I'm not sure if this is standard for SEC press releases, but why do they include details such as, "he was a school teacher" and, "he owed gambling debts"?
I've always suspected the SEC investigations regarding things like insider trading are typically the opposite of justice and designed to go after the smallest possible players while giving the illusion of enforcement. And these details in an allegedly serious investigation just seem to make the whole thing reek of small time gossip material.
It's just kind of surreal seeing this type of language in an official SEC press release regarding what I'm sure they would like us to believe they consider a serious crime.
> designed to go after the smallest possible players
SEC doesn't have infinite resources to go after every possible financial crime. They go after the ones that have the highest likelihood of successful prosecution. This is the case with most prosecutions like this.
Whatever it's called doesn't matter. There's not a viable alternative. If you don't prosecute charges with substantial evidence, the risk of loss increases and eventually the department bleeds money at too large a degree and gets shut down causing no enforcement
Not SEC, but US attorney for the Southern District Preet Bharara apparently made his fame by going after Wall Street bigwigs. I don't know much about him besides his Wikipedia page (which could be edited by a PR firm), but it seems that was his career trajectory.
Another not-SEC example would be Eliot Spitzer who parlayed his policing of Wall Street corruption as the Attorney General of New York into a governorship.
SEC pursued junk bond pioneer Michael Milken in the 1980s, Ivan Boesky before that… unsure of specifics of SEC personnel getting to “high office” because of that but seems obvious that high profile successful prosecutions would be career-making
(Granted those examples are from the 80s but i would think there are more recent examples…)
Milken was prosecuted by Rudy Giuliani which didn’t hurt Giuliani’s career, but Rudy was a US district attorney or something, not SEC
Agree with your sentiment generally though, seems like a boatload of people could have been put away after the financial crisis but they instead profited from bailouts
Milken's prosecution didnt really hurt his career much either. Hes still a billionaire (and if I remember right, his brother did very well too).
PS - read Den of Thieves again - there is an imo strong parallel between what was going on with junk bonds in the 80s and what is happening now with VC money. When Milken was indicted, he couldn't keep all the balls in the air anymore and the whole thing fell apart. I'm very interested to see what parallel will play out this time and when.
Didn’t hurt his career much? He was barred from the securities industry forever. Sure he had a lot of money left, but how can you know where his career would go if he weren’t prosecuted? That’s like saying that if Bill Gates were forced to cash out of Microsoft in the 80s it wouldn’t have affected his career much because, after all, he would still be a billionaire
> Everyone at the SEC is keenly aware that bagging a high-ranking financier is a ticket to higher office.
Just speculating here, but I imagine everyone at the SEC is also aware that going after someone with 9-figures-and-higher wealth may not be cut and dry. At those levels, the person you are going after can wreck your [and all your colleagues] lives in new and interesting ways that aren't apparent.
Do you have an alternative solution, to getting around the problem of the fact that they don't have infinite resources?
Do you think that they should just go after crimes, at random, even if that means that much less crimes are successfully caught, because of the inefficient use of resources?
>> why do they include details such as, "he was a school teacher" and, "he owed gambling debts"?
They want to signal to larger players (hedge funds, etc) that enforcement is only on smaller players like high school teachers. They are signaling to their rich friends and power brokers in NYC/Connecticut that there is nothing to worry about w/r/t to the real, bigtime insider trading.
This comment is meant to be both sarcastic and true, however depressing.
justice.gov and sec.gov are not just-the-facts style sites. They are meant to inform the public as well as vilify wrong-doers. Part of making sure their stories are picked up widely, is including those types of details to make the story more "interesting" to the masses.
> The SEC’s complaint alleges that Wylam, a high school teacher and bookmaker, traded on this information and also tipped Naveen Sood, who owed Wylam a six-figure gambling debt. Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya, each of whom also illegally traded on the information.
In order to make an insider trading case against people who are several degrees out, they have to show how non-public information flowed to them. Establishing that Wylam is a bookmaker and Sood is a client of his is an important part of this. Maybe the "high school teacher" part isn't particularly relevant, but if you cut it, it would sound like he was a full-time bookmaker, which isn't the case.
