7 ms·

Good analysis as always from Matt Levine: I am always skeptical that stories like this are actually about insider trading, just because it would be too dumb an

by mbesto 9y ago

Good analysis as always from Matt Levine: I am always skeptical that stories like this are actually about insider trading, just because it would be too dumb and obvious for Krzanich to dump his stock just before announcing bad news. Also: The news doesn't seem to have been that bad for Intel's stock, and in fact Krzanich's sales last year were mostly at prices below yesterday's close. As a diabolical plan it seems pretty unimpressive. https://www.bloomberg.com/view/articles/2018-01-05/citi-forgot-to-fix-its-money-laundering-systems https://www.bloomberg.com/view/articles/2018-01-05/citi-forg...

saguro 9y ago
> The news doesn't seem to have been that bad for Intel's stock That's a red herring. Krzanich had no idea how badly the news would impact the stock. He may have well overestimated it in his mind and chose to sell. Just because he didn't make huge gains from the possible insider trading, doesn't preclude the possibility of insider trading occurring. So the whole argument here is: 1) Krzanich couldn't be possibly stupid enough to do this. 2) He didn't make a ton of money so it's a stupid plan, he could't possibly be stupid enough to do this. Weak.
- katastic 9y ago
  "Intel CEO stupid enough to not know how stocks work, but smart enough to keep 20 year secret vulnerability that would destroy stocks." Yeah... those don't exactly work out together.
- baddox 9y ago
  Can’t you attribute criminal intent to any action if you’re willing to assume limitless ignorance?
  - rando444 9y ago
    Should all criminals be able get away with crimes by claiming unbelievable levels of ignorance?
    - avs733 9y ago
      only white collar ones and Attorneys General.
  - lordfoom 9y ago
    No?
- ckastner 9y ago
  > Krzanich couldn't be possibly stupid enough to do this. Seeing as he made to the the role of CEO of Intel Corp., I find that to be a very convincing argument. I have to concede that there's precedent even for CEOs of huge corporations to be that stupid and/or criminal, most notably https://en.wikipedia.org/wiki/Dennis_Kozlowski https://en.wikipedia.org/wiki/Dennis_Kozlowski.
  - saguro 9y ago
    The plea of stupidity in high profile insider trading cases is a smoke screen - that was my point. Highly successful executives engage in insider trading quite frequently (see link). When they do, they take a calculated risk. You can be quite sure that none of them are stupid in any sense of the word. They take a measured risk and some succeed and some fail, depending on luck, skill, ambitions, and how big/rich they already are. From what little I know, doing it in a an open manner is actually the best best way to go about insider trading. If you attempt to skirt around it by doing anything shady like having friends/relatives execute the trades for you, the evidence is undeniable once discovered. If you go about it 'openly' and instead rely on blurry interpretation or your ability to plead ignorance or put the timeline into question, it's a lot harder to nail you. There are many cases of brazen broad-daylight insider trading, such as Donald Trump right now. Only the ones that end in successful legal action go on to be considered stupid. Even when they do get caught, a lot of the time the penalties are relatively lax, like suspended or weekend sentences for first time offenders. So no, just because he is successful as an executive at a major corporation doesn't at all make it 'stupid' for him to engage in insider trading. That line of reasoning is a diversion from the facts of the case. https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_actions_(2009–12) https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_...
  - noobermin 9y ago
    It could have a lot to do with CEO's doing all sorts of similar things while getting away scott-free.
  - sokoloff 9y ago
    Kozlowski is surely guilty of state sales tax evasion and seems to fit the pattern of did it "because 'Screw the state!' and I think I can get away with it". Most of the rest of his story seems more like sour grapes than any criminal conduct to the detriment of Tyco investors. Peter Chang is probably a better model for insider trading criminal CEO (as opposed to merely CEO criminal).
jumpkickhit 9y ago
I think stupid fits the definition of insider trading.
volgo 9y ago
The law doesn't care how stupid your plan was. You could plan a theft in the middle of the day stealing $5 and still be a crime Insider trading is trading with the knowledge of privileged information not available to public investors. If he did it, it's a crime. Doesn't matter if he made $50 million or $5.
- meritt 9y ago
  https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001538580 https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&C... Their CEO has a well-documented six-year history of acquiring and disposing INTC stock. As the CEO, he implicitly always has access to privileged information. How exactly does the SEC determine the legality of a specific trade? I'm not trying to be flip here, I don't really have an opinion on the matter. It just seems that when the CEO is allowed to apparently buy/sell as they please, and not on a predetermined announced-in-advance plan, you could argue that every single trade was illegal insider trading.
  - URSpider94 9y ago
    Most corporations have special departments in place to “pre-clear” executive trades. He almost certainly has a pre-clearance opinion letter on file authorizing him to proceed.
  - crdoconnor 9y ago
    When it was the Qwest CEO the legality appears to have been determined by his lack of cooperation with the NSA: http://www.businessinsider.com/the-story-of-joseph-nacchio-and-the-nsa-2013-6?IR=T http://www.businessinsider.com/the-story-of-joseph-nacchio-a...
  - friendzis 9y ago
    Another side of the same coin would be that since CEO "implicitly always has access to privileged information", it is up to trader to prove legality of specific trade. Of course this is against innocent unless proven otherwise dogma, but still perfectly valid different side of the coin. Which I find amusing. This is just one of the many places where legality of an action greatly depends on consensus and established practices, which can change overnight. For example court ruling based on implicitness of access to privileged information would effectively eliminate high ranking officers from trading altogether.
rando444 9y ago
I was originally defending this logic.. I've since changed my mind. Two major points (1) Intel was informed in June. His stock sale was planned in October and executed in November. You'd have to believe that somehow the CEO was not informed about this vulnerability during this huge time period. (2) This wasn't a normal executive stock sale. He dumped all of his shares other than the required minimum holdings. The vulnerabilities aside, this just looks bad in general. I'll give you that this plan seems pretty unimpressive. I just have a very hard time buying the idea that Intel kept him in the dark all those months and that him dumping all of the stock he possibly could is some sort of coincidence.
- sseveran 9y ago
  It does not have to be related to this. INTC is at an 18 year high. They also crushed their Q3 earnings. Maybe this is a sign that there will be less crushing of their Q4 earnings. Technically this was a normal executive sale. He is holding the required shares and is the second largest inside shareholder after Andy Bryant, the chairman. In general INTC executives own very little stock. I have been somewhat bearish on INTC for a variety of reasons and now I will add what appears to be the lack of insider ownership to that list. https://finance.yahoo.com/quote/INTC/holders?p=INTC https://finance.yahoo.com/quote/INTC/holders?p=INTC
  - rando444 9y ago
    Doesn't have to be related.. but do you honestly think that the employees at Intel would have kept such alarming information from reaching management for 5+ months? To reach that scenario you'd have to have engineers lying to their bosses about what they're working on, or managers hiding information from executives. It's possible, but I don't buy it.
    - sseveran 9y ago
      Oh I am sure he knew. But just because he knew does not mean it will insider trading.
bitcharmer 9y ago
I am not skeptical at all. Why? Because they always get away with it. It's not stupidity, just cheekiness and arrogance.
Waterluvian 9y ago
Maybe it's not stupidity, it's a calculated risk. That even with an SEC investigation he feels confident he will come out with more. There's also greed panic: "most of my wealth may quite possibly vanish when the story lands. I need to get it out and fight them from clawing it back."
philipodonnell 9y ago
I don't always agree with Levine, but his daily emails are pretty good reads. Good mix of current events and cut-through-the-hype style.

