6 ms·

Would be hard to discover if he uses his wife or relative's accounts to trade, right?

posixplz 8y ago
Not at all. Friends and families cannot trade on material non-public information. The SEC takes these investigations very seriously and they tend not to miss friend/family tipping.
- baseethrowaway 8y ago
  How do they know who's friends with whom?
  - JumpCrisscross 8y ago
    > How do they know who's friends with whom? After any corporate action, the SEC (and various other agencies) trace back through trade records to look for suspicious trades. Family members are a matter of public record. And friends are now announced on LinkedIn, Twitter, Facebook, et cetera.
  - posixplz 8y ago
    Facebook, for one. While the SEC can undertake the tedious process of clearing all individuals with knowledge of the breach, a more effective tactic would be to look at suspicious trades and investigate potential insider knowledge. In that method, SEC looks at unusual volume/patterns in options contracts and security sales. The SEC will comb through each suspicious security sale that occurred prior to the breach announcement and cross reference the account owner's information with their list of insiders. If they have reasonable suspicion that a crime occurred, investigators obtain a warrant and complete the picture with phone records, email accounts, Facebook info (if not already obtained via parallel construction), etc.
    - gist 8y ago
      > Facebook, for one. So let's say in theory you could add a great deal of people as friends (thousands even) and in that case it would be quite difficult for the FBI to run that down (as they say). Besides they would have to supoena records from Facebook at a certain point if the 'friend' was not someone they could easily determine just from a picture or limited contact info. And don't even get into 'linkedin' that is filled with more people you don't really know or care about than any service. Most likely they will just work the other way. Someone makes a trade and they then see if they are linked to anyone in anyway at the company.
  - supercanuck 8y ago
    the threat of perjury or threat of prosecution for lying to law enforcement.
  - mannykannot 8y ago
    Let's suppose Bonthu did in fact tell you in advance, and you acted on it. The SEC can see your trades, and you don't know if Bonthu has mentioned this conversation to someone else - in particular, you don't know if he told, or will tell, the SEC or FBI. What are you going to say when the FBI comes asking? If they can show you lied to them, you just made things a whole lot worse for yourself. Did you tell someone else? If they also acted, they may well face the same issue, and they might well choose full disclosure...
    - sumedh 8y ago
      > If they can show you lied to them Take the fifth?
      - mannykannot 8y ago
        IANAL, I would guess not answering is safer than lying, but it does not stop the investigation of you, and it does signal information. Obviously, the fifth is far from a stay out of jail card, if a case can be made from other peoples' testimony.
- wahern 8y ago
  The SEC's interpretation of insider trading is far broader than what the courts have accepted as insider trading. Corporate training courses tow the SEC line, but the outcomes of actual civil and criminal prosecutions would be far swifter and harsher if the law was as the SEC says. In short, in some contexts friends and family absolutely can trade on material non-public information. In fact, in no case are they directly committing a crime; their liability is vicarious--it stems from some illegal behavior of the actual insider, which turns on more elements than the simple act of disclosing material, non-public information. If that illegal insider behavior is lacking then friends and family are no different than some random member of the public who caught an anonymous tip.[1] Of course, as with anything illegal you have to factor in the risk of a jury wrongly convicting, especially when the legal elements so heavily rely on circumstantial evidence and even insinuation as with insider trading. [1] If the SEC had their way then even trading on an anonymous tip would be illegal. Indeed, if the SEC had their way they could prosecute damn near anyone they wanted, at any time, because their legal theory is so ridiculously broad it would effectively shift the burden of proof onto the defendant.
hangonhn 8y ago
You may be surprised... when I worked at a hedge fund, there is always an insider trading training and one of the examples of such cases involved relatives. The thing is that this scheme is so obvious and almost brain dead. Investigators will definitely look into friends and families when doing these investigations.
- donald123 8y ago
  So we'll probably manage (hide) our social networks well, and make some good offline-only friends. I do know SEC can put burden of proof to the person they suspect, but that can be prepared beforehand.
  - JumpCrisscross 8y ago
    > we'll probably manage (hide) our social networks well, and make some good offline-only friends Or don't insider trade. In the financial crime universe, insider trading is on the stupid end of the spectrum. It's tough to do right, hard to scale and easy to get caught.
    - kevin_thibedeau 8y ago
      Or just get elected to Congress. Then it's open season.
      - throwawaymath 8y ago
        Despite widespread belief to the contrary, members of Congress are not allowed to trade on information for which they are bound by either a confidentiality agreement or a fiduciary duty. Information asymmetry does not constitute insider trading. Trading on information which you have that the broader public does not have is also not insider trading. Trading on exclusive information which you learned through professional exposure, and which does not come with confidentiality or fiduciary requirements, is not insider trading.
        8y ago
refurb 8y ago
This is why people get busted for insider trading so often. They thing obscuring the purchase slightly will get the SEC off their tracks. Nope. Even if you had a long-lost friend do it, the big trigger is the purchase itself. Someone buys no options in the past 5 years, suddenly buys a ton of out-of-the-money call options 2 days before a merger. The SEC zeros in on that like a laser. Then they look at who purchased it. Any connection to the company that acquired/was acquired? No? Do they know anyone who is? Let's get their phone records. I also think the SEC knows they can't police every transaction, so the ones that are flagged get investigated hard, to make an example of them. If you really wanted to obscured it, one way would be to have a trail of purchases such that the "big one" doesn't look out of place. However, that would mean you'd need to make a bunch of losing bets.
- pembrook 8y ago
  Yep, the options market is super transparent, so whenever a company announces something which causes a dramatic change in their stock price, you and I can immediately go look to see if somebody made the perfect trade on that and on what date, strike price, volume, etc. Especially considering it was probably the biggest data breach news in history, you can bet the SEC went through and looked into every single trader that profited off that.
- donald123 8y ago
  How about transactions made by non-residents, like people trading from outside US. They can transfer out the fund long before SEC can get to it and conclude the investigation.
  - deltateam 8y ago
    ha hah aha no. The regulatory system relies on leveraging financial institutions such as the brokers themselves to do the snitching. So they may voluntarily freeze funds. But even if they don't there is another layer: Administrative law judges. These are employees at the federal agencies that are imbued with the power of the judicial branch and rubber stamp injunctions and "emergency asset freeze" orders from their bosses. And by boss I mean the private sector such as FINRA. So typically the funds get frozen AND the SEC files charges against non-residents. They can get you in most places on the planet, and also wait till you go on vacation to most places on the planet.
smittywerben 8y ago
The second-in-line CIO of Equifax did just that actually (link is referenced in OP's article) https://www.sec.gov/news/press-release/2018-40 https://www.sec.gov/news/press-release/2018-40
AmericanChopper 8y ago
I don’t think so. A colleague of mine got a call from the SEC because a cousin was trading shares in the company we work for during a blackout period. They barely even know each other, but it got flagged somehow.