> Bannon agreed to pay a civil penalty of $281,497, Rauch agreed to pay a civil penalty of $128,230, and Ramaiya agreed to pay a civil penalty of $65,780. Sood also consented to the entry of a final judgment and agreed to pay a civil penalty of $178,320.
So the SEC claims they found $1.7M in insider trading, and they only collect $700K. This assumes the ring didn't do more.
No wonder bigger players do this in size. What a joke.
Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC’s litigation against Brown is continuing.
In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood.
I don't know who GP might have had in mind, if any specifics, but what comes immediately to my mind at least is the whole-lotta-smoke that seems to come from the general vicinity of Congress (e.g. https://en.wikipedia.org/wiki/2020_congressional_insider_tra...).
> the SEC claims they found $1.7M in insider trading, and they only collect $700K
Nothing has been collected. This is a complaint [1] being put to court demanding a jury trial. The § 21A civil monetary penalties are in addition to "further relief as the Court deems appropriate," which is legal speak for we don't know how to divvy up the gains just yet but want to put specific dollar fines in the complaint attached to each defendant. (The SEC doesn't put people in jail. The DoJ is conducting its criminal investigation, which takes more time for obvious reasons.)
There is a stark difference between financial professionals and laypeople in terms of how they judge the risk of getting caught for insider trading and the scale of the punishment that comes with it.
If guilty, it's a joke that they only have to pay a penalty instead of going to jail. It means it's rational for everyone to try insider trading at least once, knowing that if you fail the worst that can hapepn is you lose your profits.
That's the sad truth, these laws were written with a dedication for the white collar and the rich. We will never get better as a nation if we don't don't address these issues first. Or the alternative is to wait for the house of cards to collapse and start over.
As other commenters have noted, the SEC doesn't have the power to bring criminal complaints; however, they do frequently refer such cases to the DoJ, which is in the process of bringing criminal complaints against three of the conspirators.
Even if they did go to jail they'd likely get a short stint at a minimum security country club.
Meanwhile someone stealing a pack of chewing gum from a convenience store might get shot, and someone stealing a $500 TV could wind up serving hard time in a prison where they might get raped, tortured, or murdered.
The rationale behind the decision was that disgorgement imposed joint and several liability rather than individual liabiity, and that disgorgement didn't take into account business expenses incurred in acquiring the illegally acquired income...
So now, the SEC has to determine disgorgement sanctions on a per-defendant basis, rather than assessing it as a single joint amount and making the wrong-doers go after each other for reimbursements.
Note though that the $700k are just the fines, not the disgorgement sanction, which will presumably be issued soon. (The $700k penalties are not treated as deductible expenses, so they're effectively on top of whatever disgorgement is ordered.)
That's some ultrasmall fish right there. Just weeks ago Pelosi's husband made a few millions off timely bought MSFT call options, right before Pelosi gave MS a gov contract. In their case is very legal because high rank gov figures are exempt from the insider trading law.
White collar crimes are barely punished - what a joke.
Insider trading isn’t larceny, but for the sake of conversation let’s say it was - 1 million in insider trading would be like 4000 counts of grand larceny, each of which carry a max fine of 25K each.
If people were actually fined 100 million for 1 million of insider trading I bet you it’d stop happening.
For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison.
Larceny sentencing is also incredibly lenient in practice. This month an Erie County bookkeeper stole 90K from her clients and only had to pay 50K in restitution.
My general point is that white collar criminals are hardly punished in practice - not that insider trading should be treated as larceny. (Because as I pointed out the sentencing is generally light anyway)
Right. But if someone has total assets of say 500k... whats the difference of a 1 million or a 100 million dollar fine? You literally cannot collect either before the person dies / moves to Mexico.
There's little connection between violent and non-violent crimes other than them both being crimes. I didn't make any claim about violent crimes so I'm not sure why you even mentioned the death penalty.
