I work in billing software for a publicly traded software company and this is a constant temptation. I'm never gonna do it because I'm not gonna blow up my career for a relative pittance, but I can't tell you how many times I've been annoyed that I couldn't act on private information and make ~$100k or so.
These guys are like the kids who saw the Tide Pod challenges and decided to actually eat the pods. I bet insider trading is not as fun when you're unemployed and bankrupt.
>I bet insider trading is not as fun when you're unemployed and bankrupt.
Not just unemployed, likely unemployable by any reputable company in the industry.
Also, good on you for having integrity, but honestly what you say is too much for the average person to be tempted with. Does anyone have a solution for lowering that temptation and making these scenarios less likely?
> but honestly what you say is too much for the average person to be tempted with.
I think you underestimate the “average person”. Most people basically want to be good. Everything works better when that is the case — basic game theory.
You see the punishment / pressure about unfairness start in early childhood. You see it in the infrastructure where this is overwhelmingly the case (e.g. shops with unguarded back entrance/exits) vs where not (armed guards outside the shops).
And of course the news (cf the current HN conversation on that topic) focuses on the exceptions to the rules because, on an evolutionary biology* basis we’re always learning and reinforcing on the normal case so we are interested in the exceptions.
people want to be good but debt and financial problems can negatively impact judgement. people take risks when they are desperate.
I’m sure it happens all the time, we just heard about the ones who got caught.
Personally I would never do it as I can make much more by keeping my job and the field I’m in is all about ethics and integrity. I would rather hustle with contracting or job shop to get a raise if I really needed the money.
> people want to be good but debt and financial problems can negatively impact judgement. people take risks when they are desperate.
Tech ( corporate ) pays well enough that anyone with reasonable cost of living and lifestyle shouldn’t resort to extreme desperate measures. The rest is greed. The fact these people have money to play with stocks already shows they’re much better off than the average person.
People who are in an insider position at a publicly traded company are generally getting compensated well enough that they do not need any more. They may want more but most folks get by with much less.
In the US, all it takes is a run in with the legal system or emergency medical bills, and virtually anyone could find themselves in dire financial straights.
Most of the time these stories are reported, there is no indication that the motivation is paying back medical debts. Actually I've never seen it. It's normally gambling or drugs. I agree an insider with medical debt is a theoretical problem, but it doesn't seem to be an actually common occurrence.
I think it's a lot to be tempted with, but it's also relatively easy to stay in compliance: don't trade your company's stock during black out periods, don't talk about revenue with friends or family, and be vigilant about not publicly discussing your information. It's not a complicated code of ethics, fortunately.
You can obfuscate CII (Company Identifying Information) as much as possible. Limit the reveal to those that need to know. Auditing, and making employees aware you can see what they do with data might reduce the temptation because the risk of being discovered is (perceived to be) greater.
Unfortunately I need to know, because if the numbers are off I need to help fix them. I do take my responsibility to keep revenue numbers within a small group of people very, very seriously, because who knows if someone else would be too tempted to act.
This reminds me of the problem before we had the cash register (which Charlie Munger has talked about quite a lot). It was a constant problem, most people companies had a lot of theft. The constant ease of access was just too much for most people to do, adding in a cash register reduced this theft by a lot. It's unlikely these were "bad people" by most definitions, undisciplined, perhaps they meant to repay it, perhaps they had a serious ill.
We need a modern day equivalent of a cash register.
It depends on your definition of the problem. The problem I would like to solve is ensuring that everyone perceives the market as fair, i.e., not tilted toward parties with access to privileged information.
> not tilted toward parties with access to privileged information.
With the exception of Congress of course.
Reverse insider trading is also fine, you can announce buybacks right before a preplanned stock sale.
It would be simpler to say if you aren't friends with someone invited to Epstein island you aren't allowed to insider trade but the plebs would get uppity.
Banning Congress from making stock trades has broad bipartisan support[1]. Absent any evidence that the person you're responding to doesn't support a Congressional ban, it's probably safe to assume that they do.
This implies a truly bizarre understanding of markets and fairness.
Was it fair when Enron was valued at $70B? Would the situation have been less fair had insider traders with more information pushed the prices down earlier?
Insider trading doesn’t cost anybody anything, it simply allows for more accurate pricing which benefits everybody.
> Insider trading doesn’t cost anybody anything, it simply allows for more accurate pricing which benefits everybody.
Insider trading has an institutional cost: it's corrosive to trust in the market. Retail investors are less likely to make optimal investment decisions if they think that insiders are lurking around every corner. That trust is further diminished if retail investors believe that insiders are not just investing based on insider information, but speculating on higher-order instruments.
It's perfectly fair to note that our current regulations against insider trading aren't ideal, and that the SEC only catches a tiny fraction of all insider trading. But the threat of enforcement does serve as an important root of trust in the market, and removing it is unlikely to serve individual investors well.
> Retail investors are less likely to make optimal investment decisions if they think that insiders are lurking around every corner.
But the reality is that there are insiders lurking around every corner. The argument is essentially that we should seek to actively mislead retail investors instead of simply acknowledging this fact.
I think it would be dishonest to do so actively, which is why I try to acknowledge that the SEC's current ability to enforce insider trading laws is relatively weak and ineffective.
I think it's my civic duty to not only inform others of that fact, but also to advocate for better enforcement.
Good enforcement is impossible. You can never meaningfully hinder insider trading, far too many people have access to insider information. They don’t have to make the trades themselves either.
> I think it would be dishonest to do so actively
That is what the government is doing via legislation.
Good enforcement isnt impossible. Improbable, yes.
Every trade has to be disclosed. There isn't a block-chain involved, but their is an e-paper trail. We are on a technology forum in a time where ten people could probably put together a domain model that tracks potential conflicts based on peoples trades, google contacts, and linkedin profile. And any person who traded on insider information in the past probably leaves a pattern.
Fine, this feels needlessly pedantic but let me correct myself.
Good enforcement is impossible without subjecting anybody trading stocks and everybody they know to a completely unprecedented level of surveillance. This would have to go far beyond the wildest Snowden revelations.
Perhaps not completely impossible in theory, but absolutely infeasible in practice. Building such a system would also be likely to result in far greater chilling effects on the markets than insider trading ever could.
> enforcement is impossible without subjecting anybody trading stocks and everybody they know to a completely unprecedented level of surveillance
Why? Just look for a pattern of abnormal returns. (Hint: the SEC does this.) It's much easier to check for insider information after the fact than it is to profitably trade on it.
So, if I were a trader at Enron who made good money trading electricity and gas then used that money to short the stock based on private information, I'd be doing everyone a service and fighting for fairness. Better yet, I could be one of their auditors at Arthur Andersen.
Oh, please. You wouldn't be doing everyone a "service" because you'd be making money (or at least losing less) than the other investors - you'd have a material advantage. If you truly wanted to do the world a service, you would have just publicized their fraud and taken a bath along with everyone else.
But the economic award is just the cost of a more correct market price and it happens all the time.
For example a mask manufacturer. They might have a relative in China who shares information about the outbreak of a new virus. Manufacturer uses this completely legal information to produce a ton of masks and makes record profits off the sales because they're right. But the public benefits as well because there are actually masks to purchase.
