Material Non-Public Information (MNPI) refers to confidential information about a company that hasn't been publicly released but could reasonably influence an investor's decision to buy, sell, or hold securities. The "material" part means the information is significant enough to affect stock price or investment value. The "non-public" part means it hasn't been disclosed through official channels like SEC filings, press releases, or earnings calls. As an angel investor or board member, you may regularly access MNPI—and you must handle it carefully.
How It Works
MNPI becomes actionable information when two conditions are met: the information is material (would a reasonable investor consider it important?) and it's non-public (hasn't the company disclosed it widely?). Information qualifies as material if there's a substantial likelihood a reasonable investor would consider it important in making an investment decision, or if it significantly alters the total mix of available information. Examples include unreported financial performance, pending mergers, major contracts, patent approvals, or executive departures. Once information becomes public through official disclosure, trading restrictions lift for most investors—though insiders may have additional limitations under company policy.
Why It Matters for Investors
Understanding MNPI is critical because trading on it—or sharing it with others who trade—violates federal securities laws, specifically Section 10(b) of the Securities Exchange Act and Rule 10b-5. The consequences include civil penalties, criminal charges, disgorgement of profits, and imprisonment. As an angel investor, you might gain MNPI access through board seats, term sheets, due diligence, or founder relationships. Even if you're not the one trading, "tipping" others about MNPI makes you liable. The SEC actively monitors insider trading patterns and has sophisticated detection systems. Additionally, many companies require employees and board members to sign confidentiality agreements with specific trading windows and blackout periods.
Example
Imagine you sit on the board of a pre-IPO SaaS company. During a confidential board meeting, management announces they've just secured a $50 million contract with a Fortune 500 customer—a deal that will triple revenue projections. This is clearly material and non-public. You cannot buy additional shares before this announcement becomes public. You also can't tell your spouse, business partner, or broker about the contract to encourage them to invest. Once the company files its prospectus or issues a press release, the information becomes public and normal trading rules apply.
Key Takeaways
- MNPI is confidential, material information that could influence investment decisions before public disclosure
- Trading on MNPI or tipping others violates federal securities law with serious criminal and civil penalties
- Board members and early investors regularly access MNPI and must follow trading blackout periods and confidentiality requirements
- Information remains restricted until the company makes official public disclosure through SEC filings or press releases