The reality is, if you see these articles, average the restitution and see that in general you only pay 50% of what you illegally gained, there's little deterrence.
Who said anything about violent crimes? He brought up that in Victorian England pickpocketing (a non violent crime) carried the death penalty. Even with the ultimate punishment pickpocketing still happened.
This is misleading because at the same time hundreds of other types of crimes, violent and non-violent could also result in the death penalty.
Not to mention that was centuries ago and circumstances were very different. What punishment has completely stopped crime? No punishment can completely stop a crime from occurring, but the problem with insider trading is that the punishment doesn't even get back what was taken, so in a way you're rewarded, not punished.
Are you sure? How would you be sure? If there's even a few people who've come close to committing a crime, then considered the punishment (prison/execution), then decided against the crime... isn't that "stopping" it?
I find human psychology interesting, like Cialdini's book on persuasion. It seems that people are generally bad at making rational risk/reward decisions, even well-educated ones. (This explains the popularity of lotteries, for example.)
Another way it's been put is people don't do fractions. They do not distinguish very well getting $10 as a reward vs getting $100. The same with gifts not being appreciated in proportion to the value of them - summed up in the phrase "it's the thought that counts."
I expect it's pretty much the same for penalties. I seriously doubt, for example, if a 1 year prison sentence does not deter, 5 years would.
No, but I know what you're referring to and that's a great example and is my point - see what happens when you don't punish people for clear criminal activity?
Part of the challenge of fining someone is, to fine them in such a way that it is painful, and achievable. Fining someone 100million for 1 million in trading would be a punishment that no one would be able to pay back. Also, would just immediately invoke a chapter 13 bankruptcy, which I think, would discharge these. So basically you would just be issuing public bankruptcy with such extreme amounts.
fraud penalties are not dischargeable. I'm not sure if this sort of penalty is a "fraud penalty," but you could structure a fine where it's with you for life.
White collar crime can be punished very severely if it agaisnt individuals. Wire and mail fraud carry stiff penalties. Insider trading is somewhat different becase it's more about being it being unfair than theft or exploitation of another person or company. It is somewhere in the grey area of a victim vs. vicmtimless crime.
> Insider trading is somewhat different becase it's more about being it being unfair than theft or exploitation of another person of company
Unlike wire or mail fraud, there is very little statute to stand on [1]. It's mostly common law, which makes the prosecute-or-not decision more challenging.
But insider trading isn’t comparable to larceny whatsoever. There is no definitive victim. Yes, in some sense the market is “less fair”. But the purpose of insider trading law isn’t to create a level playing field. It’s perfectly legal for a well-funded hedge fund to fly helicopters over an oil refinery with infrared cameras, so they can know ahead before a public announcement how much revenue the company is doing.
Rather, all insider trading requires the breach of fiduciary duty somewhere in the chain. The “victim” aren’t mom and pop investors, but the company itself. The idea being that the insider who leaks the information is misappropriating his fiduciary duty in a way that’s not in the direct interest of the company.
But in this case the damage to the company is far less than the amount of profits the perpetrator gains. Ask yourself, where if you owned a company would you rather have $100 million in cash embezzled or have an employee make $100 million off well-timed stock trades with unrelated third parties?
The damage to the victim only occurs in the sense that adverse selection in the form of insider trading dampens liquidity in the secondary market for company’s shares. Theoretically this decrease in liquidity should hurt the company’s valuation by making shares trade at an illiquidity discount.
In practice, given how extremely liquid and efficient modern stock markets are, the impact of a few million in insider trading is a rounding error. The vast majority of HFTs and stat arb funds that provide liquidity don’t hold anywhere long enough to where insider trading would make a significant difference. Most stocks trade thick at a minimum penny tick anyway. (Logically we should only prosecute insider trading when stocks are priced over $100.) And the evidence is scant that less liquid stocks even trade at a discount, after controlling for size and industry.
If we’re actually punishing crime based on the damage to the victim, then insider trading is almost certainly only pennies on the headline number.
