Former Apple exec who enforced insider trading rules admits to insider trading

I'm surprised it's not a popular opinion. It seems to fit well with libertarian/laissez-faire ideology.

If it was legal, retail might better understand that they're less knowledgable about a stock than the insiders. Instead we have the compromise where retail believes insider trading doesn't happen but it's actually rampant and retail are the least likely to benefit from it.

I completely agree that making insiders' trade public and real time (so it's legal to trade with insider info) makes a lot of sense. Information asymmetry is the problem with insider trading, which is solvable by making this info public via the trade action, and not the idea that some people are advantaged via insider info (i don't care if such and such senator or exec gets a good trade using insider info - i care that the info is late to the market and the public can't know it in time).

However, there's still one aspect which cannot be captured by such a transparent info source - the change of heart; i.e., if an insider were going to sell, but hears private insider news that makes it good to "keep" the stock, this info doesn't flow out. Inaction is also an important piece of insider info which insiders "act" on.

I suppose if the good news makes the previously intended sale not happen, it _should_ theoretically also make the insider want to buy more (subject to cash i guess). So hopefully, such insider "inaction" doesn't happen very often.

This is the popular libertarian opinion and it is half thought out and wrong, like most libertarian opinions.

Say you are not an insider. Most investors in the public markets are not insiders. If a company wanted to be owned by insiders only it would never need to enter the public market. So say you, like most investors are considering stock where you are not an insider. Would you buy stock from an insider? Even if he properly discloses he is an insider. Is he selling because he needs the money to buy a new house or because he knows that something happened and the company is doomed. It does not feel very comfortable does it. So most investors would not feel safe and comfortable buying most stocks. So, good job, you just removed 90% of demand of stocks.

What people do not understand is that the american public markets are very unique, unlikely, and downright amazing phenomenon that is a very important factor in the wealth of the USA and even the world for the second half of the 20th and 21st century. It is amazing that people have the confidence to pay a bunch of money to own a part of a company based only on published information. But that is what makes America rich. It is that ability to quickly move money from where it is not needed to where it is needed and to reward the person sending the not needed money.

Now here is another hypothetical. Say you are insider of a company with a lot of stock in that company. You have just learned that something secret has happened which has doomed your company. Your biggest client said they would stop buying from you or something like that. You want to sell your stock. If insider trading is legal would you inform the public of the bad news? Or would you make sure you sell all of your stock first. Now say the same thing is true but insider trading is banned. You are a big stockholder and you know the SEC is watching you. What do you do? Well you inform the public asap, so that you may sell your stock legally albeit at reduced prices. Which of these outcomes is better for society, and for the well being of the stock market?

I suppose insider trading is hard to enforce. Well actually it is not that hard to enforce for the important people -- the company leadership that have all the important insider information. But there are other crimes that are also hard to enforce but we keep them crimes, because they are terrible, cause a lot of damage and we as a society should do what we can to avoid them. Should we make bicycle theft legal because it is so hard to catch bike thieves? How about date rape?

People already effectively do this by just watching volume before earnings.

This is basically no change to the current system as it depends on honesty.

Now, it is "Don't do this and be honest about it" You propose "Do this, and be honest about it"

I mean, if you weren't being honest before, I highly doubt you'd be honest now. It'll be like buying a used car at that point. All the seller has to do is lie, which will be easy if there are only 5 people in the company that knows of its doom. It isn't like they are going to talk to the buyer personally, either.

This could lead to market manipulation by disclosing you're going to make a trade the next day, then not executing it.

This adresses the problem partially. The insider often doesn't trade the stocks of their corporation, instead they tip others to trade it. There are networks of C-execs constantly tipping each other.

> He should just have to report that intent to some SEC website.

And how would you enforce that?