And another example are whistleblower payments. We have no problem giving whistleblowers millions of dollars for uncovering fraud because the cost is far lower than the benefit.
I think the point that they're making is that there wouldn't be a large opportunity to short Enron if people were insider trading from the very beginning. The price of the stock would be more accurate from the beginning, because people would trade at the first sign of an opportunity to benefit from insider information.
Personally, I think the argument is interesting. Let us split it into technical and cultural concerns.
A market changes according to flow and distribution of public and private information. The more publoc information, the more accurately priced the stock. Insider information increases public information indirectly through trading said stock.
From a cultural standpoint, many people do not trade on insider information because it is seen as unfair or immoral. A number of people abstain because it is illegal. Some do trade based on self interest and the disproprotiate personal gains to risk involved.
Nowhere, in any of this is the quality and manner of disclosure. Ultimately, it just creates another financial game where people race to see who can get the information quickest.
Needless to say, the systems of reporting in corporations would adjust and the largest share of gains would be made by those who have large holdings of stock. At the same time, it takes away a measure of enforcement and adds traders who were deterred by laws and morals.
Is it likely for you to get caught for insider trading? Probably not.
Especially if you're Joe Blow and you make 10k on this. If you are Joe Blow making 10k also means you did not have a lot of "play money" to act upon overhearing some random conversation. Or you do but didn't trust it fully (how did you know it was 'material' and not just some guys at a business lunch 'boasting' to each other?) and just did it to test waters or have fun.
The larger the sums get I would argue the more likely it is you will get caught because it means you are probably much closer to the actual information than meets the eye. Or it gets caught in some filters based on amount and such that someone starts looking at etc. If you really just completely randomly overhear something like this, how do you judge that it is 'material'? Is someone going to bet his entire savings account on a completely random encounter of overhearing Bill Gates and Warren Buffett discussing something 'material' over lunch and they are in earshot range? And here we are talking major celebrities that probably even Joe Blow would recognize and judge as 'probably material'.
You know what? Even though it's still immoral I totally wouldn't judge Joe Blow betting $100 to make $10.000 on that and put it on the mortgage. He probably bets that same thing on some Superbowl weird odds bet each year and looses.
More likely? Joe Insider knows exactly when Company X and Company Y are gonna announce some multi billion dollar deal because they've been in talks for months and they work in BI to get the numbers for this deal to them and things seem to be getting close. Get a few trades in with the bonus money or proceeds from the RSUs vesting. Immoral act to make 100k of RSUs into 10 million and be set for life.
Maybe I'm misunderstanding what I can find about this online. Please help me understand. Let's say Joe Blow in my example works as a janitor for said company. For the sake of argument, he's directly employed.
There is no statutory definition of “insider trading”. As defined by the courts, it refers to purchasing or selling a security while in possession of material, non-public information concerning that security, where the information is obtained from a breach of fiduciary duty, or a duty arising from a relationship of trust or confidence.
Obtaining the material information by way of a breach of duty or confidence is the key to an insider trading violation, but after decades of court rulings, it is almost impossible for a court to find that a duty was NOT breached in an insider trading case. Some duties are obvious – the CEO of the company, the CEO’s assistant, and every other employee owe a fiduciary duty to the company and if they use, or disclose, material non-public information, they are liable for insider trading, often even if they didn’t trade themselves.
Over the last 10 years, the SEC and the courts have greatly expanded this definition, to include trading by individuals whose “relationship of trust” is so remote as to be non-existent, but that discussion is left for another day
Would he not count as "every other employee" in the above for some reason? He overhears a conversation between the CEO of his company and another company about a big deal while he's say fixing the heating in the conference room? Nevermind the likelyhood of that scenario and the really bad practice of discussing such matters in said conference room while he's there (or in a restaurant to go back to the other example but then said janitor would need to frequent the same one as the CEO of his company, which is also an unlikely scenario ;) )
That's an interesting perspective. So in a way, insider trading corrects the market because the difference between what is known and what is unknown should not result in a vast difference in valuation.
Exactly. It is the perspective often repeated by economists.
There exists little political will to legalize insider trading because it would be hard to sell to a public that doesn’t even understand why stock markets exist. To the average person on “insider trading” is just bad stuff evil rich people on wall street do.
In reality the arguments in favor of banning insider trading are actually quite weak, usually relying on very vague ideas of fairness and public perception.
But the idea of “fairness” in markets is an illusion anyway, even without insider trading there will always be those with more information. Someone could follow corporate executives to restaurants, eavesdrop on their conversations and trade on that basis. That wouldn’t be illegal insider trading, would it be fair? I personally believe it would be just as fair as illegal insider trading.
I don't have an argument. You don't need to argue to contribute. My contribution was pointing out persuasive writing devices often used to add credibility to one’s argument but are not supported by any logic or reasoning in his comment.
> But it does, it increases information available to the public.
A little less pedantically for those who enjoy repetition and are prone to dogma, more information is not always better. In this case, as is in general, there should be some qualitative analysis, e.g., the type of information, how it was gathered, its method of distribution,...etc.
On another note, the Efficient Market Hypothesis (EMH) is not reality. I say this because you have used several core tenets in your discourse repeatedly. I acknowledge the high probability that I am most likely dealing with a college student fresh out of introductory Macro. Yes, the class is interesting and exciting. Here is a lesson, EMH is a model used to help us reason about the market. Its an abstraction based on an abundance of simplifying assumptions, ceteris paribus. Anybody who does not disabuse themself of this notion that EMH follows reality is a fine and perfectly capable person who may make a lot of money some day (fingers crossed), but they don't really add much to the conversation.
Finally, unrelated to the aforementioned, yet I don’t care to answer any more of your responses to my posts, so I’ll add this here: look up the ‘straw man fallacy.’ I tend to shy away from using biases and fallacies in general discussion, they seem to miss more than they hit. However, my distaste doesn’t stem from those who use them effectively to facilitate when they hold relevance. No, my distaste comes from those who use them as the argument itself. It is lazy and adds nothing to of value, much like allowing insider trading. If you can explain what makes my example of financial auditors' a 'straw man', especially when it was solicited by a general question asking for examples, then you can claim you 'dominated the conversation' / won or whatever this is.
If insider trading is legal, you could actively destroy a company from the inside and profit from its downfall.
Like you could buy put options to set up a leveraged short position, take all the company's money, set it on fire in public(or make a stupid acquisition so you can't easily be sued by other shareholders), watch the stock price drop in a predictable manner, and profit from the predictable decrease in equity.
Sort of like how you can't buy life insurance and then immediately commit suicide and still get paid out.
>Such activities would be criminal regardless of insider trading. What difference could it possibly make if insider trading was legal?
Killing your neighbors with a gun is illegal in both France and US? Here in France, one cannot purchase a gun. Guess what happens when you make gun sale as easy as possible?
Oh but people can own gun, they just should not use them illegally! Right?
There are so many ways they could implement the same thing.
K-mart could stop marking everything "on sale" 100% of the time and make the regular price the discounted price, so people don't feel like they're getting a good deal. Then their sales collapse and they go out of business, because consumers are robots with predictable emotions.
