Some Australian mining engineers checked the property BRE-X used for their gold claims and fraud before BRE-X made their claims. If one of them said "No way that property has gold" shorted it and posted his knowledge on the net. It is perfectly legal.
Absolutely not. The scenario you have described fits, to a T, the definition of insider trading and would be illegal. Alot of people bandy about the term "illegal" to describe various trading practices and short selling, but few if any of those are "illegal." Instead, some of those practices are against the regulations of SROs including the NASD and NYSE. But no one goes to jail for executing a particular sort of short sale unless it's associated with insider trading, fraudulent practices, or the like.
The definition of insider trading is the execution of trades based upon privileged information, such information defined as being both (a) material, and (b) nonpublic.
An engineer working for a company such as the one that you mentioned - just like an attorney, printer, secretary/assistant, investment banker or other peripherally-involved business individual (i.e., not just an executive) - would certainly have access to information which is nonpublic. They are privileged by being in a position whereby they can gather facts or make assessments which the general public has not had the opportunity to assess; essentially, they're unfairly advantaged. As a trained professional, having personally done the tests and made professional assessments (and, circumstantially important - likely having an employee confidentiality agreement in place), the mining survey information is indisputably nonpublic information. Trading on such information is, for the engineer, illegal; publishing it on the net to attract trading activity in favor of ones' trading position suggests a manipulative effort, in addition to probably breaching the likely confidentiality agreements.
As for whether or not the information is material, the general test used is considering whether a reasonable individual would consider the release of such information to have an impact on the price of the underlying/implicated stock, whether positive or negative. I am certain that no reasonable individual (nor, at some point, a judge or jury) would submit that such information (the very engineer who did the tests stating that he personally found no minerals such as had been expected/reported/hyped/etc.) is, in any way, not material! On the contrary, it is information of an exceedingly sensitive and potentially market impacting nature.
For these reasons, the scenario you described (mining firm engineer trading upon information) would certainly fit the description of illegal insider trading - regardless of the altruistic label put on it by the perpetrator.
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