Trader admits fraud in $1 billion Apple stock scheme | Hacker News Reader

Trader admits fraud in $1 billion Apple stock scheme

finance.yahoo.com

40 pointsAnil-Shrestha21 comments

> When the bet backfired, Rochdale was on the hook for $5.3 million of losses on the extra 1,623,375 shares, leaving the Stamford, Connecticut-based company undercapitalized, the SEC said in court papers.

That actually sounds like an incredibly small loss, overall.

You're right. It's about $3.3 lost per share, which is a loss smaller than 1% of the share price.

If he hadn't lost, would this scheme have gone unnoticed?

Somebody once said that the fact you never saw a headline “rogue trader causes $1B in profits” was evidence that such schemes did indeed go unnoticed unless they caused losses.

This is exactly why I don't try to play the stock market (or the Bitcoin market).

From a press article on the 25th it sounded like the price dropped suddenly but then quickly rebounded to "nearly break-even". I guess that "nearly" was the problem.

Is there a particular reason why the trader couldn't wait it out another day or two to see if he could make up the difference? I suppose with the money tied up in stock the company no longer had sufficient liquid assets to continue operating.

The article wasn't clear, but it sounds like his intention was to pocket the 'winnings' for himself somehow?

Wait it out? That's what every rogue trader says. Or they double up. Someone on the other side will be asking for their money.

Was that really his game plan?

    1) Buy $1B in Apple shares.
    2) ...
    3) Profit!

If you have $1B to spare, it seems like there are a lot better ways to make money.

No his plan was 'borrow' $1B for a very short period of time, buy $1B in Apple shares, hope they go up a short while later, sell shares, pay back loan, pocket the difference. He never had the $1B.

That's what traders do all the time. The only difference here is the borrowing wasn't authorised and he fraudulently claimed it was. Oh and then it seems he committed a further fraud to attempt to mitigate the loss by forcing the price up or something.

This is the main thing I got out of this story when it first broke.

The firm was able to buy over a billion dollars worth of stock but was undercapitalized after incuring a loss ~5MM? Just doesn't make sense.

It might make sense if you're a pure middleman. If all gains and losses are your customers' problems and you're just using their bank accounts, you only need money to cover your own overhead and maybe cover fees before you can charge your customers (imagine you charge your customers monthly but the stock exchange charges you daily, you'll need 30 days' of fees on hand to pay the exchange before you then get reimbursed at the end of the month).

Along comes this trader buying on behalf of the company and not a customer, and now they're stuck with a $5m hole and that was all of payroll for the year etc.

Its the difference between the purchase price and the settlement date. I've got no idea what really happened but can speculate that what happened was that an order to purchases 1.625M shares goes in, (that will cost $1B), the trades are recorded people who've sold get notified they sold @ $xx etc. Now the trader was hoping the price goes up by a few $, then sells again. Now if everything "works as planned" when the trades are settled at the end of the day the people who bought put their money in the people who sold get their money out and the left over is in the bank.

But if you buy the shares in the morning and the price goes down, if you want to 'hold' and wait, you need $1B to cover the purchase of the stock, but if you want to 'cut your losses' you just sell the stock again for what ever you can get before the markets close.

I'm guessing this was what happened, and at the end of the day the difference was $5.3M which the company had to come up with to balance their accounts. That left them with not enough money for day to day operations, poof they are dead.

This man really did not pay attention. I've rarely seen Apple stock rise the day of a press or investor briefing no matter how good the news. In fact it has often been the opposite. In fact, now that I've looked over just the last year, most of the times Apple issues a press release its shares close the same day or the next below the level they were at the day before the announcement.

Out of 40 times Apple put out a press release in the last year, more than three-fourths of those times the stock declined that day or the day following (31 times). And only once did a positive trading day coincide with a new product announcement. The exceptions were:

   Dec. 17, 2012 (iPhone 5 First Weekend Sales in China Top Two Million)
   Nov. 19, 2012 (AC/DC Now on iTunes)
   Nov. 5, 2012 (Apple Sells Three Million iPads in Three Days)
   Sept. 17, 2012 (iPhone 5 Pre-Orders Top Two Million in First 24 Hours)
   Sept. 12, 2012 (Apple Introduces iPhone 5, Apple Introduces New iPod touch & iPod nano, Apple Unveils New iTunes)
   Aug. 27, 2012 (Craig Federighi, Apple’s Vice President of Mac Software Engineering & Dan Riccio, Apple’s Vice President of Hardware Engineering Join Apple’s Executive Team as Senior Vice Presidents)
   July 30, 2012 (Mountain Lion Downloads Top Three Million)
   June 26, 2012 (Apple Launches iTunes Store in Hong Kong, Singapore, Taiwan & Nine Additional Countries in Asia Today)
   April 25, 2012 (Apple Worldwide Developers Conference to Kick Off June 11 at Moscone West in San Francisco)

I'm pretty sure this has been the trend throughout Apple's history. The worst stock days seem to come when Apple has great news to report. At any rate, Wall Street surely does not care about Apple's new product announcements, at least not when it comes to shelling out for stock. Product sales or downloads, sometimes. New products, very rarely.

It's something I noticed in the early 2000s when I was a Mac reporter and very in tune with Apple's PR/IR efforts, but it's not something I actually consciously tracked, and I've already wasted enough time on something that doesn't affect me except as a curiosity.

Anyway, it never made sense to me the way good news from Apple translated into declining stock prices. But there you go. A little casual observation could have saved this man a lot of hassle.

"Buy on the rumour, sell on the news"

Where are the "unit" tests, the asserts, the catch/throw exceptions for brokers? What we have here is not just crash dump, but blue screen without option to reboot....

Now everytime I see cases like this I wonder to myself how much of the plea is because of over-reaching prosecutors and how much of it is really guilt. Anyone know more details about this case?

Using unauthorized millions of dollars of your company's and, ultimately, putting a bullet in the company's head, leading to many people losing their jobs, seems to land in the middle, IMO. Twenty-five years is probably too many, but a plea of five seems generous,

So buying stock is a "scheme"?

As much as replying without reading TFA is a "comment".

I read tfa. He bought some stock (unauthorized) and lost money with that. What did I miss?

Nothing but addicts and gamblers.

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