Or the board could look for the absolute worst CEO they can find, thinking to themselves "This guy will surely bankrupt the company if we give him control", and then have all the written documentation being reasons why he's a great CEO and put out press releases bragging about him.
If you look at executives loading up on put options and say "surely that proves intent", then they'll instead call up their old Harvard buddies at Goldman Sachs and tell them all the reasons the new CEO's going to be great. They'll take the hint and load up on puts on his behalf, then 10 years later give him a cushy job at the hedge fund.
Maybe they wouldn't do it to a successful company. But if a company starts declining, has a couple bad quarters... the executives start looking for an "exit strategy", and you just legalized a whole class of them if they accelerate the decline as long as it's too hard to prove intent.
If you try to ban specific examples and legalize the general principle, they'll spend years of their life arranging for companies to be bankrupted in ways that are hard to prove illegal. There'll be documented "good reasons" for everything, but despite that they will be millionaires and their companies failures.
You can't look at the most obvious case and say "we'll just ban that". It's not how these people work - they are reading the law and planning around the edge cases.
They're only "obvious" frauds if I'm sitting here writing a paragraph describing it like one.
There is a global feed of press releases that companies release into, and the average HN commenter is incapable of distinguishing frauds from real better than anyone else. The executives that make these press releases use different language that doesn't describe it as fraudulent, and this makes it non-obvious.
If the "trading profit" is the only signal you have, I'm sure Goldman Sachs can come up with a way to make it less obvious than "buy lots of short-term expiring put options on your own company". You can't look at only the obvious case - you have to look at all possible things all finance people can do and rule out any possibility of profiting from a downwards movement that was engineered. Otherwise, they will profit from the gaps in your ability to detect them.
In order for something to be a crime, it has to be proven "beyond reasonable doubt". Say with 90% certainty. That is, 2 bits of certainty. But you can make a trading profit while leaking 1, 0.5, or 0.1 bits of certainty. It is extremely difficult for non-specialists to detect a trade pattern based on a leak of 0.1 bits of certainty.
Insider trading isn’t the only potential motive for an action like that. A competitor could pay a mole to help them get ahead by taking down the competition, for example. I’m skeptical that insider trading law plays a significant role in preventing schemes like this from occurring. The entity with the strongest incentive to prevent a company from being sabotaged is the company itself. Insiders can complain to regulators or prosecutors if they think something like this is happening, and that’s pretty much the only way they’d find out.
"What’s odd is not that insider trading law is about theft; what’s odd is that it almost looks like it might be about fairness, and that people think it is."
"One thing that I often say is that insider trading is not about fairness, it is about theft. Whenever an insider trading case is announced, the prosecutors will make a little speech about how financial markets have to be a level playing field, and how the insider traders are cheaters who got the answers before they took the test, but it is all nonsense. Financial markets are not a level playing field; some people will always have faster computers or better resources or more money to spend on research than others, and they should have incentives to find out information that other people don’t have. But more important, the level-playing-field stuff is just not the law. The law doesn’t say that any time you trade on material nonpublic information it’s illegal. The law, to oversimplify a complicated area, makes it illegal to trade on material nonpublic information that you obtained in violation of a duty to someone: It’s illegal for corporate executives to trade on corporate information for their private gain, or to give that information to their buddies in exchange for a personal benefit, or for outsiders to obtain information in confidence and then betray that confidence by trading on it. The real issue is never whether the trading was unfair to the people on the other side; it’s whether the information was misappropriated from its rightful owners."
So how do you make sure the rightful owners have access to the same information?
> Financial markets are not a level playing field; some people will always have faster computers or better resources or more money to spend on research than others,
This is wrong. Being better than someone else doesn't make the playing field unlevel.
Prices are a function of number of market participants and information of each participant. If insider trading is legal, fewer people will participate in the market because they will lose out due to information asymmetry and this will lead to pricing inefficiencies. What’s interesting is that what others are willing to pay is key public information as well.
> If insider trading is legal, fewer people will participate in the market because they will lose out due to information asymmetry and this will lead to pricing inefficiencies.
This only makes sense in a world where regulators can effectively prevent insider trading, that’s not the world we live in though.
Does it really? We have a lot of laws and activities where we know there not perfect, yet we set the right incentives. Having laws against murder does not effectively prevent most of murder from happening.
Their obviously wasn't much thought put in to this. Anywhere that a conflict of interest occurs has potential for abuse. If the officer/employee/agent has the ability to influence the result and profit then their is a conflict of interest. The legal ramifications are lessened and the cost to benefit subsequently decreases.
Auditors are a good example. They have privileged information and are responsible for the fairness of financial information / disclosure. Their incentives are already complicated by the compensation structure, i.e. the company they attest for pays their fee and ultimately decides whether they will work together in the future.
In this instance, an abolishment to insider trading regulation would ultimately undermine trust in the financial reporting system. The auditors could potentially place bets on their engagements and negotiate results based on their interests. Impartiality would be compromised. There are safeguards in place currently, penalties for insider trading are part of the remedy.
It’s important to understand that the usual argument against insider trading isn’t actually about true fairness, but rather the impression of fairness. These are two different things.
The argument that insider trading should be banned because it is somehow disproportionately unfair is quite weak, the argument that it creates an impression of unfairness is a much stronger one.
I personally don’t believe it is a particularly good argument, but it is certainly the strongest version of the argument against insider trading.
What about radical transparency: public companies should have constantly visible numbers to everyone. Eliminate the advantage and equalize players.
It's the disparity in revenue information, chunked into quarters, that causes the problem. Some people feel entitled to have early access but that's the problem.
There's no single solution, but I think it comes down to a combination of annual compliance training, decent remuneration, being aware of your team's personal situations, having auditing systems in place and monitoring employee engagement scores as a proxy for job satisfaction and trustworthiness.
There is no solution better than the current ones. After a company I worked with was acquired by a public company, I was given a role that included accessing to sensitive information in financial dbs. Along with that was a welcome email from the chief counsel, then every quarter came emails listing blackout dates. I nave traded in the company’s stock or options, but it would have been incredibly clear when I was prevented from doing so.
Some companies will also work with the financial group they administer their equity and ESPP through, so you literally -can't- trade on certain dates. You probably shouldn't be buying company stock outside of those anyway, given the limited trading windows, the scrutiny, and the lack of diversification.
> I work in billing software for a publicly traded software company and this is a constant temptation. I'm never gonna do it because I'm not gonna blow up my career for a relative pittance, but I can't tell you how many times I've been annoyed that I couldn't act on private information and make ~$100k or so.
> These guys are like the kids who saw the Tide Pod challenges and decided to actually eat the pods. I bet insider trading is not as fun when you're unemployed and bankrupt.
It is just so easy to get caught, this kind of insider trading is just the classic dumb criminal crime. And at the end you only made $100k at the very high chance of some algorithm in the SEC easily detecting what you did.
There are probably more lucrative and/or less risky ways of making illicit money.
What you're proposing is not insider trading but is likely prohibited contractually, if you tell your buddy to do it and in some way benefit...now you're in trouble.
But capitalising on insider knowledge is generally okay from the SEC's perspective.