Not at all. Friends and families cannot trade on material non-public information. The SEC takes these investigations very seriously and they tend not to miss friend/family tipping.

baseethrowaway 8y ago
How do they know who's friends with whom?
- JumpCrisscross 8y ago
  > How do they know who's friends with whom? After any corporate action, the SEC (and various other agencies) trace back through trade records to look for suspicious trades. Family members are a matter of public record. And friends are now announced on LinkedIn, Twitter, Facebook, et cetera.
- posixplz 8y ago
  Facebook, for one. While the SEC can undertake the tedious process of clearing all individuals with knowledge of the breach, a more effective tactic would be to look at suspicious trades and investigate potential insider knowledge. In that method, SEC looks at unusual volume/patterns in options contracts and security sales. The SEC will comb through each suspicious security sale that occurred prior to the breach announcement and cross reference the account owner's information with their list of insiders. If they have reasonable suspicion that a crime occurred, investigators obtain a warrant and complete the picture with phone records, email accounts, Facebook info (if not already obtained via parallel construction), etc.
  - gist 8y ago
    > Facebook, for one. So let's say in theory you could add a great deal of people as friends (thousands even) and in that case it would be quite difficult for the FBI to run that down (as they say). Besides they would have to supoena records from Facebook at a certain point if the 'friend' was not someone they could easily determine just from a picture or limited contact info. And don't even get into 'linkedin' that is filled with more people you don't really know or care about than any service. Most likely they will just work the other way. Someone makes a trade and they then see if they are linked to anyone in anyway at the company.
- supercanuck 8y ago
  the threat of perjury or threat of prosecution for lying to law enforcement.
- mannykannot 8y ago
  Let's suppose Bonthu did in fact tell you in advance, and you acted on it. The SEC can see your trades, and you don't know if Bonthu has mentioned this conversation to someone else - in particular, you don't know if he told, or will tell, the SEC or FBI. What are you going to say when the FBI comes asking? If they can show you lied to them, you just made things a whole lot worse for yourself. Did you tell someone else? If they also acted, they may well face the same issue, and they might well choose full disclosure...
  - sumedh 8y ago
    > If they can show you lied to them Take the fifth?
    - mannykannot 8y ago
      IANAL, I would guess not answering is safer than lying, but it does not stop the investigation of you, and it does signal information. Obviously, the fifth is far from a stay out of jail card, if a case can be made from other peoples' testimony.
wahern 8y ago
The SEC's interpretation of insider trading is far broader than what the courts have accepted as insider trading. Corporate training courses tow the SEC line, but the outcomes of actual civil and criminal prosecutions would be far swifter and harsher if the law was as the SEC says. In short, in some contexts friends and family absolutely can trade on material non-public information. In fact, in no case are they directly committing a crime; their liability is vicarious--it stems from some illegal behavior of the actual insider, which turns on more elements than the simple act of disclosing material, non-public information. If that illegal insider behavior is lacking then friends and family are no different than some random member of the public who caught an anonymous tip.[1] Of course, as with anything illegal you have to factor in the risk of a jury wrongly convicting, especially when the legal elements so heavily rely on circumstantial evidence and even insinuation as with insider trading. [1] If the SEC had their way then even trading on an anonymous tip would be illegal. Indeed, if the SEC had their way they could prosecute damn near anyone they wanted, at any time, because their legal theory is so ridiculously broad it would effectively shift the burden of proof onto the defendant.

