9 ms·

It's always amazed me that the SEC standard is proving insider trading willfully took place. Which is a pretty high bar. How about... If we can prove you knew

by ethbro 9y ago

It's always amazed me that the SEC standard is proving insider trading willfully took place. Which is a pretty high bar. How about... If we can prove you knew about it, we convict you. If we can't prove you knew about it, but your transactions appear to be insider trading to a jury, then you have to zero out the transactions (either by repurchasing equivalent stock or some other method). You don't get charged, but there's no "getting away with it" either.

yuhong 9y ago
I don't like the current debt based economy that is based on stocks going up anyway though.
busterarm 9y ago
How about "guilty beyond all reasonable doubt" as a burden of proof for our systems of judgment. As much as that sucks sometimes. If the government can't prove its case, it probably shouldn't be getting to a jury either.
- ethbro 9y ago
  It's pretty easy to cover your tracks if you're not an idiot and know what you're doing, and I assume a lot of the people that make big insider trading plays are neither. So hamstringing the SEC with an arbitrarily high standard just facilitates continued insider trading. Agreed on the full burden of proof for penalties. But having your gains clawed back is a different fish entirely.
  - rmwaite 9y ago
    But having gains taken away is a penalty.
    - ethbro 9y ago
      ...
- curun1r 9y ago
  If the SEC pursues a civil case where the penalty is only fines and not prison, the standard need only be a "preponderance of evidence." It's much easier to prove that some of these executives probably knew about the news when they sold their shares.
  - busterarm 9y ago
    Yeah our civil court system fucking sucks. Edit: I used to work in the legal industry nearly exclusively in civil court.
    - mulmen 9y ago
      Can you elaborate? In what specific ways does it suck? Do you have any suggestions for improvement?
  - ISL 9y ago
    With a lower standard for guilt, a greater number of innocent people will be fined by our government, for which we are ultimately responsible.
    - jonathanyc 9y ago
      A greater number than are currently charged, sure, but a far smaller number in absolute terms causing a far larger amount of damage than the ordinary Americans for whom a criminal charge—which is made essentially entirely at the discretion of the DA—will remain on their records permanently, affecting their ability to travel and obtain jobs.
    - p49k 9y ago
      To zero out someone’s gains in this situation, as suggested by the parent poster in cases where no proof exists, would simply be a regulation to hold one financially responsible for his/her company’s actions. Guilt or innocence doesn’t have to come into play in that scenario.
      - 9y ago
- noobermin 9y ago
  How does charging someone require "guilty beyond all reasonable doubt"? Sounds like a conflation between charging with a crime and convicting someone. Aware he said "convict" but he probably meant "charge".
  - deleted 9y ago
    [deleted]
  - busterarm 9y ago
    Imposition of any penalty is a conviction unless there is a voluntary plea. Charge is absolutely not what he meant, especially since that was a base he already explicitly covered.
latch 9y ago
How about we stop pretending that information asymmetry isn't a core aspect of the stock market? Insider trading laws seem tailor made to make sure wall street, and only wall street, is playing with a stacked deck. This has been looked at before, but the summary from this paper (by the Atlanta Fed) is a good (and as far as I know, unbiased) place to start: https://www.frbatlanta.org/-/media/documents/filelegacydocs/NoeHu.pdf https://www.frbatlanta.org/-/media/documents/filelegacydocs/...
ScottBurson 9y ago
Here's a simpler proposal: when an insider sells shares, they go into limbo for 180 days, then they get sold at the then-current price.
- latch 9y ago
  Simpler proposal: Existing sale of stock disclosure laws are all we need.
godelski 9y ago
> It's always amazed me that the SEC standard is proving insider trading willfully took place. Which is a pretty high bar. Systems fail, so you have to ask which way you want it to fail. We go by Blackstone's formulation: "It is better that ten guilty persons escape than that one innocent suffer". The founding fathers often quoted this and it is an integral part of American law. Yeah, it often sucks and many guilty people go free. I'm sure you can think of specific topics where it is particularly difficult. But we chose to fail this way because we value freedom so highly. So the prosecutor has the burden of proof. This is often why trials go for so long and it takes a long time to form a case. tldr: It is purposefully a pretty high bar.
- candiodari 9y ago
  You forgot the addendum: No member of congress, the administration or closely related shall ever be punished for anything. For instance, for taking legal action to protect the very company this is about: https://techcrunch.com/2017/10/24/congress-votes-to-disallow-consumers-from-suing-equifax-and-other-companies-with-arbitration-agreements/ https://techcrunch.com/2017/10/24/congress-votes-to-disallow... And I'm sure there were zero financial interests behind that decision. You might say : this is not insider trading. I agree, this is much worse: this is taking legal action to protect their own financial interests after they were legitimately punished by the market. That's far, far worse and explicitly not what the legislative authority should be used for.
mulmen 9y ago
This is a horrifying proposition. Are you seriously suggesting suspending the presumption of innocence and substituting mob rule?
- ethbro 9y ago
  I feel there's a pretty firm distinction between "you get to keep a good thing" and "we're forcing a bad thing upon you."
  - mulmen 9y ago
    I don’t think the line is clear and I don’t think it’s relevant either. You’re still seemingly ignoring the presumption of innocence and burden of proof. You seem to place a higher value on punishment of perceived wrongs than on liberty. That quite frankly terrifies me.
    - ethbro 9y ago
      How is "I'm going to lock you in prison" remotely similar to "I'm going to take away your profits and leave you as you were before the trade"? If you don't see a difference between the two... we have very different views of the world.
      - mulmen 9y ago
        We’re talking past each other. You have described two punishments. The only difference is severity. Further, your previous comment was far more vague than prison vs clawed back profits. I value liberty above all else which means all punishment has a high burden of proof and all individuals are assumed innocent in the absence of this proof. You seem to suggest setting a lower standard because it feels right to you. That scares the hell out of me.
        ethbro 9y ago
        As you've expressed. And I feel you're being logically disingenuous by failing to gradate levels of punishment. It's a straw man to say I'm suggesting there shouldn't be a high burden of proof for a severe punishment. And whether a viewpoint terrified you or not is largely irrelevant. Personally, I modulate my desire for individual liberty with what I consider a reasonable responsibility to nurture an environment where individuals are afforded opportunities to exercise that liberty.
awinder 9y ago
Or better yet, treat trading & holding market assets as a privilege and not a right. Maybe it’s not worth pursuing criminal charges for any multitude of reasons, but having a quick release valve to make sure bad actors only get 1 shot.
- mulmen 9y ago
  And who decides the members of this privileged class? If I get a speeding ticket do I lose my ability to trade? What about a fealony? What if I am on a no-fly list without due process?
  - s73v3r_ 9y ago
    Your "what-ifs" are just completely ludicrous, to the point where it does not appear that you are wanting to actually discuss the topic.
    - mulmen 9y ago
      They are not ludicrous at all. A few years ago it was suggested we use the no-fly list to prohibit gun purchases. And that's an explicitly granted constitutional right. Felons already lose rights such as voting. How "quick" would this release be? If we treat participation in the stock market as a privilege I think it's entirely reasonable to ask who gets that privilege.
  - awinder 9y ago
    well the thought was that it would strictly be tied to actions dealing with the market. there’s a lot of other people’s money in the market, bad actors are capable of creating markedly more damage than personal benefit. this is more about making sure someone with capital can’t repeatedly do dodgy things. but yeah, it’s a weird hypothetical and the SEC is going after a bad actor here, so maybe the system is working