> These guys are like the kids who saw the Tide Pod challenges and decided to actually eat the pods. I bet insider trading is not as fun when you're unemployed and bankrupt.
Most insider traders are never caught, everyone eating tide pods gets sick.
Executing an inside trade profitably and secretly is difficult. Catching it ex post facto is easy. (The SEC scans for unusually profitable trades and accounts. These systems are thorough, clever and effective. When they're updated, they re-run back data through the statute of limitations.) This is the P != NP element of insider trading that outsiders miss.
It's why inside traders are usually unsophisticated. They assume Wall Street is doing it. That they're getting the short end of the stick. So they run out and buy out of the money calls or whatever through their nephew's account and get nailed.
There is a huge survival bias here: the ones we know who did it are unsophisticated about it so were easy to catch. The ones we suspect might be doing it are sophisticated enough that there is no evidence of their wrong doing. Maybe they aren't doing it, or maybe they are just good at doing it.
One of the ways hedge funds do, or used to, do is this strategy: trade a ticker very regularly (every other day, or thrice a week), then get the insider info, make the profit in that week. Then buy and sell. A month later, move on to another ticker.
I mean, for the people in this case it seemed like that they communicated that they relied on the database access in writing somewhere that was the issue.
Surely if they, by (supposed) conjecture, figured that the company might do better if people are more dependent on phone calls in lockdown (a reasonable assumption), and there was no evidence to the contrary, how from a technical basis would it look any different from someone simply going "oh yeah my company looks like it's gonna do great, I'd recommend getting some shares"?
I wonder if this investigation would have had teeth if it had relied on coffee shop conversations as opposed to digital media.
Not really a matter of most are never caught but a matter of people doing really stupid trades because they think there's no way SEC's paying someone to check they cleared all their open positions to buy deep out of the money call options just days before a big company announcement.
Matt Levine wrote some good articles on how people get busted.
The main point is you can't buy or sell securities without identifying yourself. So when someone opens a new account and buy out-of-the-money call options that expire a few days after an earnings announcement it's not hard for the SEC to flag all those.
Then all they have to do is look up that person and see if they have any connection to the company. They can look at who you are connected to on LinkedIn, who you live with, where your family is employed. Then they come to that person and ask them a question that seems innocuous "Have you ever discussed Company X with <insert name>". If you lie, then you've already committed a felony when they get your text records or email or Whatsapp.
I think an element people miss is that to make more than negligible amounts of money from this stuff, you generally need to invest large amounts or or make the trades many time, or both. ... and this generates a pretty strong signal.
"Hmm. This guy just bet his entire account on a crazy bet and won" or "Hmm. This guy flipped a coin and it came up heads 20 times in a row."
I have no idea if it would work, but having a few years of making similar trades (some winners/some losers) likely helps stay off the SEC's radar.
A track record of buying and selling similar options in similar amounts is much more explainable than only contributing a few thousand to your Roth IRA by buying ETFs, then suddenly making a few hundred thousand on your first options purchase that so happened to be in a single company that a LinkedIn contact works for.
By the time the SEC is knocking on your door asking questions you're already screwed.
they almost always get caught. The SEC is so good at detecting this stuff especially when people do it many times thinking they got away with it the first few times. .
I have seen cases where people get caught even after using many middlemen/intermediaries involving seemingly multiple unrelated contacts, breaking the trades up into tiny batches, using encrypted chat services, making normal trades and trying to mix the illicit trades in.
>Try to apply some adversarial thinking and envision a situation where you want to insider trade, but don’t want to get caught.
Criminals take great efforts to not be caught and still are.
[Edited to remove harsh phrasing]. Consider this: there is no upside from this comment and quite a bit of potential (although likely low probability) downside.
I think this is a fair criticism, but in all honesty a determined attacker would probably have better vectors both in terms of companies to trade against and in terms of people with access to actionable information.
Also worth noting there have been times I've thought the price should go up and it went down, and vice versa. While I have a good view into financials (and believe I would have made money insider trading, on the whole), it's not complete enough to warrant something like threats, blackmail, etc.
Not a sympathizer of these idiots who clearly thought that would get away. But what really astonishes me is how SEC is consistently after these retail small players when members of congress and its different committees are brazenly involved in insider trading and no one bats an eye. Hell even the Fed itself and its members were involved in trades that could only be explained by insider knowledge.
My sense is SEC wants to send the message it is OK if big players do it but small players beware.
> even the Fed itself and its members were involved in trades that could only be explained by insider knowledge
What's your source for this? We've seen questionably-timed broad-market transactions that yielded a few points. (The officials were fired and the Fed revised its rules.) But nothing that looks like insider trading.
The simple answer may be more mundane. Anyone who has spent time on Wall Street or in rule making knows how effective the SEC's systems are at catching insider trades ex post facto. The only seeming way around it is to avoid letting your trades get too profitable. At which point the risk-reward ratio becomes unattractive for anyone with much to lose.
Because it's not as obvious regarding congress. Person A gets tip, hands to B and makes trade, is a direct link and can be proven in court. Also, Congress has 532 people, so by statistical certainty we should expect some to beat the market.
> Also, Congress has 532 people, so by statistical certainty we should expect some to beat the market.
Congress has many individuals that consistently beat the market by significant margins over a prolonged period of time, far past the point of reasonable arguments that you can make based on statistics.
"We find weak evidence of informed trading for the pre-Congress period, suggesting that informed traders are not being selected into office. When combined with our finding that the portfolios of members serving on powerful committees outperform the market during their second term in office, this provides additional evidence that serving on influential committees is the mechanism by which members of Congress earn abnormal returns."
what is one such example of a trade. I can only find examples of congresspeople making stock trades, not trades based off of specific pieces of insider information in a manner similar to this SEC report. Do you mean trades initiated before legislation?
Sure but Pelosi, Feinstein etc etc are so very very clever they'd have become multi-millionaires by them & their partners investing in the market if they didn't regulate those companies. /s
Case of Pelosi comes so often but she is a very weak example. Came from $300,000,000 family fortune "her" stock picks (she obviously doesn't pick herself but has financial firm representing and making moves on her behalf) did merely $6,000,000 in last 10 years, according to her tax statements. I don't get why her "inside trading" and her fridge full of ice-cream triggers so many people; people who clearly haven't done a basic research.
They have to disclose when family members make the trades, as shown by the article you posted. So its not really clever when it still gets disclosed. And something like having a spouse do the trades certainly isn't either. That's easy for the SEC to check too.
But what evidence is there that any of that is trading on non public information? I just lists off some of the most popular companies out there to invest in. The trades include AmEx, Apple, PayPal, Disney, Slack, Tesla, Alphabet, Facebook, and Netflix. I would be surprised if they didn't trade in many of those companies.
Pelosi knows whether google are going to have a whole bunch of very expensive anti-monopoly regulation get up. She might even influence that. Her assessment of the prospects of competing regulation is non-public and could change when she has a shower. She is right in the non-public information /by/ /definition/. And when she says she won't let her family financial interests affect her judgement do you believe that?
It's not "illegal" for her to tell her husband to buy google and then work to kill that regulation. There is zero prospect of her being prosecuted if you could prove that beyond all doubt.