hangonhn 8y ago

You may be surprised... when I worked at a hedge fund, there is always an insider trading training and one of the examples of such cases involved relatives. The thing is that this scheme is so obvious and almost brain dead. Investigators will definitely look into friends and families when doing these investigations.

donald123 8y ago
So we'll probably manage (hide) our social networks well, and make some good offline-only friends. I do know SEC can put burden of proof to the person they suspect, but that can be prepared beforehand.
- JumpCrisscross 8y ago
  > we'll probably manage (hide) our social networks well, and make some good offline-only friends Or don't insider trade. In the financial crime universe, insider trading is on the stupid end of the spectrum. It's tough to do right, hard to scale and easy to get caught.
  - kevin_thibedeau 8y ago
    Or just get elected to Congress. Then it's open season.
    - throwawaymath 8y ago
      Despite widespread belief to the contrary, members of Congress are not allowed to trade on information for which they are bound by either a confidentiality agreement or a fiduciary duty. Information asymmetry does not constitute insider trading. Trading on information which you have that the broader public does not have is also not insider trading. Trading on exclusive information which you learned through professional exposure, and which does not come with confidentiality or fiduciary requirements, is not insider trading.
      - 8y ago

refurb 8y ago

This is why people get busted for insider trading so often. They thing obscuring the purchase slightly will get the SEC off their tracks. Nope. Even if you had a long-lost friend do it, the big trigger is the purchase itself. Someone buys no options in the past 5 years, suddenly buys a ton of out-of-the-money call options 2 days before a merger. The SEC zeros in on that like a laser. Then they look at who purchased it. Any connection to the company that acquired/was acquired? No? Do they know anyone who is? Let's get their phone records. I also think the SEC knows they can't police every transaction, so the ones that are flagged get investigated hard, to make an example of them. If you really wanted to obscured it, one way would be to have a trail of purchases such that the "big one" doesn't look out of place. However, that would mean you'd need to make a bunch of losing bets.

pembrook 8y ago
Yep, the options market is super transparent, so whenever a company announces something which causes a dramatic change in their stock price, you and I can immediately go look to see if somebody made the perfect trade on that and on what date, strike price, volume, etc. Especially considering it was probably the biggest data breach news in history, you can bet the SEC went through and looked into every single trader that profited off that.
donald123 8y ago
How about transactions made by non-residents, like people trading from outside US. They can transfer out the fund long before SEC can get to it and conclude the investigation.
- deltateam 8y ago
  ha hah aha no. The regulatory system relies on leveraging financial institutions such as the brokers themselves to do the snitching. So they may voluntarily freeze funds. But even if they don't there is another layer: Administrative law judges. These are employees at the federal agencies that are imbued with the power of the judicial branch and rubber stamp injunctions and "emergency asset freeze" orders from their bosses. And by boss I mean the private sector such as FINRA. So typically the funds get frozen AND the SEC files charges against non-residents. They can get you in most places on the planet, and also wait till you go on vacation to most places on the planet.

smittywerben 8y ago

The second-in-line CIO of Equifax did just that actually (link is referenced in OP's article) https://www.sec.gov/news/press-release/2018-40 https://www.sec.gov/news/press-release/2018-40

AmericanChopper 8y ago

I don’t think so. A colleague of mine got a call from the SEC because a cousin was trading shares in the company we work for during a blackout period. They barely even know each other, but it got flagged somehow.