Six charged in Silicon Valley insider trading ring
sec.gov
sec.gov
> Wylam, [..] and also tipped Naveen Sood
> Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya
It's less a ring and more a tree
One of the issues with leaking the info - you have no control over what is done with it and who acts on it, and it all potentially leads back to you
There was a case in Australia where a gov insider was leaking government data. He thought he had a partnership with a co-conspirator where they would make low-tens-of-thousands
He only found out after his arrest that his co-conspirator who was placing the trades was making millions - which is what got them noticed (he was one of the largest individual currency traders in the country - and never missed)
Separately, announce earnings with some injected noise. Keep announcing corrections in the following several days so that it eventually converges to the correct value. That would be fun! I'd absolutely love to see the Wall Street suit-and-tie hedgehog fund people writhing in anguish while the retail investors don't take a shit.
This should make it harder to hide accounting fraud and improve transparency and market fairness.
I care that companies get shit done. I want to see electric cars, cancer cures, solar power, and vaccines. I don't care that the markets are fair. If an unfair market means I get those things faster I'm all for it.
FWIW I get cheaper strawberries than most people because I'm good at bargaining. Markets aren't supposed to be fair, they're supposed to factor in these kind of soft skills.
I'm having a hard time understanding why you believe this is even a question, but I'm trying...
Let me ask you a different question: should the CEO of a company who knows about a major upcoming change (positive or negative) be allowed to trade on that information? After all, based on your arguments so far "they should be rewarded for rising the the position of CEO".
Do you not see a fundamental issue with a system that guarantees unfairness? If I'm allowed to trade on insider info, and everyone else trading knows that, can you imagine the downstream consequences? e.g. every time I trade, the entire market will now react, because the very fact that I'm trading now might indicate something about the fundamentals of the stock.
> Markets aren't supposed to be fair, they're supposed to factor in these kind of soft skills.
What makes you believe/conclude this? Fairness in markets doesn't mean we all pay the same price, nor do "soft skills" really play into modern day stock trading.
Buying cheap strawberries is a cute analogy, but is an apples/oranges comparison, and one involves a consumable product, while the other involves buying a stake in a company based on information that's supposed to be available to everyone else interested in buying a stake in the company.
You may not believe fairness is needed, but that doesn't change that those are the rules we operate under, and most participants in the stock market would fundamentally disagree with you.
“Without fundamental trust / there is no trust at all.” Tao Te Ching 17
Also, who wants to haggle over strawberries every single time you shop? There's a definite time cost to having to "discover" the price on every single transaction.
Lying to the public and your investors as some kind of game to "stick it to the man" is not fun, it's obscene (and thankfully criminal). These "retail investors" you defend are morons and gamblers who are leading a flock of other morons into bankruptcy. You should be rooting for them to get screwed, not people who play by the rules.
It's not like my brain can differentiate anyway. If I find security bugs in some company's git repo is that insider info? The code was public. I should be rewarded for my ability to read code. Those who can't read code are less fit to be investors.
If I overhear company X employees talking trash on a public hiking trail near their office is that insider info? I actually went hiking, I have a higher probability of overhearing insider conversations, I should be rewarded for putting myself out there, doing the legwork, and not sitting in an armchair at home expecting people to feed information to me.
A is super friendly. B is an asshole.
A and B both indepedently go solo hiking to the same park.
A ends up making some friends with some company X employees on the trail, hikes with them for part of the trail, and hears inside info, and then they depart ways.
B is an asshole and so those people don't want to talk to B. B makes no friends, hikes alone the whole time, and therefore gets no inside info.
A should be rewarded by the markets for their people skills, no?
Whatever you hear from them and is probably non-public info is also illegal to trade on.
I mean, what exactly do you expect to happen if this is allowed? Put everyone who works on finance and the executives under 24/7 surveillance? Pay them ransom for not sharing their employer’s data? It would simply be an institutionalized racket.
I am not answering for them, merely observing a trend.
I'm definitely on the side that favors heavy market regulation. History shows us that it works better with heavy regulations - that is that it works better for more people rather than better for a small group of people. In the US, something like 52% (the last time I read some numbers) have invested in the stock market. I'd rather they be treated fairly, with a more equal playing field.
Hmm... It looks like it's now 53%:
https://usafacts.org/articles/what-percentage-of-americans-o...
Insider information is "details about a company's plans or finances that are not yet available to the shareholders".
If you overhear employees talking and you have no relation to them except you're in proximity, that's typically not insider info.
short answer: the SEC says so.
> If I find security bugs in some company's git repo is that insider info? The code was public.