by ethbro 9y ago

yuhong 9y ago

I don't like the current debt based economy that is based on stocks going up anyway though.

busterarm 9y ago

How about "guilty beyond all reasonable doubt" as a burden of proof for our systems of judgment. As much as that sucks sometimes. If the government can't prove its case, it probably shouldn't be getting to a jury either.

ethbro 9y ago
It's pretty easy to cover your tracks if you're not an idiot and know what you're doing, and I assume a lot of the people that make big insider trading plays are neither. So hamstringing the SEC with an arbitrarily high standard just facilitates continued insider trading. Agreed on the full burden of proof for penalties. But having your gains clawed back is a different fish entirely.
- rmwaite 9y ago
  But having gains taken away is a penalty.
  - ethbro 9y ago
    ...
curun1r 9y ago
If the SEC pursues a civil case where the penalty is only fines and not prison, the standard need only be a "preponderance of evidence." It's much easier to prove that some of these executives probably knew about the news when they sold their shares.
- busterarm 9y ago
  Yeah our civil court system fucking sucks. Edit: I used to work in the legal industry nearly exclusively in civil court.
  - mulmen 9y ago
    Can you elaborate? In what specific ways does it suck? Do you have any suggestions for improvement?
- ISL 9y ago
  With a lower standard for guilt, a greater number of innocent people will be fined by our government, for which we are ultimately responsible.
  - jonathanyc 9y ago
    A greater number than are currently charged, sure, but a far smaller number in absolute terms causing a far larger amount of damage than the ordinary Americans for whom a criminal charge—which is made essentially entirely at the discretion of the DA—will remain on their records permanently, affecting their ability to travel and obtain jobs.
  - p49k 9y ago
    To zero out someone’s gains in this situation, as suggested by the parent poster in cases where no proof exists, would simply be a regulation to hold one financially responsible for his/her company’s actions. Guilt or innocence doesn’t have to come into play in that scenario.
    - 9y ago
noobermin 9y ago
How does charging someone require "guilty beyond all reasonable doubt"? Sounds like a conflation between charging with a crime and convicting someone. Aware he said "convict" but he probably meant "charge".
- deleted 9y ago
  [deleted]
- busterarm 9y ago
  Imposition of any penalty is a conviction unless there is a voluntary plea. Charge is absolutely not what he meant, especially since that was a base he already explicitly covered.

latch 9y ago

How about we stop pretending that information asymmetry isn't a core aspect of the stock market? Insider trading laws seem tailor made to make sure wall street, and only wall street, is playing with a stacked deck. This has been looked at before, but the summary from this paper (by the Atlanta Fed) is a good (and as far as I know, unbiased) place to start: https://www.frbatlanta.org/-/media/documents/filelegacydocs/NoeHu.pdf https://www.frbatlanta.org/-/media/documents/filelegacydocs/...