Smell that stench wafting out of Washington. Got nothing whatever to do with R v D so we need to make sure we bring up republicans here to kill any chance of reforming the endemic (yet legal) corruption.
I simply don't believe you can regulate something you own. If you do, sure, that's your opinion and you are entitled to it. I believe that regulatory intent is non-public, that seems pretty clear tbh. I believe her husband would know if she had the knives out for google to take one example as he would know if she was going to make sure they aren't going to run into regulatory issues. Disagrees, sure, but there's not much to talk about beyond that. Maybe an illustrative example helps.
If you traded based on knowledge learned from the CEO of google that he'd privately met with Pelosi and she was onboard for google to do anything it wants without any further regulation while simultaneously she publicly claimed she was going to regulate them back to the 1970s. You can go to jail for trading on that information, so can the CEO, and yet she can't. I hope you can see the point now.
I totally agree that they shouldn't trade stocks. Put it in a blind trust or something. There is all sorts of bias there in regulations or lack thereof. But what you have still not presented is evidence that inside information has actually been used to make those trade. Is it possible? Absolutely. But where is the proof behind your accusations? I have yet to see anyone produce actual proof, just speculation.
Trading on information from a private meeting with a CEO is textbook insider trading, and whoever does that absolutely can get charged for that.
Now if someone were to know they are about to introduce major legislation to regulate tech companies, and trades on that information before doing so. That absolutely is wrong, and should be illegal. But unfortunately it isn't. And I doubt they will actually end up regulating themselves.
The onus is on a person with privileged information to show that they did not use that information to inform their trades. This is why the CEO can't trade whenever s/he feels like it, for example. "You can't prove I used inside information." To which the attitude is, sure, so what? You had access to it, you traded, get a lawyer. "Sure the CEO told me they were about to be acquired but you can't prove I used that information when I invested a few million in their company." And you really can't prove it yet prosecutions occur.
Pelosi and plenty of others have material, non public information. They and their partners trade knowing that material, non-public information. They make rather good returns, better than you. Better than your retirement savings. It STINKS to high heaven. Focus on that part and reforming it. It's not partisan it's not ok if you're an independent.
What a lame way to insider trade. I thought that instance of the Capital One analysts using internal database queries to understand which retailers were having good quarters was far more interesting and insidious. Similarly you could imagine a lot more subtle ways to leverage insider Twilio information (count of verification texts sent by client?) to make far more obscure bets. The SEC definitely takes a look at anyone who goes from zero trading -> making improbably great trades worth millions though, so better have a good patsy lined up!
Add to that they apparently chatted about it in some tool that had an auditable history and one can surmise that these people weren't the most sophisticated bad actors.
This is what I thought it would be based on the headline and was frankly disappointed that the truth was so quotidian. Certain Twilio engineers could very likely keep an index of major gig-economy/delivery services and track both user and driver sign-ups in a way that could be very valuable NMPI and have the advantage of being at a broad range of companies that are only tangentially related to their employer.
In fact, @SEC if you're reading this, you might be missing some bigger fish...
Not many? Describe the trade steps necessary to insider trade with high leverage that isn’t trivial for a data analytics program to flag with high confidence?
1. Work for a company that provides signal-giving infrastructure for a variety of companies across disparate industries. Twilio is actually a perfect example.
2. Find someone to work with that already has or is willing to build a plausible history of so-so trades.
3. Occasionally tip this person off that company Y in industry X is about to have a good quarter. Never trade the same company twice. Parallel construct a plausible rationale for the trade based on public market signals if you want to sleep well at night.
4. Don't communicate over easily subpoenaed channels, obviously. The SEC isn't the NSA, basic OPSEC is fine.
5. Profit?
That's why I'm so disappointed by the OP! It's so easy to dream up a situation where they used their access in an effectively untraceable way.
That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information (company press release aggregation is a classic version) to get similar edge without entering a criminal conspiracy.
Notice I mention high leverage. There are 2 challenges (as I see it) to committing insider trading. The first is having information ahead of time that actually predicts how the market will move based on the information. It’s not enough to know a company will have a good quarter you need to know it will be better than expected.
Second you need to be able to make outsized returns on that information. You have to beat the market returns by themselves. This compounds with the other issue above. The less obviously market moving data you have the more leverage you need.
This narrows the search space pretty considerably for an analytics based approach. You look at insiders with lots of access or anyone making high leverage bets.
Finally, do a mental exercise on your step 2. What does that even look like? An insider randomly approaching hedge funds? A random encounter at a bar? A frat reunion where they share each other’s trading history like term papers?
I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled.
However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.
Will this other person keep their mouth shut when the SEC comes knocking because some very successful traders seems to be handling a lot of cash or crypto? Or will they flip on you to stay out of prison?
Read up on Matt Levine's many, many examples of people getting busted for insider trading.
Not sure how a random user of /r/WSB who has been receiving anonymous insider tips in return for 50% of the gains, to be paid in untraceable crypto, is going to "flip" :D
But that's not insider trading. You don't have inside information on that other company. You have a guess that their business is doing similar. When perhaps Twilio is doing so well because they took business from that competitor or something else that makes them stand out.
Interesting, hadn't heard of that one before. With some digging this appears to be the first case where they have ever charged someone for "shadow trading" like this. And it is still making its way through the courts. Definitely will be following that.
This is another situation where I am literally dumbfounded at the actions of the indicted. How are you smart enough to know what options are and how to buy them but stupid enough to think that you won't get caught making such a blatant trade?
It's like these people think they're the first ones to ever come up with the idea of trading on privileged information so there's no way they'll get caught.
It’s literally a running gag on Matt Levite’s newsletter that all the SEC needs to do to keep their enforcement quota up is to search their database for any deep OTM option trades around earnings announcements.
"He used to work for United States JP Morgan Chase, Capital One, Jimu.com (as Strategy Analytics Director). Bonan mainly focusing on data mining, machine learning and programming large data quantification in analysing stock."
>I thought that instance of the Capital One analysts using internal database queries to understand which retailers were having good quarters was far more interesting and insidious.
How is this seriously different than what any one of a million other "AI analytics" companies are doing with customer data right now?
The "AI analytics" companies are all communicating expressly their intent when they purchase the data at the outset. This makes it legal.
Full disclosure, I'm a privacy advocate and believe this sort of selling of customer data should not even be allowed. That said, what the companies you allude to do is totally legal by law, and significantly different in practice than taking data without informing anyone of your intent.
I guess the short answer to your question is that this is the United States. Everything is legal here, provided you do the paperwork first.
It was an internal database (from Capital One credit cards), they weren't allowed to use that data for analysis. This wasn't publicly accessible information.
Because it was Capital One's internal data, which belongs to the shareholders. US insider trading laws are about theft, not about fairness (the markets require "unfairness" in this sense in order to perform price discovery).
The difference is public vs. non-public information. Doing something like counting cars in retailers parking lots is something any investor could do (or pay someone else to do). Trading using trends from non-public credit card transaction data isn't something that any "general public" investor could do on their own.
Also note this is about buying and selling securities, not selling consumer data for marketing purposes.