This is OK! If the code is public, then nothing you learn from it is non-public information.
> If I overhear company X employees talking trash on a public hiking trail near their office is that insider info?
This is trickier. It all boils down to whether you knew the people talking were insiders. Likely some other factors here I'm ignorant of, but to sum up... "it's complicated".
Why? How does rewarding people for this serve any useful social or economic purpose?
If we push the wild west theory to its limit, we'd end up in a world where formerly insiders' financial news would cycle and ripple at super fast pace, akin to having a public mic in every trading floor.
This is probably what this person think would be the fairest: instead of a hard to enforce artificial safety, we'd have a transparent, free to join jungle.
But he fails to see most people arent sharks and therefore electors or noisy public representatives always push to slow things down.
1) Many jurisdictions have specific people (officers and major owners) designated. The US is fairly unique in that an insider is someone who trade on material non-public information that violates trust. This is what allows for these friends of low level marketing/accounting people to be charged. Overhearing something doesn't put you in a position of trust. Being sent an email accidentally and being notified that you can't trade on it is something else.
2) Material non-public information means information that has not been publicized and that will definitely impact the price of the stock. People "trash talking" their coworkers is not material because you have no way of knowing if that is their sentiment or if the company is actually falling apart. Someone saying "We are getting rid of our entire engineering department because I don't like them. Look here is all the legal paperwork." is something completely different.
3) Insider trading is bad because it erodes the trust of outside investors. As an outsider, you want the confidence that insiders aren't going to get the better end of the deal always. That in the event of something bad happening, the insiders don't get to bail first. Without outside investors, there is no stock market.
I don't get this. What's wrong with victimized insiders, who are just drones and aren't responsible for the decisions of the company, bailing first?
What I think makes much more sense is to not let large shareholders, especially executives with decision-making power, bail first.
Small insiders are typically victims, not perpetrators, of bad news, and not rewarded enough for good news.
How about a system in which if a low-paid worker of a company (say a warehouse worker, driver, etc. who is having trouble paying their rent) trades 1 share, it goes through in 1ms, giving them an edge over the hedge funds, but if the CEO trades 100000 shares, it takes 3 months before the order goes into the order book and gets executed? In such a system we could allow insider trading, it's just that those trying to bail out of millions of dollars just can't.
I've always suspected the SEC investigations regarding things like insider trading are typically the opposite of justice and designed to go after the smallest possible players while giving the illusion of enforcement. And these details in an allegedly serious investigation just seem to make the whole thing reek of small time gossip material.
It's just kind of surreal seeing this type of language in an official SEC press release regarding what I'm sure they would like us to believe they consider a serious crime.
SEC doesn't have infinite resources to go after every possible financial crime. They go after the ones that have the highest likelihood of successful prosecution. This is the case with most prosecutions like this.
So that makes token gestures acceptable?
Everyone at the SEC is keenly aware that bagging a high-ranking financier is a ticket to higher office.
(Granted those examples are from the 80s but i would think there are more recent examples…)
Milken was prosecuted by Rudy Giuliani which didn’t hurt Giuliani’s career, but Rudy was a US district attorney or something, not SEC
Agree with your sentiment generally though, seems like a boatload of people could have been put away after the financial crisis but they instead profited from bailouts
PS - read Den of Thieves again - there is an imo strong parallel between what was going on with junk bonds in the 80s and what is happening now with VC money. When Milken was indicted, he couldn't keep all the balls in the air anymore and the whole thing fell apart. I'm very interested to see what parallel will play out this time and when.
And not bagging is a ticket to a very nice corner office I guess :)
Just speculating here, but I imagine everyone at the SEC is also aware that going after someone with 9-figures-and-higher wealth may not be cut and dry. At those levels, the person you are going after can wreck your [and all your colleagues] lives in new and interesting ways that aren't apparent.
Which is exactly why having that much wealth should be impossible or illegal. No single person should have that much power.
With that being said, who am I kidding? It's obvious that the old forms of power haven't gone away and never will.
Do you think that they should just go after crimes, at random, even if that means that much less crimes are successfully caught, because of the inefficient use of resources?
> The SEC’s complaint alleges that Wylam, a high school teacher and bookmaker, traded on this information and also tipped Naveen Sood, who owed Wylam a six-figure gambling debt. Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya, each of whom also illegally traded on the information.
In order to make an insider trading case against people who are several degrees out, they have to show how non-public information flowed to them. Establishing that Wylam is a bookmaker and Sood is a client of his is an important part of this. Maybe the "high school teacher" part isn't particularly relevant, but if you cut it, it would sound like he was a full-time bookmaker, which isn't the case.
