Former Equifax Manager Charged with Insider Trading
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Why is Equifax still around.. we have no say or opt in system to allow them to use our personal data for their financial gain.
I didnt agree to this! Isn't there an Equifax competitor that lets you opt in and is all about security. If not one of their competitors needs to rebrand as such or such a competitor needs to enter the market and whoop their a#*!
When you get a mortgage, you have to agree to send the data to equifax -- you can't get a mortgage without it.
So the only way we'll fix this is by getting all of those companies to agree not to send data to equifax, but they like sending data there, because they get even better data in return.
A few companies will tell you in advance that they're going to run a background check, but many will not. Then they'll come back very huffy and complain, "why couldn't we access your credit!"
Also for a fun game, the next time a representative from a company asks for consent to run a background check, tell them your credit is frozen and ask which company (Equifax, Experian, etc...) they're going to check with so you can unfreeze it. In my experience, 9 out of 10 times they won't know and there will be no way for them to find out in advance.
In the same way, even if you're consenting for a company to send data to partners, you don't always get to know who those partners are or who they'll be in the future. I try to pay attention to data consent forms now. Sometimes they do boil down to just "we're gonna share your info with... somebody. Possibly multiple of them."
I might be wrong, but I would bet that the person who you sit down with to sign your loan or your mortgage will not know who your data is going to be shared with, and they probably won't be able to look it up if you ask.
But hey, at least Geico can send me physical mail advertising on my birthday now, so I guess it's all worth it.
A large part of the problem is that companies can pretend to use the information as an ID when actually using it to just get credit history. I wish we could simply pass a law saying that identity verification cannot use SSN, and that one must separately opt in to credit checks than to id verification.
If you need to pay using a credit card then it makes sense that you must get your credit checked.
But there are always alternative payment methods that don't involve credit (like pay by cash). If you truly do not want to consent to having a credit history, you can avoid it.
If you don't pay the bill, they use your deposit and terminate your service.
My current ISP didn't even ask for a deposit. I just visited one of their storefronts so they could check my ID to verify my name.
Just because someone isn’t giving you credit and never will doesn’t mean they won’t want your credit details. Nor that you will have leverage to refuse.
Yes, some companies are rotten, but some do provide just as simple ways to get service without a credit check.
> but none as simple as verfiying credit history
Of course you're concerned. People that can't or won't manage to be responsible for themselves are always concerned that others don't agree with them. It threatens to hamper that carefree way of life.
OP is not saying that he doesn't want anyone performing credit checks. He's saying that he wants to be able to choose a company that values privacy. Currently, there's no option of choice for the consumer, and that's a problem.
Most people don't care enough, and only select on price. So the bank gets the cheapest option for nonvisible backends (like credit checks)
What's disingenuous is trying to pass off "modern life" as some sort of necessity and pretending like you couldn't exist without demanding use of other peoples' works.
Until we decide we've had enough of this and pass a real law that holds CRAs liable for the data they collect and store, absolutely nothing will change. Equifax's competitors know that, with no such law on the books, they have enough money to withstand the very few lawsuits that could come their way as a result of a breach. They know the average person doesn't have the spare cash or time to pursue such a case.
Equifax should have been liquidated after demonstrating the degree of negligence they tolerated for years. They're still standing because we let them.
Correct. This is a problem caused by the market. Expecting market forces (a competitor with better offerings) to just fix it isn't productive.
I don't disagree that some goods are inelastic and still can have robust free markets (see bottled water) but the credit score market is not one of them.
Trust forms the basis of all financial transactions. Credit ratings companies increase trust, reducing the price of these transactions. Removing these companies would increase the price of loans/credit cards/etc.
(This ignores the fact that, for example, lenders in Australia mostly ignore credit ratings and instead focus on your earnings)
The problem is that companies are as good as their last quarter, so over decades and tens of quarters they had to do a lot of shady stuff to increase their earnings.
It doesn't seem very dissuasive to only have to return the ill-gotten gains for insider trading, as it makes the returns of such trading positive if not all insider traders are caught.
I know options are usually just cleared and pay out the difference if they’re in the money, but I don’t know if that’s how it’s seen legally.
No. The SEC is a civil agency which brings civil actions. Settling with the SEC does not prohibit the DoJ, or any state enforcement agency, from bringing criminal charges.
"For example, Section 16 of the Securities Exchange Act of 1934 requires the disgorgement of short-swing profits by named insiders—directors, officers, and 10% shareholders. The 1934 Act’s general antifraud provision, Section 10(b), is frequently used in the prosecution of insider traders. Although the statute does not specifically mention insider trading but, instead, forbids the use of “manipulative or deceptive” means in buying or selling securities, case law has made clear that insider trading is the type of fraud that is prohibited by Section 10(b)" (https://fas.org/sgp/crs/misc/RS21127.pdf, emphasis added)
In other words, everybody has just basically decided that insider trading is wrong and people should go to jail for doing it, and caselaw reflects that, but there's no actual statute in place anywhere.
