Nine Charged in Insider Trading Case Tied to Hackers
nytimes.com
nytimes.com
The, like, inimitable Matt Levine (I know, right?):
http://www.bloombergview.com/articles/2015-08-11/why-not-ins...
The SEC complaint, which is chock full o' details:
http://www.nytimes.com/interactive/2015/08/11/business/dealb...
If it's legal, sounds like a promising startup for YC, smart hackers changing the world, they should apply to the next cycle!
http://www.bloomberg.com/news/articles/2015-08-11/hackers-10...
'Insider trading' is trading on material nonpublic information that was inappropriately acquired from an 'insider'.
There are situations that are gray areas but this does not appear to be one of them.
Allegedly they were hacking into news services and reading news before it was publicly released, which means their investing time frame was measured in hours and minutes.
This makes it much easier for the SEC to find this type of behavior as these types of trades, especially in the options markets stand out, when done at large sizes.
The SEC takes alot of grief, some well earned, but you should assume that when a stock moves, they'll run an automated scan of every trade that profited from that in the days/hours leading up to that move and over time they'll cross reference those trades to watch for accounts that continue to do this over time when they have reason to suspect illegal activity.
Think of it like athletes blood samples being held for years after competition. They won't test all the samples held but they have the data there to look back on if they find a reason to.
I've heard before that getting greedy is one of the most common downfalls, and that fraudsters who can manage the scale of their fraud are the hardest to catch. For example, there was some guy who got hold of a $1 printing press. He produced & laundered modest amounts of fraudulent bills for something like 20 years and was never caught; they only figured it out when a certain $1 printing press was found in his estate sale.
Think of it like athletes blood samples being held for years after competition. They won't test all the samples held but they have the data there to look back on if they find a reason to
So you're saying the athletic governing bodies are guilty of illegal vein-tapping, and have some kind of blood bank of every athlete ever somewhere out in the Utah desert...? :)
If anything this just shows that the SEC has all the tools in the world to stop illegal activity, yet it does nothing, so long as you're part of the Wall street establishment.
We get it: you think the law is different from big firms and little firms. Stipulate that it in many ways is, and that still has nothing to do with this case, in which a large syndicate of criminals actually set up a SAAS business selling tradable pre-release press releases.
What? No. They broke into servers at PR Newswire and Business Wire and used the stolen MNPI to make trades. There is nothing about rogue or lone traders here. This was sophisticated international group of hackers and traders engaged in obviously illegal behavior.
But I disagree with you about Stevie Cohen. Quite a few of his underlings took a fall, but he personally emerged scot free. He simply wrote a very big check and made his problems go away. He's busy managing his remaining billions in a "family office".
[1] http://www.nytimes.com/2015/07/31/business/dealbook/us-asks-...
He's the best example of how the insiders are allowed to do it, while everyone else is not. As long as you call it an "experts network" and as long as you structure your corporate hierarchy properly you can do insider trading all day every day! Just ask Steven Cohen.
How does it show anything at all about what the SEC does with the establishment?
Perhaps a smarter thing to do would be to try to drown out the profits with noise from a market neutral basket. A gentle updraft in the PnL would be much harder to detect, and compounding would mean you'd get pretty rich anyway.
Contrary to an economist's default assumptions, information doesn't travel instantaneously, and not all actors are immediately logical. To put it another way, there's a delay where profitable arbitrage is possible with widely-distributed information because many large players are slow-to-move.
In short, there is reaction time - sometimes a 2-4 day window - between when news is released and share prices get where they're going. So those hackers had even more lead time in executing.
This is essentially what Alan Turing realized he had to do with the information decrypted from Enigma... He had to let enough bad things happen so that German analysts wouldn't see a statistical red flag, signifying an information leak, but he had to divulge enough to steer the war to victory for the Allies.
The general answer is going to be: the HFT's early access doesn't implicate a principal/agent problem. The people generating the data HFTs act on don't have a fiduciary duty to the shareholders of the companies they report on.
1. There have been a few cases where data was available seconds early on certain feeds, but those were mistakes.
I believe this is one of the points that Edward Snowden was trying to make. He himself could have had a hedge fund, and he could have used private information he gained in his NSA contracting before that information became public knowledge.
Hell, his coworkers were getting in minor trouble for stalking their exes.
We actually live in a situation where the government has more power than the Starzi and everyone has passively accepted this. The end of freedom with zero violence and complete obedience.
Not to worry I'm sure the people in charge will always use these systems to do good things. Please don't come get me! Thanks.
Did you really just ask that?