I would assume to soften the expectations that result in this kind of no-guilt thing you never see given to...other segments of society:
Bannon, Rauch, and Ramaiya consented to the entry of final judgments without admitting or denying the allegations in the complaint
> “Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable to ensure the integrity of our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.
I think in time the SEC’s enforcement in this area will become more automated and efficient.
The SEC has been gathering data after big price swings to identify potential insider trading for a while but my understanding is that they’re now able to assign an insider-trading risk-score to transactions that made money (or avoided a loss) by trading just before the swing.
What’s interesting is the risk-score seems to involve some degree of “who you know” and seems to de-emphasize the old metric used to prioritize investigations: how big your profit/loss avoided was. So rather than having to identify the big winners (or loss avoiders) and investigate those transactions they can instead focus on the transactions most likely to have been “tipped” by an insider. (This is entirely my own speculation but I think you can see it a bit in the attached press release. It’s an unusual chain of relationships between and among the six people charged and the two public companies. Insider > tips friend > tips guy who owes him money > tips three friends. I’d venture to guess there was some transaction data that allowed the SEC to form the link between the accounts profiting and the insiders because $1.7 million isn't a terribly huge sum to have SEC staff chasing after.)
It also seems, judging by Gensler’s recent comments, they’re considering gathering data about planned and forgone 10b5-1 transactions presumably for the purpose of applying insider trading analytics.
https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...
You need some way to detect smoke before you can go looking for the fire. And given the large number of trades in the US stock markets, I don't believe this is an easy problem.
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. What a joke.
Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC’s litigation against Brown is continuing.
In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood.
> No wonder bigger players do this in size. What a joke.
Not sure who you mean by that. SEC is all over every major player.
Nothing has been collected. This is a complaint [1] being put to court demanding a jury trial. The § 21A civil monetary penalties are in addition to "further relief as the Court deems appropriate," which is legal speak for we don't know how to divvy up the gains just yet but want to put specific dollar fines in the complaint attached to each defendant. (The SEC doesn't put people in jail. The DoJ is conducting its criminal investigation, which takes more time for obvious reasons.)
There is a stark difference between financial professionals and laypeople in terms of how they judge the risk of getting caught for insider trading and the scale of the punishment that comes with it.
[1] https://www.sec.gov/litigation/complaints/2021/comp-pr2021-1...
SEC went after the new money
Meanwhile someone stealing a pack of chewing gum from a convenience store might get shot, and someone stealing a $500 TV could wind up serving hard time in a prison where they might get raped, tortured, or murdered.
Thank goodness it didn't go the way I thought it did for a second there.
The rationale behind the decision was that disgorgement imposed joint and several liability rather than individual liabiity, and that disgorgement didn't take into account business expenses incurred in acquiring the illegally acquired income...
So now, the SEC has to determine disgorgement sanctions on a per-defendant basis, rather than assessing it as a single joint amount and making the wrong-doers go after each other for reimbursements.
Note though that the $700k are just the fines, not the disgorgement sanction, which will presumably be issued soon. (The $700k penalties are not treated as deductible expenses, so they're effectively on top of whatever disgorgement is ordered.)
Man, who are these people?
- Seizure of all stock holdings: logic is it's all tainted - Ban from all future trading for life, except index funds
It's like the stock market equivalent of the blockchain. No matter how long or convoluted the chain of communication is , they can always piece it together.
Anyone know details about the analysis they do? I'm assuming some sort of scan that notices when multiple people in the same geographic area and/or are publicly connected in some way (i.e. are fb friends) simultaneously place massive stock market orders on the same security.
[1] https://apnews.com/article/nyc-state-wire-ny-state-wire-new-...
https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...
Such as:
Shortly after seeing the screenshot of Wylam’s account on July 28, Brown called Wylam on the telephone. During the call, Wylam explained how he made such large profits purchasing Infinera put options before the July 27 announcement. Brown “flipped out” because, in his view, the massive size of Wylam’s trades and profits raised an “obvious red flag.”
Bob works for company A which is a vendor for companies B, C and D. Most of company A's revenue stream is dependent on how well B, C and D are doing. Bob has insider knowledge of Company A's finances using which he trades stocks of B, C and D.
Is this considered insider trading or not?
https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...
There's systemic corruption at the highest levels, but the SEC decides to go after a handful of little guys. The next French Revolution is a ticking time-bomb.
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 a max fine of 25K and/or 5 years in state prison.
>For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison.
And as we all know, there's no more grand larceny
My general point is that white collar criminals are hardly punished in practice - not that insider trading should be treated as larceny. (Because as I pointed out the sentencing is generally light anyway)
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.
