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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#181

Post by mrb »

pc86 wrote: post #179
mrb wrote: post #173

The screenshots demonstrate the trader purchased only $1,040 worth of options, not "$22,000" as claimed in the tweet. So the trader turned $1k into $475k. See the first photo in the tweet, the top left chart (45-day volume on the SPLK 127 C 09/22/2023 options) shows a volume of about 260 options was bought. The second photo confirms a volume of 260 (see "volume" column, first row). Options are for 100 shares. So 260…

The price of the option is per share. So a $.04 option costs $4 to purchase because it is an option to purchase 100 shares.

Oh right! I edited my math. Thanks :)

Re: Insider trade on Splunk acquisition?

#182

Post by cush »

arcticbull wrote: post #4
YeBanKo wrote: post #3

Is there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?

Knowing about the acquisition puts you in possession of material nonpublic information. It's unlawful to trade on the basis of such information whether you work at the company or not. Passing it along is 'tipping' and acting on it is still 'insider trading.'

Is it insider trading if the information is leaked publicly, like on Twitter?

Re: Insider trade on Splunk acquisition?

#183

Post by pc86 »

cmcaleer wrote: post #167
kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

I've thought about this type of question a fair bit. I'd even go one step further and ask what if you're in a position where you might hear about this stuff now and then (but not in a way that's easily provable, say you regularly take a train at the same time as an M&A lawyer that you shouldersurf) and you semi-regularly buy $1,0000ish (of variable amounts) in low-DTE options basically on no information - the whole p…

The hardest part of this whole thing is finding someone who a) gets regular access to potential useful information, b) talks about it in public, which most of them probably don't, c) you can generally be close enough to overheard consistently but without being "that weirdo that always wants to sit behind me", all while being lucky enough to hear something at the right time.

If this guy had bought these calls last week (at same DTE) all he would have accomplished is donating $22k to some bank or hedge fund somewhere.

Re: Insider trade on Splunk acquisition?

#184

Post by jandrese »

wongarsu wrote: post #168
hash872 wrote: post #154

Earlier quoted context omitted.

But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?

There's a sliding scale of accountability from "I did it", "My wife did it", "My fiance did it", "my significant other did it", "my neighbour did it" to "some person I don't know did it". A fiance is still close enough that they are captured by lots of regulation, because collusion/cooperation between partners is so common.

I feel like the SEC must have already taken into account the possibility of a "Strangers on a Train" situation where an insider tracks down an anonymous third party to commit the crime with the expectation of being paid back a percentage at some later date.

Re: Insider trade on Splunk acquisition?

#185

Post by lowbloodsugar »

djbusby wrote: post #170
hash872 wrote: post #154

Earlier quoted context omitted.

But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?

The family has the obligation. When you're trading one of the questions is if you, or your family, has rank at public companies. That would make the link from the guy, to wife, to company.

Unless your wife is the leader of the house.

Re: Insider trade on Splunk acquisition?

#186

Post by Invictus0 »

wanderingstan wrote: post #148
mason55 wrote: post #114

Earlier quoted context omitted.

> It does not matter how you got it Well, it sort of does. In fact, that's almost all that matters. Insider trading is all about obligations . If someone who had the obligation to keep the info secret gave it to you and then you went and traded on it, then yes, you're breaking the law. But if, say, you figure it out by accidentally stumbling on a draft Splunk web page that has a Cisco copyright buried in the code, yo…

This obligation-centric view is in conflict with my understanding and the above investopedia link: > Material nonpublic information is data relating to a company that has not been made public but could have an impact on its share price. It is against the law for holders of nonpublic material information to use the information to their advantage in trading stocks. Edit: or would a leak on a webpage be considered “publ…

The webpage leak would be considered public: anyone in the world can load up the page and access the information.

Re: Insider trade on Splunk acquisition?

#187

Post by lowbloodsugar »

pc86 wrote: post #155
fragmede wrote: post #132

Earlier quoted context omitted.

How many lawyer meetings with the SEC are you willing to sit through for $10M (5 after taxes)?

If I've got $5M to spend on attorneys, quite a few.

I would imagine that if you are fighting the SEC then $5m isn’t very much?

Re: Insider trade on Splunk acquisition?

#188

Post by bluehorizon2 »

bragr wrote: post #130
kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

It's still not public information (e.g. "Material Nonpublic Information"). You can't trade on it. See 17 CFR § 240.10b5-1 "Trading “on the basis of” material nonpublic information in insider trading cases", particularly section (b) "Awareness of material nonpublic information." https://www.law.cornell.edu/cfr/text/17/240.10b5-1

No this is not correct. If someone spreads a rumor and you don’t know that the information is from an authoritative source it’s not MNPI. It’s speculation.

If someone anonymously posts on Twitter that Splunk is going to get acquired by Cisco and you immediately buy options, and you don’t know who this Twitter account is, then it’s speculation. Also it’s no longer non-public information if someone posts it on Twitter.

Re: Insider trade on Splunk acquisition?

#189

Post by kasey_junk »

jahewson wrote: post #171
kasey_junk wrote: post #133

Earlier quoted context omitted.

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…

This is not correct. If the tip came from an insider, it’s insider trading no matter who acts on it. See for example Martha Stewart who traded on an illegal tip from her stockbroker.

https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?param...

most of the Stewart case was about her actions post the tip. If she’d had just said “my broker told me to sell” she’d likely be good to go (who knows). But she didn’t. She obscured and made it obvious with her actions that she was trying to steal from other shareholders (by acting on information she should not have).

Re: Insider trade on Splunk acquisition?

#190

Post by mrb »

quickthrowman wrote: post #39
mrjaeger wrote: post #32

Earlier quoted context omitted.

I think $10M is right. The options cost $0.04 each yesterday (per the tweet), so spending $22,000 would get you 550000 options. Those options are now worth $18.30 (per the tweet) for a total value of ~$10M.

An option contract with an ask of $0.04 costs $4. The trader bought 5500 options for $4 and they’re now worth $1830, so it’s still a $10M profit. The listed option price is the price per share, and a standard option contract is 100 shares of exposure.

No, the trader bought 260 options. See second photo in the tweet, first row, column "volume". 260 options times $4 equals $1,040 invested, which turned into $475k.
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