The dispute over who might be theoretically harmed by insider trading relates to the legal theories proposed by courts and the SEC to justify the prohibition. Who might be harmed is of particular concern, particularly in the criminal domain, because we're dealing with an agency-created rule, and the courts are more-or-less following common law methodologies for specifying and circumscribing the rule. The applicable common law domain is Torts, and in Tort law there needs to be a breach of a duty to someone. Only once you identify that person (or persons) can you understand the scope of the duty owed them and by whom.
The two competing theories are (1) that insider trading violates a fiduciary duty to the company from which the information came or (2) that insider trading violates a duty to the public at large, the so-called Fraud on the Market theory. The Fraud on the Market theory is what the SEC still clings to, but courts won't buy it because it's just too broad and doesn't really comport with established common law principles. An important self-constraint to fashioning non-statutory law is limiting oneself to extending pre-existing legal principles.
The legislature isn't constrained by arcane legal technicalities. Their only constraint is the Constitution, which doesn't necessarily require shoe-horning laws into theoretically consistent buckets. The Fraud on the Market theory is too distant from any pre-existing legal principle, too distant from the plaintext of the existing statutes[1], and so only the legislature should be allowed to explicitly promulgate such a rule.
[1] This is why we're talking about common law principles and not more recent administrative law principles. These days courts probably would never have allowed an administrative agency to invent something like insider trading, particularly as a crime, and so wouldn't have needed to make recourse to foundational common law principles. The courts accepted the prohibition prior to the modern development of administrative law.
Confidence is a big factor, whenever someone manipulates the market they're shaving a few thousandths of a cent off of everyone's funds in stock exchanges by lowering the general public confidence in the stock exchange - and if that ever dips low enough all our futures could evaporate.
Realized gains is another big factor, the stock market is large and nebulous and terrible to try and understand, but money goes in whenever money comes out - when your stock goes from 10$ to 11$, good for you, have a party... but you haven't realized those gains yet - when you actually sell your stock there is a buyer buying them from you, often times you'll sell to a mutual or index fund which constantly allow market liquidity, when you do so your benefit is coming out of someone else's pocket. The idea is that the other person has made an informed decision with all the information available to both of you to take a certain level of risk - when you add in insider trading the information available becomes unequal and you are selling them a risk of quantity x and they're expecting to buy quantity y, where x > y, these damages end up (generally) being pretty wide spread, but they slightly lower the margins on your mutual fund return or index fund or what-have you.
Criminals love to minimize the impact of their crimes so don't buy into it here you wouldn't believe that a burgler that broke into your house to steal a broken TV should only be liable for the lock (or even that he saved you money in the disposal fee).
There are real consequences for insider trading and they are serious ones.
That hasn't stopped a crop of statues from springing up to deal with just that kind of behaviour.
> In a parallel proceeding, the U.S. Attorney’s Office for the Northern District of Georgia filed criminal charges against Bonthu.
[1] this press release
This settlement reflects the uncertainty of legal proceeding.
> Bonthu sold the put options and netted more than $75,000
WOW. 75K. Big fish there.
> According to the complaint, Bonthu was told the work was being done for an unnamed potential client, but based on information he received, he concluded that Equifax itself was the victim of the breach.
And the guy wasn't actually trading any insider info. He had info available to the general public and was smart enough to figure out the trade. Just like anyone else on wall street.
So if someone makes $5M illegally their penalty would be 5x greater than that of someone that made $1M illegally and both would vary in proportion to how many years of someone's life that represents.
"Federal sentencing is generally based on intended or actual loss, whichever is greater. Further, the judge is allowed to take into account intended losses from his entire course of conduct, not just the intended losses from the specific counts on which he was found guilty."
Criminal A stole $50k from pensioners via confidence tricks. Criminal B was engaged in a complex structure to shelter income; it was eventually ruled illegal and he was found to have avoided $50m in taxes.
These are both financial crimes, but by your logic Criminal B has done something a THOUSAND times worse than Criminal A, and thus if Criminal B gets sentenced for 5 years (a not-uncommon sentence for people convicted of large scale tax fraud) then Criminal A gets locked up for 44 hours.
Conversely if Criminal A gets sentenced to 10 years (a not-atypical sentence for that sort of crime), Criminal B gets locked up for 10,000 years? Or in other words, life without parol; a sentence we don't always hand out to murderers and rapists. For what is very likely nothing more than disagreeing with the IRS about how exactly a loophole in a very arcane law actually works?
By any reasonable metric, Criminal A deserves the harsher penalty. The face value of the amounts tells you very little about actual harm, culpability, chance of re-offending, etc.
In a world where people occasionally steal $100m, that implies a maximum sentence of ~1 year for stealing $1m.
It would be nice from the perspective of reducing the incomprehensibility from white collar crimes that net hundreds of millions of dollars though I'd be concerned about false charges... well, I'm generally concerned about false charges so we just need to fix our justice system, then such a scaling might make good sense.
