Suppose LeBron James Traded on the Basis of His Free Agency Plans

Would that violate SEC Rule 10b-5's ban on insider trading?

The Athletic reports:

[LeBron James] announced Tuesday that he will be playing a record 24th NBA season, but it won’t be with the Los Angeles Lakers. …

A panel of The Athletic’s reporters then debated where LeBron should sign. Jason Jones opined:

Sentiment says Cleveland, but if money isn’t a concern, go to the Knicks.

If this is about a chance to win another championship, why not go with the defending NBA champions? Mike Brown was the first coach to reach the Finals with James, so finishing his career with a season with Brown would be some Lifetime movie-type stuff that’s perfect for television. I also believe getting out of the Western Conference and away from OKC and San Antonio gives James the best chance to return to the Finals.

Given LeBron’s reported net worth of $1.3 billion, money should not be a concern.

I hope LeBron does chose the Knicks, because the mere possibility calls to mind one of my favorite set of insider trading hypotheticals.

The NY Knicks are owned by Madison Square Garden Sports Corporation, a NYSE listed company (MSGS). It is a reporting company and, as such, a public corporation.¹

So let us consider several hypotheticals:

1. LeBron firmly intends to sign with the Knicks if they make him an offer, but the Knicks have not yet done so. LeBron buys MSGS stock.

2. The Knicks have made LeBron an offer, which he firmly intended to accept. LeBron buys MSGS stock.

3. The Knicks have made LeBron an offer, which he has accepted. LeBron buys MSGS stock.

In each case, LeBron’s purchases of MSGS stock occurred before any public announcement of his intentions and/or actions. In each case, LeBron subsequently signed with the Knicks and MSGS’ stock price jumped in response to the news. LeBron then cashed in.

Has LeBron violated the federal insider trading rules under SEC Rule 10b-5?

For a detailed overview of the law of insider trading and the policy rationale for regulating insider trading, see my book Insider Trading Law and Policy (2d ed. 2023) (AMAZON LINK).