by mbesto 9y ago

saguro 9y ago

> The news doesn't seem to have been that bad for Intel's stock That's a red herring. Krzanich had no idea how badly the news would impact the stock. He may have well overestimated it in his mind and chose to sell. Just because he didn't make huge gains from the possible insider trading, doesn't preclude the possibility of insider trading occurring. So the whole argument here is: 1) Krzanich couldn't be possibly stupid enough to do this. 2) He didn't make a ton of money so it's a stupid plan, he could't possibly be stupid enough to do this. Weak.

katastic 9y ago
"Intel CEO stupid enough to not know how stocks work, but smart enough to keep 20 year secret vulnerability that would destroy stocks." Yeah... those don't exactly work out together.
baddox 9y ago
Can’t you attribute criminal intent to any action if you’re willing to assume limitless ignorance?
- rando444 9y ago
  Should all criminals be able get away with crimes by claiming unbelievable levels of ignorance?
  - avs733 9y ago
    only white collar ones and Attorneys General.
- lordfoom 9y ago
  No?
ckastner 9y ago
> Krzanich couldn't be possibly stupid enough to do this. Seeing as he made to the the role of CEO of Intel Corp., I find that to be a very convincing argument. I have to concede that there's precedent even for CEOs of huge corporations to be that stupid and/or criminal, most notably https://en.wikipedia.org/wiki/Dennis_Kozlowski https://en.wikipedia.org/wiki/Dennis_Kozlowski.
- saguro 9y ago
  The plea of stupidity in high profile insider trading cases is a smoke screen - that was my point. Highly successful executives engage in insider trading quite frequently (see link). When they do, they take a calculated risk. You can be quite sure that none of them are stupid in any sense of the word. They take a measured risk and some succeed and some fail, depending on luck, skill, ambitions, and how big/rich they already are. From what little I know, doing it in a an open manner is actually the best best way to go about insider trading. If you attempt to skirt around it by doing anything shady like having friends/relatives execute the trades for you, the evidence is undeniable once discovered. If you go about it 'openly' and instead rely on blurry interpretation or your ability to plead ignorance or put the timeline into question, it's a lot harder to nail you. There are many cases of brazen broad-daylight insider trading, such as Donald Trump right now. Only the ones that end in successful legal action go on to be considered stupid. Even when they do get caught, a lot of the time the penalties are relatively lax, like suspended or weekend sentences for first time offenders. So no, just because he is successful as an executive at a major corporation doesn't at all make it 'stupid' for him to engage in insider trading. That line of reasoning is a diversion from the facts of the case. https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_actions_(2009–12) https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_...
- noobermin 9y ago
  It could have a lot to do with CEO's doing all sorts of similar things while getting away scott-free.
- sokoloff 9y ago
  Kozlowski is surely guilty of state sales tax evasion and seems to fit the pattern of did it "because 'Screw the state!' and I think I can get away with it". Most of the rest of his story seems more like sour grapes than any criminal conduct to the detriment of Tyco investors. Peter Chang is probably a better model for insider trading criminal CEO (as opposed to merely CEO criminal).