Just to briefly note, these crimes aren't victimless, people who pull these sorts of stunts are taking money out of someone's pocket, usually fraudulent stock maneuvers will end up negatively impacting retirement mutual funds, sometimes other white-collar crimes may be more impactful, prematurely issuing foreclosures deprives people of their household. In the former case the damage is spread around and less horrific feeling, but both are terrible.
Ignorance or negligence behavior when it comes to implementing and maintaining cyber security controls over PPI is not good enough, and the culture needs to change.
This is probably not going to change anytime soon, it goes much deeper than maintaining security.
Even if you had a long-lost friend do it, the big trigger is the purchase itself. Someone buys no options in the past 5 years, suddenly buys a ton of out-of-the-money call options 2 days before a merger. The SEC zeros in on that like a laser.
Then they look at who purchased it. Any connection to the company that acquired/was acquired? No? Do they know anyone who is? Let's get their phone records.
I also think the SEC knows they can't police every transaction, so the ones that are flagged get investigated hard, to make an example of them.
If you really wanted to obscured it, one way would be to have a trail of purchases such that the "big one" doesn't look out of place. However, that would mean you'd need to make a bunch of losing bets.
Especially considering it was probably the biggest data breach news in history, you can bet the SEC went through and looked into every single trader that profited off that.
The regulatory system relies on leveraging financial institutions such as the brokers themselves to do the snitching.
So they may voluntarily freeze funds. But even if they don't there is another layer:
Administrative law judges.
These are employees at the federal agencies that are imbued with the power of the judicial branch and rubber stamp injunctions and "emergency asset freeze" orders from their bosses. And by boss I mean the private sector such as FINRA.
So typically the funds get frozen AND the SEC files charges against non-residents. They can get you in most places on the planet, and also wait till you go on vacation to most places on the planet.
secondly the indictments leverage financial institutions as well as other federal agencies to be notified when a person - even foreign - is in their grasp or has known whereabouts
SEC indictments are often pretty ballsy. I read one where they indicted people in Eastern Europe who only traded on a CFD exchange. CFD exchanges don't exist in the United States. But the SEC said the traders should have known that the CFD broker would have made actual trades in the US equities markets due to their actions so therefore they have to answer for it.
What became of that? Maybe nothing just like you said
Or don't insider trade. In the financial crime universe, insider trading is on the stupid end of the spectrum. It's tough to do right, hard to scale and easy to get caught.
Information asymmetry does not constitute insider trading. Trading on information which you have that the broader public does not have is also not insider trading. Trading on exclusive information which you learned through professional exposure, and which does not come with confidentiality or fiduciary requirements, is not insider trading.
Prior to 2012, Congress was actually explicitly permitted to insider trade. That was fixed by the STOCK Act [1]. It doesn't make it easy to pull up records, but it does close the loophole.
[1] https://www.npr.org/sections/itsallpolitics/2013/04/16/17749...
Courts aren't stupid, and can generally see through collusion attempts, and would probably have a fairly easy time showing culpable intent if you try to trade through friends and/or family members.
Corporate training courses tow the SEC line, but the outcomes of actual civil and criminal prosecutions would be far swifter and harsher if the law was as the SEC says.
In short, in some contexts friends and family absolutely can trade on material non-public information. In fact, in no case are they directly committing a crime; their liability is vicarious--it stems from some illegal behavior of the actual insider, which turns on more elements than the simple act of disclosing material, non-public information. If that illegal insider behavior is lacking then friends and family are no different than some random member of the public who caught an anonymous tip.[1]
Of course, as with anything illegal you have to factor in the risk of a jury wrongly convicting, especially when the legal elements so heavily rely on circumstantial evidence and even insinuation as with insider trading.
[1] If the SEC had their way then even trading on an anonymous tip would be illegal. Indeed, if the SEC had their way they could prosecute damn near anyone they wanted, at any time, because their legal theory is so ridiculously broad it would effectively shift the burden of proof onto the defendant.
Take the fifth?
After any corporate action, the SEC (and various other agencies) trace back through trade records to look for suspicious trades. Family members are a matter of public record. And friends are now announced on LinkedIn, Twitter, Facebook, et cetera.
While the SEC can undertake the tedious process of clearing all individuals with knowledge of the breach, a more effective tactic would be to look at suspicious trades and investigate potential insider knowledge. In that method, SEC looks at unusual volume/patterns in options contracts and security sales. The SEC will comb through each suspicious security sale that occurred prior to the breach announcement and cross reference the account owner's information with their list of insiders. If they have reasonable suspicion that a crime occurred, investigators obtain a warrant and complete the picture with phone records, email accounts, Facebook info (if not already obtained via parallel construction), etc.
So let's say in theory you could add a great deal of people as friends (thousands even) and in that case it would be quite difficult for the FBI to run that down (as they say). Besides they would have to supoena records from Facebook at a certain point if the 'friend' was not someone they could easily determine just from a picture or limited contact info.
And don't even get into 'linkedin' that is filled with more people you don't really know or care about than any service.
Most likely they will just work the other way. Someone makes a trade and they then see if they are linked to anyone in anyway at the company.
Insider trading is.
who doesn't love options am I right?
any other delta or gamma chasers here