecked.

In short, Board members are appointed to scratch the backs of those who scratch their backs and veru occasionally make some token cosmetic decision such as denying welfare bonuses for the mega rich upper ebay management.

It's always about the money so it's always about the stock price -- mostly theirs.

DEATH to ebay corp. in 2009.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: fruity

Fri Oct 30 00:01:46 2009

Ina, you are sorta missing something really important. Insider trading doesn't have to come directly from the person that got it from a company. Most of the time it is from connecting the relationships. 1 person gets it and tells another and that person tells xyz who uses it. That's what happened to poor Martha Stewart

and it has nothing to do with sales data. It can be anything. It can be about the program tests that are constantly going on. I mean look right now ebay has all the powersellers screens that dashboard that suddenly now is starting to measure impressions or some kind of % (maybe a click rate or something). Its not rocket science to see that it seems to be something very google ppc adwords like. Would an investor know about it? Nope. Would they want to? Sure. we see it and talk about it and yes people draw their on conclusions on the similarities. But its ebays fault for their constant testing on the fly that lets us all have an inside seat on what is on the horizon.

We all know about ebays catalog but WSJ doesn't, those people dont' write about it. But I recall getting a link that showed me how it looks in action and wow its like a hybrid Amazon / Woot. I'm sure investors would be miffed not knowing that!

Ebay has created a hierachy within the ranks of the selling community that give certain sellers special access. Its the doors of priviledge. If as you say Wall Street firms are paying sellers, then I can almost bet you they are going after the bigger seller or ones who they know have special access. I highly doubt an ebay analyst would pay me, small unimportant seller. I do call up analyst myself. Its so I can snitch out how ebay is making me miserable with my shopping. Not selling.


ps. I think that if the anaylsts are talking with the sellers, they have to be looking for something very specific, because it sure as heck is not about how ebay is affecting small business. because they never ever ever call ebay out on what is glaring obvious, how they engage with us small businesses. So they must not be interested in that info, must be something else. Must be talking to the ones who are happy happy, the real big ones. and who knows what they know.

Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: fruity

Fri Oct 30 00:09:19 2009

Ebays biggest problem is going to be that special access they have given some people. Certain sellers, certain "providers", special tests, its strangely consistent how certain sellers behave like they're safe.  better plug those leaky blabbermouths.


If that's what gets ebay exposed and other a microscope, I'll snitch them out in a minute



and btw, how exactly did Randy find out about Buy?


Is eBay Seller Data Considered Insider Information?   Is eBay Seller Data Considered Insider Information?

by: Fruity

Fri Oct 30 00:14:38 2009

I think Ming has a very good point. That it does appear that the analysts seem inconsistent or clueless on the marketplace as it affects us. Now granted, not all sellers are impacted. But they have never called ebay out on certain things, like this chaos called beta testing and daily tinkering and daily search changes and questioning whether ebay has abandoned small sellers, etc.

that begs a bigger question. Are the analysts bias and if what we are experiencing is happening to others, then why is it never approached? Would and should investors know about this? Would investors be upset in knowing that ebay seemingly is providing inadequate services to the sellers who built this site?

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