jumpkickhit 9y ago

I think stupid fits the definition of insider trading.

volgo 9y ago

The law doesn't care how stupid your plan was. You could plan a theft in the middle of the day stealing $5 and still be a crime Insider trading is trading with the knowledge of privileged information not available to public investors. If he did it, it's a crime. Doesn't matter if he made $50 million or $5.

meritt 9y ago
https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001538580 https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&C... Their CEO has a well-documented six-year history of acquiring and disposing INTC stock. As the CEO, he implicitly always has access to privileged information. How exactly does the SEC determine the legality of a specific trade? I'm not trying to be flip here, I don't really have an opinion on the matter. It just seems that when the CEO is allowed to apparently buy/sell as they please, and not on a predetermined announced-in-advance plan, you could argue that every single trade was illegal insider trading.
- URSpider94 9y ago
  Most corporations have special departments in place to “pre-clear” executive trades. He almost certainly has a pre-clearance opinion letter on file authorizing him to proceed.
- crdoconnor 9y ago
  When it was the Qwest CEO the legality appears to have been determined by his lack of cooperation with the NSA: http://www.businessinsider.com/the-story-of-joseph-nacchio-and-the-nsa-2013-6?IR=T http://www.businessinsider.com/the-story-of-joseph-nacchio-a...
- friendzis 9y ago
  Another side of the same coin would be that since CEO "implicitly always has access to privileged information", it is up to trader to prove legality of specific trade. Of course this is against innocent unless proven otherwise dogma, but still perfectly valid different side of the coin. Which I find amusing. This is just one of the many places where legality of an action greatly depends on consensus and established practices, which can change overnight. For example court ruling based on implicitness of access to privileged information would effectively eliminate high ranking officers from trading altogether.

rando444 9y ago

I was originally defending this logic.. I've since changed my mind. Two major points (1) Intel was informed in June. His stock sale was planned in October and executed in November. You'd have to believe that somehow the CEO was not informed about this vulnerability during this huge time period. (2) This wasn't a normal executive stock sale. He dumped all of his shares other than the required minimum holdings. The vulnerabilities aside, this just looks bad in general. I'll give you that this plan seems pretty unimpressive. I just have a very hard time buying the idea that Intel kept him in the dark all those months and that him dumping all of the stock he possibly could is some sort of coincidence.

sseveran 9y ago
It does not have to be related to this. INTC is at an 18 year high. They also crushed their Q3 earnings. Maybe this is a sign that there will be less crushing of their Q4 earnings. Technically this was a normal executive sale. He is holding the required shares and is the second largest inside shareholder after Andy Bryant, the chairman. In general INTC executives own very little stock. I have been somewhat bearish on INTC for a variety of reasons and now I will add what appears to be the lack of insider ownership to that list. https://finance.yahoo.com/quote/INTC/holders?p=INTC https://finance.yahoo.com/quote/INTC/holders?p=INTC
- rando444 9y ago
  Doesn't have to be related.. but do you honestly think that the employees at Intel would have kept such alarming information from reaching management for 5+ months? To reach that scenario you'd have to have engineers lying to their bosses about what they're working on, or managers hiding information from executives. It's possible, but I don't buy it.
  - sseveran 9y ago
    Oh I am sure he knew. But just because he knew does not mean it will insider trading.

bitcharmer 9y ago

I am not skeptical at all. Why? Because they always get away with it. It's not stupidity, just cheekiness and arrogance.

Waterluvian 9y ago

Maybe it's not stupidity, it's a calculated risk. That even with an SEC investigation he feels confident he will come out with more. There's also greed panic: "most of my wealth may quite possibly vanish when the story lands. I need to get it out and fight them from clawing it back."

philipodonnell 9y ago

I don't always agree with Levine, but his daily emails are pretty good reads. Good mix of current events and cut-through-the-hype style.