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.
Not to mention that was centuries ago and circumstances were very different. What punishment has completely stopped crime? No punishment can completely stop a crime from occurring, but the problem with insider trading is that the punishment doesn't even get back what was taken, so in a way you're rewarded, not punished.
Are you sure? How would you be sure? If there's even a few people who've come close to committing a crime, then considered the punishment (prison/execution), then decided against the crime... isn't that "stopping" it?
Since people kept getting hung for pickpocketing, the thread obviously failed to deter them.
> isn't that "stopping" it?
Reduce it, maybe, but not stopping it.
When/where did this happen?
https://en.wikipedia.org/wiki/Pickpocketing#Prosecution
All you gotta do is google "hung for pickpocketing".
Another way it's been put is people don't do fractions. They do not distinguish very well getting $10 as a reward vs getting $100. The same with gifts not being appreciated in proportion to the value of them - summed up in the phrase "it's the thought that counts."
I expect it's pretty much the same for penalties. I seriously doubt, for example, if a 1 year prison sentence does not deter, 5 years would.
and not punished at all if you're a politician
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_...
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.
It's like pump and dumps, where the dumps aren't technically making victims of anyone as it's not like they've necessarily realized any loses. Regardless, money is being extracted from the so-called victims one way or another.
in any case, I do agree with your point.
Good luck ever getting a white collar job ever again.
Research has shown that (especially) for non-violent crimes, the real deterrent is getting caught at all, not the amount of punishment.
I wonder if there's any ML involved here.
Curious what that entails.
Does the SEC have some automated alerting of suspiciously well timed trades?
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.
This is nothing compared to the ubiquitous congressional insider trading that goes on.
I really dislike when people make such obviously inane statements like this...
If they'd been in charge of the WW2 military, instead of Omaha Beach, we'd have a press release about one random dead Nazi.
I think they should go after big fish of course. But there's also value in going after the littler fish. You don't want people thinking they can get away with insider trading if they just keep their crimes under the big-fish threshold. After all, there are a lot more little fish out there, and most serious criminals have a long pattern of escalation. It's valuable to keep people off the path entirely.
The guy is a class A dummkopf since he performed all this easily traceable nonsense for a miserable $3100. But it's still only $3100 hahaha. The only thing the press release is good for is for entertainment.
This case is hilarious, and for that I applaud the SEC, but it's also theater.
What an utterly bizarre, and shrinking universe.
Press F to pay respects
definitely have their priorities right
At a societal level, the point of having a stock market at all is to increase the amount of investment capital available. An unregulated market where people are at significant risk of big losses due to crime, fraud, etc is one that will not attract nearly as much capital. Less investment capital means less growth and a poorer society.
As proof that regulation is valuable, look at all of the foreign companies that list on the US's highly regulated markets. They are willing to meet US transparency and accountability standards because that's how they get lots of cheap capital. In other words, the marketplace of marketplaces proves the value of highly regulated public markets.
> Insider trade a million, you’ve got a problem. You have to insider trade a billion so that you’re untouchable. This is probably the hourly volume of insider trading at many hedge funds like SAC.
(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 SQL select statements and creative greps managed to nab the bigger idiots and follow them back to the source. Everyone who obviously violated the law by trading on info they shouldn't have has settled and the SEC is still trying to nail Brown.
Since Brown didn't trade I fail to see where he violated the law. Contractual obligations with his employer maybe. Regulatory requirements maybe. But you generally need to trade or have reason to suspect that someone will trade in order to insider trade.
Edit: by "the law" I mean the subsection of 10b that the SEC release implies the whole crew violated. Not some unrelated regulatory 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...
>$1.5 million in stock profits by trading on confidential tips that originated from his brother-in-law, an investment banker in California.
Brown may have violated some minor regulatory laws depending on the specific details of his employment but you generally need to trade, benefit or have reason to think trading is happening on your info in order to get slapped for insider trading.
> On August 5, 2016, Brown—whose tips enabled his friend, Wylam, to make nearly one million dollars—texted his then-girlfriend to inform her that he was going to Wylam’s house to, among other things, “talk to him about $.” One week later, on or around August 12, Brown took a photograph of numerous one hundred dollar bills spread across his bathroom sink.
> On or about October 10, 2016, Wylam took Brown to a San Francisco Giants playoff game. Wylam bought both tickets—for seats only a few feet from the field—and paid more than $2,500 for each ticket. Brown understood that Wylam bought the tickets, at least in part, to thank Brown for providing inside information about Infinera.