Even if you could, without the dystopian SEC that you fear, it would still be unfair if in real-time. With advance notice, it'd be completely gameable:

1. Musk advertises his intent to buy TWTR

2. Public reacts

3. Musk sells, but doesn't follow through on the buy.

I will not claim to know the details of this particular story. But I do want to point out that, when I joined Apple, stock options were part of their bonuses. We were told whether or not we would get stock options, and when, during our annual one-one meetings with our managers. These meetings were held across the company over a period of a few weeks. We were told that the price of the option would be the minimum price over some period of days up to the time the board approved the employee options for everyone who was given them. So if employee a was told their award at the beginning of the month, and employee b told three weeks later, they would be given the option at the same price. This applied in my case, and seemed completely fair to me. I was a lowly engineer with no special value to the US economy, the shareholders etc. It was a sensible and rational way to award stock options. Apple switched to a new scheme, probably to avoid the appearance of something untoward, namely RSU: actual stock awards rather than options, but with restrictions on when we got them.

Backdated stock options is just not comparable to insider trading.

There is a lot of complain about in executive compensation. High on my list is Sundar Pichai. And you can go way beyond that to the likes of Marissa Mayer or Meg Whitman.

The intent behind insider trading and similar things is that you are effectively stealing from shareholders or the company.

But you want to use Steve Jobs as an example? Whether you like Jobs or not, the wealth he created for Apple shareholders is completely undeniable. By comparison to a lot of executives today, JObs' pay packet wouldn't even hit the top 10.

Trying to argue that options backdating or any other such allegation somehow defrauded any Apple shareholders is such a stretch it belies someone who typically just hates Jobs and shouldn't be taken seriously.

Could I please have your peanuts?

> Interrogating someone who's probably lying is a skill that law enforcement people have, and most of us don't.

Interrogating is one thing, spotting the lie (or the inconsistency that leads to spotting the lie) is another skill entirely. I have a colleague that is scarily good at this.

In 99% of the cases, it is SEC who catches these people, not the company where the insider works at.

https://www.reuters.com/article/bc-finreg-data-analytics/sec...

When you fly into Israel their security officers interrogate you. They'll ask random questions with you don't expect. The officers are trained at detecting human lying behavior. Your actual answer to the question is somewhat irrelevant, it's all HOW you answered.

He probably didn't think he'd get caught or ego.

anyone want to make a guess at what this guy's gross W2 salary was?

It’s worth considering that this is likely not the whole story. If he was corrupt enough to do this himself, there’s a non-negligible chance he had plenty of other family and/or friends who were also likely trading on privileged information and which he may have had some other beneficial deals with that haven’t been found out

It was too easy.

Imagine if every day you walked past a newsstand, and for some reason there is an envelope with $100K in cash there, every day, all the time. It's totally illegal to take it, but it's right there in front of you, and so easy to grab, and no one's going to notice...probably.

Thats what they pinned him for.

apple is famous for not paying that well. this is not google.

$600k. There was both profit taking ($250k) and loss avoidance ($350k). Still peanuts.

This is exactly what I don't understand. From this line:

> In fact, he even informed Apple employees about a trading blackout period for AAPL stock, while also buying and selling the stock himself.

I mean, that's super black and white and super hard to hide. I just read the article, not any of the linked source materials, so I'm curious as to how he tried to hide these trades (I'm assuming he did).

Unlike trading on insider information, smoking is legal. One could advice against smoking and continue smoking himself without legal repercussion.

Indeed. But I also wonder how common this is.

Imagine you have a deal with a friend who is a stock broker. You supply him with insider information to make trades. You give him your money and he makes trades on your behalf, and to conceal the deal, he trades Apple stock uniformly across all clients. He doesn't do anything that would make you stand out.

Or let's say his greed doesn't get the best of him and he doesn't invest anything but conservative sums of his own money in Apple stock using this information, and then, to launder kickbacks, you start a small company unrelated to investing that he pays for something intangible (like a "membership" or "retainer"), or he pays you cash.

I would find it difficult to believe that this sort of stuff isn't happening all over the place.

.. because his secrecy, his self-control and his control of others in the room was "perfect" .. This obvious hypocritical ego bully jerk BS that can be seen from a mile away and the other finance people WANT IT. just my guess

like what?