Today’s Matt Levine post on this is a must read https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...
Followed a couple links from that and came upon this doozy of a story on insider trading tradecraft:
Six charged in Silicon Valley insider trading ring
71–80 of 164 posts
Re: Six charged in Silicon Valley insider trading ring
#72White 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…
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.
Re: Six charged in Silicon Valley insider trading ring
#73> Using sophisticated data analysis Curious what that entails. Does the SEC have some automated alerting of suspiciously well timed trades?
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.
Re: Six charged in Silicon Valley insider trading ring
#74> 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…
[deleted]
Re: Six charged in Silicon Valley insider trading ring
#75White 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…
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.
[1] https://en.wikipedia.org/wiki/Insider_trading#United_States_...
Re: Six charged in Silicon Valley insider trading ring
#76Earlier quoted context omitted.
> I bet you it’d stop happening You'd lose that bet. The death penalty didn't stop pickpocketing, or any other crimes, for that matter. People just don't work like that. Constantly ratcheting up the penalties starts moving into medieval territory rather quickly.
You have to consider the counterfactual in which there is no deterrent. Just because it doesn't deter all doesn't make it useless.
I was responding to the word "stopping" the crime, which means all, and was clearly the intent of the post.
Re: Six charged in Silicon Valley insider trading ring
#77> 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. W…
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.
Re: Six charged in Silicon Valley insider trading ring
#78> 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…
> Since Brown didn't trade I fail to see where he violated the law
This article suggests that he may have engaged in conspiracy to commit securities fraud. https://www.latimes.com/business/la-fi-supreme-court-insider...
Re: Six charged in Silicon Valley insider trading ring
#79Earlier quoted context omitted.
> I bet you it’d stop happening You'd lose that bet. The death penalty didn't stop pickpocketing, or any other crimes, for that matter. People just don't work like that. Constantly ratcheting up the penalties starts moving into medieval territory rather quickly.
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.
Re: Six charged in Silicon Valley insider trading ring
#80White 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…
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.