My point isn't insider trading in particular but white collar crime in general. Even with your example, why not just make insider trading legal then, if there is no victim per se? Presumably the entire reason it's illegal, in addition to what you said, is because the existence of insiders trading would make the entire stock market itself no longer something where laypeople can confidently say is fair in the sense that risk-adjusted publicly-informed trades are optimal. Presumably said laypeople would exit the stock market after losing confident of it, resulting is less liquidity.
It's like pump and dumps, where the dumps aren't technically making victims of anyone as it's not like they've necessarily realized any loses. Regardless, money is being extracted from the so-called victims one way or another.
It's more comparable to people taking a shortcut down a switchback or through a garden. If a few people do it, no big deal, if everyone does it the whole thing falls apart. When I hear about insider trading I don't care one way or the other about the people who did it- but I do lose some faith in the market.
Given that markets are supposed to be information aggregators, it would actually be fairer if insider trading was allowed. Of course, as with all things, the profit would be much less if it were.
At a societal level, the point of having a stock market at all is to increase the amount of investment capital available. An unregulated market where people are at significant risk of big losses due to crime, fraud, etc is one that will not attract nearly as much capital. Less investment capital means less growth and a poorer society.
As proof that regulation is valuable, look at all of the foreign companies that list on the US's highly regulated markets. They are willing to meet US transparency and accountability standards because that's how they get lots of cheap capital. In other words, the marketplace of marketplaces proves the value of highly regulated public markets.
Fair point on the marketplace of marketplaces. Using taxpayer dollars and prisons to enforce a transparent and accountable market still rubs me the wrong way. Outright fraud (eg. a dishonest broker pocketing the $100 instead of purchasing the stock for his client), I have no problems prosecuting with the full force of the government. It’s the rules that provide an illusion of being something other than buyer beware that I chafe at the idea of government intervention.
From the US perspective, the markets run at a healthy profit; they surely generate far more in taxes than they require in regulatory expenditures. And the exchanges themselves do much of the policing of companies, so the actual costs are low. Public markets require the same sort of policing as public streets if they're to remain reasonably safe and effective for the public.
You seem to be implying this is the only thing they have done, which is odd.
I think they should go after big fish of course. But there's also value in going after the littler fish. You don't want people thinking they can get away with insider trading if they just keep their crimes under the big-fish threshold. After all, there are a lot more little fish out there, and most serious criminals have a long pattern of escalation. It's valuable to keep people off the path entirely.
The SEC has a habit of going after all sorts of small fry. My favourite is when they went after this moron who made $3100 off call options by performing this elaborate scam to make it seem like Fitbit was being acquired.
The guy is a class A dummkopf since he performed all this easily traceable nonsense for a miserable $3100. But it's still only $3100 hahaha. The only thing the press release is good for is for entertainment.
I agree with this. The SEC cracks down on amateur inside-traders, because the professionals no how to cover their tracks: they have the resources to fight it in court; and the smart ones hire the SEC staff via the revolving door.
This case is hilarious, and for that I applaud the SEC, but it's also theater.
> Nathaniel Brown, [..] repeatedly tipped Infinera’s unannounced quarterly earnings and financial performance to his best friend, Benjamin Wylam
> Wylam, [..] and also tipped Naveen Sood
> Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya
It's less a ring and more a tree
One of the issues with leaking the info - you have no control over what is done with it and who acts on it, and it all potentially leads back to you
There was a case in Australia where a gov insider was leaking government data. He thought he had a partnership with a co-conspirator where they would make low-tens-of-thousands
He only found out after his arrest that his co-conspirator who was placing the trades was making millions - which is what got them noticed (he was one of the largest individual currency traders in the country - and never missed)
Why don't we apply Darwinism to the financial world? The fittest survive. If you can make friends with people who have insider info, you should be rewarded with your networking prowess. It's quite an underrated skill. That's how startup investing works anyway.
Separately, announce earnings with some injected noise. Keep announcing corrections in the following several days so that it eventually converges to the correct value. That would be fun! I'd absolutely love to see the Wall Street suit-and-tie hedgehog fund people writhing in anguish while the retail investors don't take a shit.