I'm sure the SEC has an array of tools with which to comb through the data, but I would bet that the vast majority of these cases against non-professional traders are flagged by identifying retail brokerage accounts where the notional value of options outstanding is
1) larger than some % of the the portfolio size (e.g. > 50%)
2) with exposure concentrated on 1-3 stocks
3) with no similarly-sized follow-up trades in other names (e.g. they didn't just figure out a new methodology and begin applying it across different companies)
Due diligence follow-up to determine that one or more of the yokels works for the company in question, and LinkedIn will get you more of the perps.
The only surprising thing to me is that the SEC likely hasn't had to tune this filter for decades.
I've barely touched anything Palantir, but the one gov project I worked on tangentially that used their products did seem suspiciously like a simple database that the gov employees/contractors were doing all the work to make useful.
I'm not sure if that's what they were sold, but if they were sold on a full solution, that's definitely not what they got...
None of Palantir's products do anything really useful. They are instead used as glorified tech demos by their sales teams. Then their engineers go in and build custom solutions for whatever the client needs. The company doesn't do too much more than standard tech consulting.
I don’t think so, I saw a FINRA talk 5+ years ago where they described their home built data analytics that could process all daily trades looking for something similar to what the GP described
It could also have been the case that they were just bragging to friends or people at bars/parties about it, but either way I agree that it's much more likely that someone heard about it and then tipped off the SEC.
You're not supposed to do that at all. You could argue you didn't possess any material non-public information, but since essentially every internal document you access is non-public information, that's probably not an argument you want to deal with.
Just trade your own company's shares in the windows after earnings releases. Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it.
Many companies, and (most?) tech companies have trading black out periods that are lifted for about a month a few days after earnings. It applies to your personal brokerage account too, even though they can't technically enforce it.
Yes, banks do that. Many even prohibit employees to have personal brokerage accounts at other banks (How does that work for a married couple that work for different banks? There are exceptions which require additional disclosures, like submitting you spouse's and/or minor child's monthly statements within some short time frame).
Banks are the exception. Very, very few not-a-bank companies do that.
> Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it.
The insider trading training I did at one company specifically mentioned this is against SEC rules and is insider trading. I am unsure if that is actually true, but that is what the company expected us to operate as.
Setting up a 10b5-1 plan with your broker when you don't have material, non-public information, and your broker follows the plan is the way to trade in employer stock with a solid footing if you regularly have material non-public information. (Such as, in this case, a major change in business metrics).
Your company may not permit regular employees to setup a 10b5-1 plan, I think they need signof by corporate legal; and in that case, any trading that happens in your account could be considered insider trading based on your knowledge when the trade executes (or possibly when it's entered/while it's open... details are sort of fuzzy), regardless of if you or your agent made the trade, or even if the trade was automatic due to margin or something.
IANAL, but a 10b5-1 plan (thanks for reminding me of the naming!) is an affirmative defense, that removes insider trading liability if a trade satisfies all of its conditions.
Effectively, (1) the plan is created when one does not have material nonpublic information, (2) that it...
"- Specified the amount of securities to be purchased or sold, price, and date;
- Provided a written formula or algorithm, or computer program, for determining amounts, prices, and dates; or
- Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who exercised such influence was not aware of the material nonpublic information when doing so." [0]
... and (3) that the trade as executed did not attempt to subvert (2).
So it's not really something you need to have your corporate legal agree to for it to be valid (although legal may require or encourage you to do so, to limit exposure of company officers botching it). You simply have to set up a plan that satisfies the test with your broker, then claim it as your defense if the SEC comes after you.
A note on a napkin saying "Sell 5,000 shares 3 days before every earnings call, as long as the RSI is >50" would seem to suffice, provided you didn't subsequently meddle.
The training I went through explicitly laid out this scenario and explicitly classified it as insider trading if material nonpublic information is found that would make those trades desirable to execute. I've never heard of the SEC prosecuting someone for losing money due to insider trading.
Again, this probably isn't the case legally. But it was enough for an extremely powerful corporation to deem it as such.
You'd have to look up recent case law, as with all SEC rules, which may be what your company is referring to.
But that's the explicit design of 10b5-1: that it provides coverage if all its requirements are satisfied.
The SEC can charge you for making favorable trades according to a predefined plan, but they're going to have an uphill battle convicting you, if you kept your broker at arms length and didn't alter your plan beyond what was initially communicated.
I think the issue may be that a 10b5-1 is the only way to do this without avoiding liability. Just having your broker make trades for you, even if they're "scheduled", isn't enough.
>The Securities and Exchange Commission today announced insider trading charges against three software engineers employed at Twilio, Inc., a San Francisco-based cloud computing communications company, and four family members and friends for allegedly generating more than $1 million in collective profits by insider trading ahead of the company’s positive first quarter 2020 earnings announcement on May 6, 2020.
This, along with the 'Tipper/Tippee' language implies that the named engineers did not in fact trade in their own accounts.
i mean it’s not clear it could have been all of them. not really the point i’m making..yes it could have been done exclusively using family that the government clearly knows you’re linked to. maybe more difficult with friends.
Please read the articles before commenting on them:
>Sure, Lagudu and Chotu Pulagam knowingly tipped off, or used the brokerage accounts of, their family and close friends – Dileep Kamujula, Sai Nekkalapudi, Abhishek Dharmapurikar and Chetan Pulagam – to trade Twilio options and stock in advance of its May 6,
When is the announcement happening for the members of congress that made investments in key areas after they were briefed on covid-19 and potential impact?
> We are a free market economy. They should be able to participate in that
To clarify, “Insider Trading”, the criminal charge, requires a contract with the company or fiduciary duty with the company not to trade on nonpublic information or disclose something nonpublic + the receiver trade on it, as a prerequisite to getting charged by the insider trading police (SEC + DOJ).
Thats the reason for this line in indictment summary:
> The SEC’s complaint alleges that despite receiving a company policy that prohibited them from insider trading
There would be no case without it (but NDAs or trade secret policies or a clause present in most employment contracts would cover it)
In any case, When only receiving a tip, the obligations of the receiver is still unclear. Maybe they can trade, maybe they cant.
(As there is no actual federal law on insider trading in the US and the SEC has made it up through court cases over time.)
They use their general fraud statute, as well as prior remaining case law that slightly went in their favor, because they lose in court a lot.
All the specific allegations that I looked into were absolutely not insider trading. The heavily scrutinized Pelosi trades, for example, were pre-planned rolling of options that did not generate profits directly and would have been executed very differently if the trader had any foreknowledge of future price movements in the underlying. People often sell and buy options at different expiry dates to keep their position static, not to trade based on new information.
Insider trading as the law currently is written is about theft of company secrets for private gain. Knowing what is going on in the world is not stealing information from any particular company.
Insider trading requires privileged access to inside information. Covid impacts to society are not inside/internal data to those companies, those briefings were happening when it was obvious we were having a global pandemic to anyone paying attention.
The inputs to the deductive reasoning process were public information.
Congress is privy to inside information that impacts the market via several mechanism including private briefings for upcoming policy changes, or knowing about laws that will be passed before the actual votes
Congress should be investigate more thoroughly for insider trading, or even barred from trading at all (which is my preferred solution)
> Insider trading requires privileged access to inside information
You think knowledge of the laws and regulations that Congress is going to enact before they're enacted or public is not "inside information"? Defend this stance.
