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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#191

Post by tptacek »

tfehring wrote: post #177
tptacek wrote: post #143

Earlier quoted context omitted.

This is great, and as good a place as any for the thread to sprawl from, so I'll ask: it depends on how you know the stock is going to shoot up the next day, right? Trading on private information isn't illegal, and there's a huge variety of ways to acquire private information at varying levels of confidence, and in a sense the purpose of the markets is to aggregate everyone's private information to estimate a price.…

That practice has been referred to recently as "shadow (insider) trading". It's an actively evolving area of case law, but the SEC's opinion is yes, see https://wp.nyu.edu/compliance_enforcement/2022/01/19/sec-v-p... Or Matt Levine on the same case: https://archive.ph/5Dlmw

Oh, neat! I hadn't read this, but my hypo is literally case (3). His answer: "who knows?". Excellent.

In my hypo and his, the origin of the private information I've acquired is still business my employer has conducted, so there's a better-than-baseline probability that the SEC would see this as misappropriation --- even if my employer wasn't directly going to trade on this, or if it was hard to trace any harm to my employer, it's still potentially not OK for me to profit from it.

Re: Insider trade on Splunk acquisition?

#192

Post by mrb »

zht wrote: post #29
scarmig wrote: post #12

Go directly to jail, do not pass go, do not collect $10M.

isn't it closer to 400k?

You are correct. The amount "$22,000" purchased options quoted in the tweet is not supported by the screenshots which show 260 options were purchased, for a total of $1,040, which is now worth $475k. See https://news.ycombinator.com/item?id=37602079

Re: Insider trade on Splunk acquisition?

#193

Post by nlh »

matsemann wrote: post #119
eastdakota wrote: post #100

Earlier quoted context omitted.

Yes. The one bit you’re missing is that a call option is the right to buy a stock at a certain price typically on or before a certain date. To make the numbers simple, imagine a stock trades at $10/share. If someone came to you and said: how much would you be willing to pay to have an option to buy the stock for $100/share? The correct answer is: it depends. If it’s the right to buy the stock for $100/share at any po…

> And strategy 2 seems especially suspicious because the risk is so high and the non-illegal reasons for doing it are so few and far between. Very few reasons you’d buy a bunch of call options that only pay off if something causes a stock to move dramatically in 24 hours. But why are they then legal to sell? It almost seems like someone wants to be able to sell them, but when they lose the bet they want to revert it.…

Options are legal to sell because in MOST cases (where insider trading is not happening), selling call options is a nice way to get "free money" (*note not actually free) and facilitates hedging and liquidity in the market. It's a financial product like any other.

Let's take a boring case -- that $10 stock is NOT going to $1000 tomorrow, they're not finding a cure for cancer, etc. So 99.9999999/100, if you sold someone the option for $.01, it's going to expire worthless tomorrow. You have 1M shares, you sell the call options for 1M * $.01 = $10,000.

You let some other people place bets on a thing that might (but probably won't) happen, and you get $10,000 just for owning the stock. It's like an interest payment (with some risk).

If the thing DOES happen, you are taking a risk that you'll have to sell your stock for slightly less than if you'd held it, so you're giving up some potential gains.

But in the long run, this is all priced out and balances out (in theory, in an efficient market). You get $10,000 in "interest" but are taking the risk that you might lose some upside in a black swan event, and the buyers are paying a nominal amount to take a bet on the other side. They might have spent $10k in order to possibly make a $billion -- those are risks that some people price and want to take (like a lottery).

Re: Insider trade on Splunk acquisition?

#194

Post by zeroonetwothree »

0xB31B1B wrote: post #43
breakds wrote: post #38

Not defending anyone, just saying. - If I have $1000 I might choose to spend $2 for a gambling. - If the trader have $10M already, it might be reasonable for him/her to spend $20k gambling on some rumors. This guy could be someone who is already rich.

There is a 0% chance this is someone gambling. This is a 1000000 sigma event.

Really? 0%? That seems unjustifiably confident.

Re: Insider trade on Splunk acquisition?

#195

Post by mason55 »

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…

> It is against the law for holders of nonpublic material information to use the information to their advantage in trading stocks.

The US and Europe differ on how exactly this should work.

In Europe, your view is correct. In the US, it's about obligation. You can trade on material non-public info if you discovered it on your own without doing anything illegal.

Re: Insider trade on Splunk acquisition?

#196

Post by [deleted] »

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…

[deleted]

Re: Insider trade on Splunk acquisition?

#197

Post by mcguire »

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.

An intentional tip, right? Not an "overheard conversation".

Re: Insider trade on Splunk acquisition?

#198

Post by sakex »

Let's say you live in front of the Splunk office, and you see tens of people in suits, a limo with a CISCO sticker, as well as a lot of commotion on the office in front of you. You strongly suspect something is happening, you buy $22k of Splunk calls.

Is that insider trading?

Re: Insider trade on Splunk acquisition?

#199

Post by CrazyStat »

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.

Stewart was convicted and jailed for obstruction of justice and lying to investigators, not for insider trading.

Re: Insider trade on Splunk acquisition?

#200

Post by munk-a »

fragmede wrote: post #132
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…

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

Probably about ten years worth.
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