Last month I wrote here that although there are virtually no “repeatable” ways to legally trade and profit off of inside information, every once in a while a scenario or idea emerges that puts that proposition to the test. I cited two examples: (1) the recent assertion that some people have early access to, and can trade in advance on, releases on PR newswire services, and (2) Mark Cuban's Sharesleuth.com business model, which involved him hiring a business reporter to conduct investigations to “identify suspect companies,” Cuban selling short based on the findings, and then Sharesleuth.com publishing reports showing all of the damning evidence (and the stock price of the company involved falling).

Yesterday I found what appears to be example number three of what I call "legal insider trading," and it falls under the Sharesleuth.com model. Barry Minkow, former boy-wonder CEO of ZZZZ Best and convicted securities fraudster who spent seven years in prison, now runs a company called Fraud Discovery Institute which seems to specialize in ferreting out executives at public companies who inflate or flat-out lie about their academic credentials. According to a recent WSJ article (here), Minkow's company has flagged no fewer than 11 executives for inflated academic credentials.

The reason Minkow's FDI is of note for this post, however, is its "for profit" business model that it discloses right up front. As FDI states in its Privacy Policy and Disclaimer,

Barry Minkow almost always holds a position in securities reported on, or profiled by, FDI websites. Neither FDI nor Mr. Minkow will report when a position is initiated or covered. Each investor must make that decision based on his/her judgment of the market. We always insist that anyone who relies on our reports, independently corroborate our findings before making any decisions.

Like Sharesleuth.com, Minkow attempts to identify what he believes will be market-moving information about public company executives' credentials and integrity, sells short on that information pre-publication, and then publishes that information expecting or at least hoping that it will push the price of the executive's company's stock down, allowing him to profit.