I can’t understand the rationale behind blowing up your life and career in which you made $300k+/year for a tiny $1m gain split between 3 people and their families.
Why are people who should otherwise be much smarter than this doing incredibly dumb things? Just greed? and entitlement?
My wife owns a small retail clothing store. It is her experience that the people who attempt to steal, are not generally lower income, they are often among the most well-to-do members of the population that goes through her store. Very different stakes, and very different age group (she mostly sells to teenagers and twentysomethings), but same psychology, I think. "I'm not the sort of person who gets arrested and sent to prison". Which is true until suddenly it isn't.
Being constantly coddled in some way dulls your ability to recognize when circumstances have changed, and those safeguards are no longer present.
See: tourists who wander off in National Parks with no cell service, with no water or survival gear, and then think it's a good idea to pet a bison
The concept of laying bleeding, miles from the nearest road, with broken bones, as night falls and the temperature drops is so foreign to their experience that it just isn't an imagined possibility.
That's what the 2008 crisis was at its root -- too many people, at all levels, who'd forgotten to be alert for danger and mistakenly assumed that the recent past served as fundamental bounds of future possibility.
Yes but a large chunk of the country never really felt the music stop in that crisis. I wonder if they find a way to keep kicking the can down the road indefinitely. If not, then we will finally see what happens.
If you believe "everyone does it" -- Congress, billionaire X, the C-suite at every company -- it becomes a lot easier to justify you doing it yourself. You're not doing anything wrong, everyone does it.
Generally--because they're used to this kind of cheating and have never been busted for it before.
The problem is that people think they've graduated to "no longer has to worry about consequences" at the $1 million range. And that's true--unless the Feds get involved. At that point, you need to be in the $100+ million range to get away with crime.
So, there is this danger area between $1 million where you get lots of local feedback that you are above consequences and $100 million where you actually are above consequences.
It's very easy to get complacent and trip up in that window. (I'm remembering the Silicon Valley option backdating fiasco and how many people it caught ...)
> Why are people who should otherwise be much smarter than this
Being smart at your job doesn't mean you aren't ignorant. In fact, I'd say the culture of equating "good at computers" meaning you are probably "smarter than this" does more to shield us from the truth of our own ignorance.
It seems to be a problem common among specialists, especially among highly valued specialists. I’ve heard the same complaints about lawyers and doctors, for example, so it doesn’t seem to be specific to the “good with computers” crowd.
but the SEC literally has to run one query that shows someone with a big gain buying stock and options before earnings and work at said company which i’m pretty sure you’re not supposed to be doing in the first place whether you had special info or not
This is a total guess, but based on the fact that all the perps names are Indian, there is a chance that they are immigrants who are either not aware of the law or the serious consequences involved if you get caught. If they're convicted this will almost certainly affect their immigration status and likely get them deported too.
Not excusing what they did at all, but it should be noted that the judicial systems in India and the US are very different; its not very common to get busted for financial crimes.
I honestly think that whenever immigrants come over they should be required to attend a class about the law enforcement situation in the US, and how there's very real chances of getting prosecuted if you do crimes.
Publicly traded companies make office employees periodically (usually annually) go through a corporate anti-corruption training course covering inappropriate gifts and insider trading.
If these fellas were smart enough to be hired at Twilio, claiming ignorance is beyond ridiculous.
If somehow twilio decided to skip all these trainings, twilio can be held liable and sued by their employees who get in trouble. Do you think their savvy legal team (c'mon, it's in Telco space, they have a legal army) could be that dumb? Having been present during an IPO and working for publicly traded companies, I can confidently say "No, not a chance".
And for the rush of it? And for the money itself? 300k when you earn 300k boosts you one year ahead. It's not a small amount of money. Also smart and wise is not the same.
If the employees were receiving (vesting) a standard monthly amount of RSUs for compensation, normally selling immediately upon vesting, and decided to wait a couple months based on inside information about company performance that they were just naturally exposed to during their work, would that be considered insider trading? I assume it would. Hmm... it's kind of scary how easy it would be to inside trade without really thinking about it, or even without being that intentional about it.
Not by default. Typically, according to the trainings I have received, over and over again, it's only wrong to trade if you are exposed to material non public information (MNPI). Such a person would have to know they are in a special category, unless they live under a rock or something.
I think it's ridiculously difficult for an employee receiving a standard monthly amount of RSUs to "mistakenly" commit insider trading.
Most public company equity sales are subject to blackout periods where you cannot sell (usually prior to release of financials) because it is presumed anyone with equity compensation views material non-public information as a matter of course. Selling in those dates is subject to liabilities for the employees.
That said if your equity management system doesn’t handle this for you, you have other problems.
My company has blackout periods for certain parts of the company, such as finance. But not the whole company. And it does light grants for most all employees. But it gets pretty fuzzy fast as to who has MNPI vs who doesn't. Did someone mention a contract not getting renewed? Well now you might have MNPI and not be allowed to trade. Best to keep out of the blackout windows, and be extremely careful.
This seems surprisingly far down the list of what SEC's priorities should be. A million dollar fraud when there are almost certainly billion dollar frauds ongoing.
One theory for going after small fish is that fraudsters often start small and get bigger and more sophisticated (and harder to catch). Therefore, it's good to nail them early and signal to other junior fraudsters that they're not underneath the radar.
It'd be interesting to take famous big-time fraudsters and work backwards to the very first crime they got away with. And reckon how much time and resources could've been saved if they'd caught them then.
Presumably someone tipped the SEC about this, so they just had to go and verify the trades and then ask Twilio for chat logs. The report actually mentions exactly which SEC employees led the investigation, and it wasn't a huge team.
> SEC’s complaint alleges that despite receiving a company policy that prohibited them from insider trading […] trade[d] Twilio options and stock in advance of its May 6, 2020 earnings announcement while in possession of the confidential information
Isn't it illegal regardless of company policy? That's such weird phrasing.
Interestingly (based on their linkedin profiles), they were promoted after the event. Some of the friends listed even got jobs within Twilio. One even works at Google. Might not the first time they've made such moves; just perhaps the boldest.
According to the article, they 'concluded in a joint chat that Twilio’s stock price would “rise for sure.”'
I bet there are a lot of folks doing this out there, but they are more careful. So they had a non-encrypted chat room about it. It'd be funny if they found this in the company 's Slack workspace.
On top of that, they involved a bunch of other family members. That's too much.
The surprising thing is that they had to resort to insider information to know that a communications platform company would do well during a Pandemic when everyone is working from home.
>>Three tech company employees along with family and friends charged in $1 million scheme
They should have just made YouTube livestreams pretending to be VItalik Buterin, Elon Musk, or Michael Saylor instead. Those guys making million every month, no arrests, no SEC.
> On several occasions between late March and early May 2020, before Twilio’s public earnings announcement, Sure, Lagudu and Chotu Pulagam used internal chat channels to discuss in Telugu whether Twilio might exceed market expectations in its quarterly report of earnings, due in May 2020. They concluded that Twilio’s stock price would “rise for sure” after the quarterly results were announced publicly.
