> These guys are like the kids who saw the Tide Pod challenges and decided to actually eat the pods. I bet insider trading is not as fun when you're unemployed and bankrupt.
Most insider traders are never caught, everyone eating tide pods gets sick.
Most insider traders are never caught, everyone eating tide pods gets sick.
Executing an inside trade profitably and secretly is difficult. Catching it ex post facto is easy. (The SEC scans for unusually profitable trades and accounts. These systems are thorough, clever and effective. When they're updated, they re-run back data through the statute of limitations.) This is the P != NP element of insider trading that outsiders miss.
It's why inside traders are usually unsophisticated. They assume Wall Street is doing it. That they're getting the short end of the stick. So they run out and buy out of the money calls or whatever through their nephew's account and get nailed.
> It's why inside traders are usually unsophisticated
Insider traders who get caught are usually unsophisticated.
Surely if they, by (supposed) conjecture, figured that the company might do better if people are more dependent on phone calls in lockdown (a reasonable assumption), and there was no evidence to the contrary, how from a technical basis would it look any different from someone simply going "oh yeah my company looks like it's gonna do great, I'd recommend getting some shares"?
I wonder if this investigation would have had teeth if it had relied on coffee shop conversations as opposed to digital media.
And no, it’s really difficult for SEC to detect any but the most basic forms of insider trading.
Try to apply some adversarial thinking and envision a situation where you want to insider trade, but don’t want to get caught.
>Try to apply some adversarial thinking and envision a situation where you want to insider trade, but don’t want to get caught.
Criminals take great efforts to not be caught and still are.
Insider trading is not like other crimes.
Consider the reasons why it is criminalized, which have been discussed elsewhere under this post.
The main point is you can't buy or sell securities without identifying yourself. So when someone opens a new account and buy out-of-the-money call options that expire a few days after an earnings announcement it's not hard for the SEC to flag all those.
Then all they have to do is look up that person and see if they have any connection to the company. They can look at who you are connected to on LinkedIn, who you live with, where your family is employed. Then they come to that person and ask them a question that seems innocuous "Have you ever discussed Company X with <insert name>". If you lie, then you've already committed a felony when they get your text records or email or Whatsapp.
"Hmm. This guy just bet his entire account on a crazy bet and won" or "Hmm. This guy flipped a coin and it came up heads 20 times in a row."
I have no idea if it would work, but having a few years of making similar trades (some winners/some losers) likely helps stay off the SEC's radar.
A track record of buying and selling similar options in similar amounts is much more explainable than only contributing a few thousand to your Roth IRA by buying ETFs, then suddenly making a few hundred thousand on your first options purchase that so happened to be in a single company that a LinkedIn contact works for.
By the time the SEC is knocking on your door asking questions you're already screwed.