“One trading day after announcing the news that the huge hedge fund he runs, Pershing Square Capital Management, had partnered with Valeant Pharmaceuticals International to make an unsolicited $45.6 billion cash and stock takeover bid for Allergan, William A. Ackman is sitting on a paper profit of more than $1 billion on the Allergan shares and options he had been secretly buying over the past two months.

“But the question arises: Is this a just reward for a clever takeover strategy devised in February by Mr. Ackman and Valeant’s chief executive, J. Michael Pearson? Or does Mr. Ackman’s extraordinary windfall come as result of what feels like insider trading: Using material, nonpublic information – knowing that Mr. Pearson wanted to buy Allergan and would make an offer for it at a substantial premium to the market price — to scoop up 28.9 million Allergan shares from selling shareholders not privy to the plan?

“What constitutes the legal definition of insider trading is a messy, murky business, and always has been. There is no law that defines “insider trading” per se, only a few rules promulgated by the Securities and Exchange Commission (and that only a securities lawyer could love) that define insider trading as the buying or selling of securities knowing you have “material nonpublic information” about them, obtained from someone who breached a duty of confidentiality or trust. Then it is left to prosecutors, like the undefeated Preet Bharara, the United States attorney in Manhattan, to bring cases before juries based, simplistically, on the old saw about pornography: You know it when you see it.”

***

Read full NY Times Dealbook article here.