I assume "internal chat channels" means the company Slack so this wasn't well planned at all. I wonder if they were even aware they were committing a felony at that stage.
Totally not releated to topic but it looks like the messages that were sent between them can and are read by third party. So whatever we hear about E2E encryption is BS ?
the other factor that is not considered is that while the crime happened in the US, there is no single culture in which employees are from, considering immigration, early experiences etc.
the standards that people in a society hold can linked to the level of corruptions in said society and what is ok is vastly different. The temptation is the same, but not the reaction to it....
No kidding. I think having people read through a few select articles of his newsletter would make most insider trading go away - most people would not do insider trading and a select few will study what gets caught and figure out a way to avoid it :)
I consider his newsletter as the equivalent of the encyclopedia of ethical failure by DoD for the financial industry.
No doubt there are lawbreakers in AP, just as they are in every other state, in every other place. That you’ve heard more or remembered more or paid more attention to those reports is of little to no material importance for grasping what is going on in the world or predicting what will happen next and who will do what.
All insider trading should be legal. Imagine the opposite case. You know your company is doing poorly but the government forces you to not sell your stock and take a loss.
In those countries where insider trading is either explicitly allowed or laws against it are never enforced, nobody without inside information wants to play, because they know the game is rigged.
Yeah? Any analysis I can read on that? Its kind of low hanging since the US has such high trading volumes far beyond every other market, but I cant accept that as causation alone.
No, it's only illegal if you are using secret information accessed with privileged insider access.
If you do research and deduce nonpublic (secret) data and use that, that is fine. The classic example is inferring sales data from customer traffic by observing the parking lot utilization at regular intervals.
This is an American interpretation of insider trading laws which are very much not about keeping markets fair rather they are about preventing shareholders (or those working on their behalf) from stealing from other shareholders.
Other jurisdictions have different presumptions about what insider trading laws are for and may thus interpret them in different ways.
This was a US jurisdiction filing so the former standard applies but on an international message board it’s worth remembering people have different intuitions about this stuff for good reason.
>If you're using information anyone could get with some research, then it's not illegal.
If I am willing to give out information gained during employment of the company to anyone asking as part of their research, then by this definition it's not illegal, as anyone can get the information with some research.
At best that would only require you to disclose to everyone once asked by someone performing some research, or through the outlined regulation FD mechanisms. It still holds that using your own definition, all it takes is some research to gain what the employee who is willing to give up information knows, and that giving up the information can be done in a way that avoids violating regulation FD.
>If you're using information anyone could get with some research, then it's not illegal.
Then why were these engineers being charged? They used a role which very likely was open to anyone in the public to apply to do research into the performance of the company.
if you are in the position of knowing secret data of a publicly traded company, and you are uncomfortable with the position of possibly losing money because you can not act on the secret data, I would suggest you not hold stock for companies you know secret data about
Something I was always curious about, but I lack the legal background to find the answer. What if public information showed that you should sell the stock, but you decide to hold it instead (i.e., not do anything at all) because you have insider information that the company will be doing much better than expected? The "not selling" part (assuming you bought stock prior to having insider knowledge) is a form of insider trading, but I can't see how that could be enforced (i.e., how would the SEC be able to prove that you would have sold if you didn't have that positive insider knowledge?)
AFAIK, that wouldn't be considered insider trading since there was no trade.
However, there's an even more interesting wrinkle. In that case, you plan trades well in advance, and then cancel them based on insider information. In one case, that was rules to not be insider trading either.
"After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. The SEC stated that, despite the fact that 10b5-1(c) requires trades to be irrevocable, there can be no liability for insider trading under Rule 10b-5 without an actual securities transaction, based on the U.S. Supreme Court's holding in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).[6]"
Or more to the point: insider trading isn't quite as victimless as some people might like to believe.
The only victim "insider holding" could have would be people betting against a trend caused by public information (who would win even more if the "insider holder" would sell with the herd), either out of pure gambling desire or because their trades are insider trades. Neither seems particularly worthy of protection.
Unfortunately it commonly is. One example is mandatory reporters. For some licensed professions, it is a thought crime to merely have the thought that you suspect a child meets some criteria of neglect/abuse, while not performing any action to relay the thought to authorities. This can lead to unwarranted and damaging/traumatic CPS investigations merely so a professional can cover their ass.
CPS investigators asking non-abused children traumatizing questions (sometimes after being independently detained) and the associated investigation into the family, only reported as CYA to stay in compliance with mandatory reporter laws, is child abuse performed by CPS. CPS themselves are often the child abusers in this fashion, and this law allows them to abuse more children.
>This can also lead to highly warranted investigations, given that actual abuse is incredibly common.
Or possibly not. It could drive anyone who suspects a professional may attribute (correctly or not) some circumstance as abuse, to merely completely avoid letting their family see any professionals. These laws degrade trust even further between professionals and those seeking them, reducing access to care. Instead of an aid, a therapist or doctor is seen as a threat so dangerous as to risk breaking apart your family at any time. Avoidance at seeking professional services may decrease warranted investigations rather than increase them.
Anyone familiar with substance abuse patient care understands how mandatory reporting frequently endangers children: many drug-addicted women birth outside the hospital system so they can keep their children (mandatory reporter laws encourage them to avoid safer birth environment).
But of course I don't doubt compelling people to say their thoughts out loud to authorities could lead to more 'warranted investigations' at a dystopic cost. As with many laws written so _someone will think of the children_, there is some factual basis that additional warranted investigations may be opened as a result of creating these thought crimes. I am of the opinion, though, that criminalizing these thoughts leads more towards "involuntarily report anything that may risk my license, at the cost of traumatizing innocent families" rather than "voluntarily report genuine abuse."
>I would suggest you not hold stock for companies you know secret data about
I imagine the way this works out for non-idiot inside traders, is that their cousin or close friend holds the stock instead. Insider trading is really only discoverable when performed by the stupid or complacent.
This is a proud win in the SEC handbook? $1 million dollars is fucking chump change. Whales do this on a 1000X scale every fucking day (yes billions). They even collaborate amongst other trading firms to pump and dump. Where's the prosecution related to the GME + Citadel Securities + Melvin Capital illegal naked short selling? Remember when this group was hemorrhaging billions of dollars and forced RH to remove the "Buy" button on GME?
The process takes time. Prosecution doesn't, and shouldn't, happen without an investigation.
Whether this specific investigation will lead somewhere or not is yet to be determined. You cannot say they did nothing until the investigation is completed.
If the investigation doesn't lead to a just conclusion, then we can talk. But as of now, your anger at SEC just sounds like being annoyed because they decided not to speedrun this. If you actually believe that a wrongdoing has happened here, then the investigation needs to be thorough and conclusive, to make sure there were no gaps through which the guilty party can escape. And that's assuming any wrongdoing actually happened, which is what the investigation will need to determine.
I searched for Raj Rajaratnam's case and found up with Malnik, Blakstad, and Martoma cases by accident. Those are very large prosecutions with prison time. Did you not see those?
These guys are like the kids who saw the Tide Pod challenges and decided to actually eat the pods. I bet insider trading is not as fun when you're unemployed and bankrupt.