Quarterly earnings is pretty antiquated anyway. Perhaps public companies should just report continuous / daily earnings via automated accounting software.
This should make it harder to hide accounting fraud and improve transparency and market fairness.
Perhaps. But why do we actually care about market fairness?
I care that companies get shit done. I want to see electric cars, cancer cures, solar power, and vaccines. I don't care that the markets are fair. If an unfair market means I get those things faster I'm all for it.
FWIW I get cheaper strawberries than most people because I'm good at bargaining. Markets aren't supposed to be fair, they're supposed to factor in these kind of soft skills.
> But why do we actually care about market fairness?
I'm having a hard time understanding why you believe this is even a question, but I'm trying...
Let me ask you a different question: should the CEO of a company who knows about a major upcoming change (positive or negative) be allowed to trade on that information? After all, based on your arguments so far "they should be rewarded for rising the the position of CEO".
Do you not see a fundamental issue with a system that guarantees unfairness? If I'm allowed to trade on insider info, and everyone else trading knows that, can you imagine the downstream consequences? e.g. every time I trade, the entire market will now react, because the very fact that I'm trading now might indicate something about the fundamentals of the stock.
> Markets aren't supposed to be fair, they're supposed to factor in these kind of soft skills.
What makes you believe/conclude this? Fairness in markets doesn't mean we all pay the same price, nor do "soft skills" really play into modern day stock trading.
Buying cheap strawberries is a cute analogy, but is an apples/oranges comparison, and one involves a consumable product, while the other involves buying a stake in a company based on information that's supposed to be available to everyone else interested in buying a stake in the company.
You may not believe fairness is needed, but that doesn't change that those are the rules we operate under, and most participants in the stock market would fundamentally disagree with you.
We need integrity in markets so that our future well-being is secured. I suspect your judgment is a major reason why your ancestry never cultivated sophisticated capital markets.
“Without fundamental trust / there is no trust at all.” Tao Te Ching 17
Isn't the argument that fair markets are what allow all that stuff to get done? In other words they are better for the group over the long term. Unfair (via corruption or whatever have you) markets tend to stagnate and are good for the individual in the short term (eg within their own lifetime).
Also, who wants to haggle over strawberries every single time you shop? There's a definite time cost to having to "discover" the price on every single transaction.
Is that not what happened? These idiots sucked at insider trading and got caught. The more fit insider traders don't get caught.
Lying to the public and your investors as some kind of game to "stick it to the man" is not fun, it's obscene (and thankfully criminal). These "retail investors" you defend are morons and gamblers who are leading a flock of other morons into bankruptcy. You should be rooting for them to get screwed, not people who play by the rules.
I don't condone lying, but if you have access to inside information why can't you use it?
It's not like my brain can differentiate anyway. If I find security bugs in some company's git repo is that insider info? The code was public. I should be rewarded for my ability to read code. Those who can't read code are less fit to be investors.
If I overhear company X employees talking trash on a public hiking trail near their office is that insider info? I actually went hiking, I have a higher probability of overhearing insider conversations, I should be rewarded for putting myself out there, doing the legwork, and not sitting in an armchair at home expecting people to feed information to me.
A and B both indepedently go solo hiking to the same park.
A ends up making some friends with some company X employees on the trail, hikes with them for part of the trail, and hears inside info, and then they depart ways.
B is an asshole and so those people don't want to talk to B. B makes no friends, hikes alone the whole time, and therefore gets no inside info.
A should be rewarded by the markets for their people skills, no?
The employees in that scenario are sharing insider information, and are all committing a crime.
Whatever you hear from them and is probably non-public info is also illegal to trade on.
I mean, what exactly do you expect to happen if this is allowed? Put everyone who works on finance and the executives under 24/7 surveillance? Pay them ransom for not sharing their employer’s data? It would simply be an institutionalized racket.
I think they might be one of those 'free-market' types, with a whiff of Ayn Rand. I read a number of their other comments.