ScottBurson 9y ago

Here's a simpler proposal: when an insider sells shares, they go into limbo for 180 days, then they get sold at the then-current price.

latch 9y ago
Simpler proposal: Existing sale of stock disclosure laws are all we need.

godelski 9y ago

> It's always amazed me that the SEC standard is proving insider trading willfully took place. Which is a pretty high bar. Systems fail, so you have to ask which way you want it to fail. We go by Blackstone's formulation: "It is better that ten guilty persons escape than that one innocent suffer". The founding fathers often quoted this and it is an integral part of American law. Yeah, it often sucks and many guilty people go free. I'm sure you can think of specific topics where it is particularly difficult. But we chose to fail this way because we value freedom so highly. So the prosecutor has the burden of proof. This is often why trials go for so long and it takes a long time to form a case. tldr: It is purposefully a pretty high bar.

candiodari 9y ago
You forgot the addendum: No member of congress, the administration or closely related shall ever be punished for anything. For instance, for taking legal action to protect the very company this is about: https://techcrunch.com/2017/10/24/congress-votes-to-disallow-consumers-from-suing-equifax-and-other-companies-with-arbitration-agreements/ https://techcrunch.com/2017/10/24/congress-votes-to-disallow... And I'm sure there were zero financial interests behind that decision. You might say : this is not insider trading. I agree, this is much worse: this is taking legal action to protect their own financial interests after they were legitimately punished by the market. That's far, far worse and explicitly not what the legislative authority should be used for.

mulmen 9y ago

This is a horrifying proposition. Are you seriously suggesting suspending the presumption of innocence and substituting mob rule?

ethbro 9y ago
I feel there's a pretty firm distinction between "you get to keep a good thing" and "we're forcing a bad thing upon you."
- mulmen 9y ago
  I don’t think the line is clear and I don’t think it’s relevant either. You’re still seemingly ignoring the presumption of innocence and burden of proof. You seem to place a higher value on punishment of perceived wrongs than on liberty. That quite frankly terrifies me.
  - ethbro 9y ago
    How is "I'm going to lock you in prison" remotely similar to "I'm going to take away your profits and leave you as you were before the trade"? If you don't see a difference between the two... we have very different views of the world.
    - mulmen 9y ago
      We’re talking past each other. You have described two punishments. The only difference is severity. Further, your previous comment was far more vague than prison vs clawed back profits. I value liberty above all else which means all punishment has a high burden of proof and all individuals are assumed innocent in the absence of this proof. You seem to suggest setting a lower standard because it feels right to you. That scares the hell out of me.
      - ethbro 9y ago
        As you've expressed. And I feel you're being logically disingenuous by failing to gradate levels of punishment. It's a straw man to say I'm suggesting there shouldn't be a high burden of proof for a severe punishment. And whether a viewpoint terrified you or not is largely irrelevant. Personally, I modulate my desire for individual liberty with what I consider a reasonable responsibility to nurture an environment where individuals are afforded opportunities to exercise that liberty.

awinder 9y ago

Or better yet, treat trading & holding market assets as a privilege and not a right. Maybe it’s not worth pursuing criminal charges for any multitude of reasons, but having a quick release valve to make sure bad actors only get 1 shot.

mulmen 9y ago
And who decides the members of this privileged class? If I get a speeding ticket do I lose my ability to trade? What about a fealony? What if I am on a no-fly list without due process?
- s73v3r_ 9y ago
  Your "what-ifs" are just completely ludicrous, to the point where it does not appear that you are wanting to actually discuss the topic.
  - mulmen 9y ago
    They are not ludicrous at all. A few years ago it was suggested we use the no-fly list to prohibit gun purchases. And that's an explicitly granted constitutional right. Felons already lose rights such as voting. How "quick" would this release be? If we treat participation in the stock market as a privilege I think it's entirely reasonable to ask who gets that privilege.
- awinder 9y ago
  well the thought was that it would strictly be tied to actions dealing with the market. there’s a lot of other people’s money in the market, bad actors are capable of creating markedly more damage than personal benefit. this is more about making sure someone with capital can’t repeatedly do dodgy things. but yeah, it’s a weird hypothetical and the SEC is going after a bad actor here, so maybe the system is working