I am not answering for them, merely observing a trend.
I'm definitely on the side that favors heavy market regulation. History shows us that it works better with heavy regulations - that is that it works better for more people rather than better for a small group of people. In the US, something like 52% (the last time I read some numbers) have invested in the stock market. I'd rather they be treated fairly, with a more equal playing field.
> I don't condone lying, but if you have access to inside information why can't you use it?
short answer: the SEC says so.
> If I find security bugs in some company's git repo is that insider info? The code was public.
This is OK! If the code is public, then nothing you learn from it is non-public information.
> If I overhear company X employees talking trash on a public hiking trail near their office is that insider info?
This is trickier. It all boils down to whether you knew the people talking were insiders. Likely some other factors here I'm ignorant of, but to sum up... "it's complicated".
Darwinist evolution in this person's mind: by rewarding inside networkers and punishing late to the party outsider, you'd reach a state where everyone "cheats" to a point this behavior would be the norm.
If we push the wild west theory to its limit, we'd end up in a world where formerly insiders' financial news would cycle and ripple at super fast pace, akin to having a public mic in every trading floor.
This is probably what this person think would be the fairest: instead of a hard to enforce artificial safety, we'd have a transparent, free to join jungle.
But he fails to see most people arent sharks and therefore electors or noisy public representatives always push to slow things down.
Your other comments show that you don't understand three concepts when it comes to insider: 1) who an insider is 2) what information is privileged and 3) why is it bad.
1) Many jurisdictions have specific people (officers and major owners) designated. The US is fairly unique in that an insider is someone who trade on material non-public information that violates trust. This is what allows for these friends of low level marketing/accounting people to be charged. Overhearing something doesn't put you in a position of trust. Being sent an email accidentally and being notified that you can't trade on it is something else.
2) Material non-public information means information that has not been publicized and that will definitely impact the price of the stock. People "trash talking" their coworkers is not material because you have no way of knowing if that is their sentiment or if the company is actually falling apart. Someone saying "We are getting rid of our entire engineering department because I don't like them. Look here is all the legal paperwork." is something completely different.
3) Insider trading is bad because it erodes the trust of outside investors. As an outsider, you want the confidence that insiders aren't going to get the better end of the deal always. That in the event of something bad happening, the insiders don't get to bail first. Without outside investors, there is no stock market.
> That in the event of something bad happening, the insiders don't get to bail first.
I don't get this. What's wrong with victimized insiders, who are just drones and aren't responsible for the decisions of the company, bailing first?
What I think makes much more sense is to not let large shareholders, especially executives with decision-making power, bail first.
Small insiders are typically victims, not perpetrators, of bad news, and not rewarded enough for good news.
How about a system in which if a low-paid worker of a company (say a warehouse worker, driver, etc. who is having trouble paying their rent) trades 1 share, it goes through in 1ms, giving them an edge over the hedge funds, but if the CEO trades 100000 shares, it takes 3 months before the order goes into the order book and gets executed? In such a system we could allow insider trading, it's just that those trying to bail out of millions of dollars just can't.
You are failing to understand the information component again. Insiders can definitely trade. The low-paid worker and CEO can trade just like outside investors. But the CEO is under much closer scrutiny and thus usually have regular stock sales so that they can claim "I have been selling 1,000 shares every month for the last 3 years" when faced with criticism. Again, the low-paid worker is free to trade whenever. But if the SEC spots an someone who consistently gets outsized returns in peculiarly timed trades, they are going to investigate. That person better have no proof of material non-public information at the time of those trades.
For anything worth securing we have security engineered into it, like passwords, encryption what not. But for insider trading we are just supposed to assume that the players play right without any checks or balances? I don't think just the SEC is sufficient to prevent this.
I was on a call last week about the SEC’s changing priorities under Chairperson Gensler and the consensus among all of the attorneys on the call was that they will be more data-driven and have already been using data analytics far more extensively than ever before. I suspect the case in the linked release came about from those efforts:
> “Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable to ensure the integrity of our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.
I think in time the SEC’s enforcement in this area will become more automated and efficient.
I don’t have a good resource to point you to because most of what I know is from having seen data requests and from discussions with colleagues. To my knowledge the SEC hasn’t said much about how they use analytics and I suspect that’s deliberate.
The SEC has been gathering data after big price swings to identify potential insider trading for a while but my understanding is that they’re now able to assign an insider-trading risk-score to transactions that made money (or avoided a loss) by trading just before the swing.
What’s interesting is the risk-score seems to involve some degree of “who you know” and seems to de-emphasize the old metric used to prioritize investigations: how big your profit/loss avoided was. So rather than having to identify the big winners (or loss avoiders) and investigate those transactions they can instead focus on the transactions most likely to have been “tipped” by an insider. (This is entirely my own speculation but I think you can see it a bit in the attached press release. It’s an unusual chain of relationships between and among the six people charged and the two public companies. Insider > tips friend > tips guy who owes him money > tips three friends. I’d venture to guess there was some transaction data that allowed the SEC to form the link between the accounts profiting and the insiders because $1.7 million isn't a terribly huge sum to have SEC staff chasing after.)
It also seems, judging by Gensler’s recent comments, they’re considering gathering data about planned and forgone 10b5-1 transactions presumably for the purpose of applying insider trading analytics.
After they knew who to investigate it likely was easy, but I don't see how they discovered who to investigate in the article you linked.
You need some way to detect smoke before you can go looking for the fire. And given the large number of trades in the US stock markets, I don't believe this is an easy problem.
Levine’s analysis is regarding to the evidence gathered from the investigation while the statement from the press release refers to whether or not a group of transactions warranted investigation in the first place. The “sophisticated analysis” the SEC refers to is akin to an if statement while the evidence set forth in the complaint (and referenced by Levine) is the result of running “then investigate” when $isSuspicious returned true.
Sounds like a scare tactic to warn any pump and dumpers on Stocktwits and wsb with any kind of knowledge on large upcoming inflows into a stock. They are obviously out there and hidden in a raucous crowd.
SEC and FINRA invest a lot in Data Analytics. Go to https://technology.finra.org/tech.html and you'll see that they use the same tools as the internet industry.
I'm not even sure you need sophisticated data analysis.
The two people who did the biggest trades:
- weren't involved in the finance industry (a school teacher and an equipment leasing business)
- had never traded options before
- did the brokerage know-your-client process to get approved for options 1-2 weeks before quarterly earnings came out
- profited $884,000 and $175,000
A SQL query looking for people who made > 100K within 2 weeks of opening their account would catch these people, and probably have relatively few false positives.
> Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable
Anyone know details about the analysis they do? I'm assuming some sort of scan that notices when multiple people in the same geographic area and/or are publicly connected in some way (i.e. are fb friends) simultaneously place massive stock market orders on the same security.
It’s amazing the SEC is able to find the stuff out. It’s like what happen with Josh Chassion at Facebook. Eventually leaking confidential data is going to get you in trouble, and maybe jail, but people still do it.
The SEC is the HR department of hedge funds. (i.e. it exists to protect hedge fund managers)
There's systemic corruption at the highest levels, but the SEC decides to go after a handful of little guys. The next French Revolution is a ticking time-bomb.
They didn't even have any company executives. The highest ranking manager was something called a "revenue recognition manager". Dude should have known that insider trading regulations are how chief executives punish defectors from their ongoing conspiracy against the investing public.
Shortly after seeing the screenshot of Wylam’s account on July 28, Brown called Wylam on the telephone. During the call, Wylam explained how he made such large profits purchasing Infinera put options before the July 27 announcement. Brown “flipped out” because, in his view, the massive size of Wylam’s trades and profits raised an “obvious red flag.”
> Brown ... repeatedly tipped ... to his best friend Wylam ... Wylam ... traded on this information and also tipped Sood .. Sood traded on this information and tipped his three friends also illegally traded on the information.
(edited for brevity)
So it sounds like Brown texted his bestie something he shouldn't have. Bestie then passed it on to people who made lot of money on it. The SEC, through some combination of SQL select statements and creative greps managed to nab the bigger idiots and follow them back to the source. Everyone who obviously violated the law by trading on info they shouldn't have has settled and the SEC is still trying to nail Brown.
Since Brown didn't trade I fail to see where he violated the law. Contractual obligations with his employer maybe. Regulatory requirements maybe. But you generally need to trade or have reason to suspect that someone will trade in order to insider trade.
Edit: by "the law" I mean the subsection of 10b that the SEC release implies the whole crew violated. Not some unrelated regulatory law.
That article seems to be talking about Wylan, not Brown.
>$1.5 million in stock profits by trading on confidential tips that originated from his brother-in-law, an investment banker in California.
Brown may have violated some minor regulatory laws depending on the specific details of his employment but you generally need to trade, benefit or have reason to think trading is happening on your info in order to get slapped for insider trading.
> On August 5, 2016, Brown—whose tips enabled his friend, Wylam, to make nearly one million dollars—texted his then-girlfriend to inform her that he was going to Wylam’s house to, among other things, “talk to him about $.” One week later, on or around August 12, Brown took a photograph of numerous one hundred dollar bills spread across his bathroom sink.
> On or about October 10, 2016, Wylam took Brown to a San Francisco Giants
playoff game. Wylam bought both tickets—for seats only a few feet from the field—and paid
more than $2,500 for each ticket. Brown understood that Wylam bought the tickets, at least in
part, to thank Brown for providing inside information about Infinera.
> In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood.
>The SEC’s complaint further alleges that Bannon tipped Sood with material, nonpublic information concerning Bannon’s employer, Fortinet Inc. As alleged in the complaint, Bannon learned in early October 2016 that Fortinet was going to unexpectedly announce preliminary negative financial results. Bannon allegedly tipped this information to Sood, who used it to trade. After learning the information, Sood allegedly tipped Wylam and Ramaiya, who also traded.
It's like the stock market equivalent of the blockchain. No matter how long or convoluted the chain of communication is , they can always piece it together.
> Insider trade a million, you’ve got a problem. You have to insider trade a billion so that you’re untouchable. This is probably the hourly volume of insider trading at many hedge funds like SAC.
That is a shockingly high number. I think it's the same people in that meme things you realize when you're adult: More people do cocaine than you think. Gambling, drugs, OnlyFans, eventually debt adds up.
SEC is such a joke, they let a lot of wrongdoing go by then once in a while find a small fry to show that they're doing something. SEC cannot enforce naked shorting for example and it comes down to the transgressor to report themselves.
In light of the AP's new policy on minor crime reporting, I was curious how they would treat this story. Unfortunately, their website has no coverage. However, they did report today on another (alleged) insider trading case, and they use names liberally.
I guess the way you throw off the algorithms is by having a strategy of making large wins and medium losses and only taking the delta between the two. Then it would be pretty hard to prove insider trading just from the trading records.
Bob works for company A which is a vendor for companies B, C and D. Most of company A's revenue stream is dependent on how well B, C and D are doing. Bob has insider knowledge of Company A's finances using which he trades stocks of B, C and D.
I believe the standard economic argument to allow insider trading is that it would encourage much quicker uncovering of and dissemination of good and bad news. E.g. if people inside Enron had traded on inside info that Enron had cooked the books than it likely would have kept the brakes on the stock price. Instead you have regs that jail insiders (usually people lower down on the totem pole as the higher ups benefit from the coverup) for leaking correct information and preventing a correct (lower) price.
I've always suspected the SEC investigations regarding things like insider trading are typically the opposite of justice and designed to go after the smallest possible players while giving the illusion of enforcement. And these details in an allegedly serious investigation just seem to make the whole thing reek of small time gossip material.
It's just kind of surreal seeing this type of language in an official SEC press release regarding what I'm sure they would like us to believe they consider a serious crime.
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