4 ms·

SEC detects insider trading by executive at Alliance Fiber Optic Products

49 points by newman8r 8y ago

jessaustin 8y ago
How long before the people who complain about AAs being denied college admissions, notice insider trading prosecution rates?
- gsibble 8y ago
  I mean, wow.
  - jessaustin 8y ago
    I certainly didn't imply that Asian-Americans commit more insider trading than other groups. If anything, they probably commit less. I made an observation about the Justice Department.
    - swiss_beatz 8y ago
      Lol, fuck you dude.
    - wavefunction 8y ago
      I thought you meant alcoholics anonymous you shitheel Thank goodness!
- wmf 8y ago
  Do they even prosecute enough people to make any statistically significant conclusions?
- duxup 8y ago
  How are those related?
  - jessaustin 8y ago
    Asian-Americans are denied entry to the best colleges in order to make room for less qualified students of other races. My Asian roommates and friends were certainly more qualified than I was. This is for "cultural reasons". I haven't done an in-depth study, but when I recall insider trading prosecutions of note, it's all Asians, plus Martha Stewart. TFA ain't about Martha. This is also for cultural reasons. Insider trading is a fake crime anyway. It isn't surprising that something based entirely on prosecutorial discretion would illuminate the bias of prosecutors. There is a certain atmosphere of "Justice Department is always right" permeating recently, which although at some odds with history presumably explains the downvotes.
    - pvg 8y ago
      The SEC is not part of DOJ.
    - ABCLAW 8y ago
      >Insider trading is a fake crime anyway. Wow. >when I recall insider trading prosecutions of note, it's all Asians What..? I just looked up the history of enforcement actions taken by the SEC from 2016 to 2010 and the most striking ethnic theme is how WASPy the names are.
nostromo 8y ago
> “Our agency’s ever-evolving data analytics enabled us to detect Li’s otherwise inconspicuous trading as an overall pattern to profit off multiple earnings announcements,” said Jina Choi, Director of the SEC’s San Francisco Regional Office. I mean... he worked for the company and shorted their stock before earnings releases. This isn't exactly rocket science.
- fisherjeff 8y ago
  Well, sure. I think the novelty is in the fact that this is not a single huge transaction of a high-profile corporation’s stock. Total profit was $200k over several trades – gross proceeds had to be a tiny blip in overall volume.
  - darawk 8y ago
    > SELECT * FROM trades WHERE works_at = ticker;
    - Lazare 8y ago
      The issue, of course, is that there's no such database, nor does the idea of one even make much sense. There's too many complex ways you can structure a transaction so that you gain an economic benefit when a company does well, but you haven't personally made an outright purchase of that company's equity. (Most obviously: You can tip an acquaintance and agree to split the profits, but that's just the start.) Since we can't get a categorical list of "transactions top executives at company X have made, or caused to be made, or otherwise may benefit from", traditionally enforcement has revolved around looking for super suspicious transactions, and then working backwards to figure out if they were made by someone who shouldn't have been making them. And since normal stock trades basically always look unsuspicious, that generally means looking for people, eg, buying short-dated out of the money call options[1]. It's not proof of wrong-doing, but it's a bit like finding someone who's won three lotteries in the past month: It's probably worth checking to see if they've got an uncle who works for the lottery commission. :) But the flip side of that is that it's generally been assumed that if you don't do something blatantly dumb like buying short-dated out of the money call options, you won't show up on anyone's radar, and you'll get away with it. But maybe not any longer! [1]: Hacker News's favourite financial journalist, Matt Levine, talks about this a lot, and with good reason. The vast bulk of SEC enforcement actions for insider trading involve people that seem to be almost trying to be caught.
mwerd 8y ago
>The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Options Regulatory Surveillance Authority. As Matt Levine at Bloomberg is fond of saying, if you don't want to get caught insider trading, don't use options. https://www.bloomberg.com/view/articles/2014-06-17/there-might-be-a-lot-of-insider-trading https://www.bloomberg.com/view/articles/2014-06-17/there-mig...?
- DSingularity 8y ago
  Seriously! What a greedy punk. Grr.
- ghaff 8y ago
  Even if they were relatively small trades, senior execs short selling in advance of earnings should set off flags. Heck, it's not that unusual AFAIK for companies to prohibit employees short selling company stock period.
- minimax 8y ago
  All the transactions detailed in the SEC order are outright sales of stock (not options). He was both selling stock he already owned to avoid losses and selling short to generate additional profit. Before it was acquired, AFOP never had a very substantial market cap so it’s possible AFOP didn’t actually have listed options, or that it did but they weren’t liquid. I suspect that AFOP was probably a typical low volume small cap and that Li’s selling while not large in nominal terms was probably still pretty significant relative to the average daily traded volume. Large enough to be picked up by a pretty simple screen anyway.
  - schlumpf 8y ago
    The press release hints strongly at their toolkit: > improbably successful trading Even before considering trading volume they can look at in-the-money trades as a proportion of total trades. Then I expect they would look at smaller denominators to see if timing correlated with the announcement cycle. The use of short-selling would have made it (relatively) easier still to pick up: assuming the company was ~200MM market cap at the end of 2014, of which 28% was held by management and their strategic shareholder [proxy statement 20150417], borrow could have been expensive enough to limit the holding periods of short trades. As you and other commenters have pointed out, simple screens can indeed be effective. A short-term, infrequent trader (or small group of traders assuming, um, collusion) with a high win rate and presumably high risk-adjusted return would stick out.
duxup 8y ago
> Li agreed to cease and desist from further violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 Oh thank goodness they worked that out!
- danielvf 8y ago
  And here's the rest: "... he must pay disgorgement of $196,203, prejudgment interest of $23,062, and a $196,203 penalty for a total of $415,468. Li also agreed to be prohibited from acting as an officer or director of a public company for a period of five years." The last one is probably the real kicker for an executive.
daveguy 8y ago
If he had shorted a correlated stock or bought a competitor stock would it have been: 1) completely legal or much less illegal? 2) just as illegal and just as likely to get caught? 3) just as illegal but less likely to get caught? I guess the question in general is: does insider trading apply to your company only, or the entire industry / stock market?
- brisance 8y ago
  It's hard to prove a link that someone knows something about a competitor's company and thus counting on the stock to tank. However, depending on the prosecution they may charge the miscreant with other crimes e.g. possession of trade secrets. FWIW the CIO of Equifax found out about the Equifax breach obliquely and was charged with insider trading while the CEO made sone suspicious trades before the press release and was not charged. https://money.cnn.com/2018/03/14/news/companies/equifax-insider-trading/index.html https://money.cnn.com/2018/03/14/news/companies/equifax-insi... As for your last point, I think that's the role of the market speculators and usually the SEC or other enforcement agencies do not take an active role in policing these actions unless there is compelling evidence that a crime has been committed.
  - jessaustin 8y ago
    Any executive team is a conspiracy against the trading public (among other parties), and insider trading laws are used to punish defectors from that conspiracy. Thus these laws harm the trading public and the economy as a whole. By definition, a CEO isn't a defector, since she's running the conspiracy. Jr. VPs like a CIO, though, should definitely be careful when attempting to profit from nonpublic knowledge.
- arawde 8y ago
  I'm going to take a stab at answering this, but I am not an expert. Insider trading applies to instances where you have _material, non-public_ information about a company. The criteria of what makes information material and non-public are a little bit of a gray area, but I'm going to just use it to mean "I know something about a company because I am in a position to be trusted by that company" In other words, your example wouldn't be insider trading. You have no material, non-public information about correlated stocks or a competitors stock. You have a hunch that that stock will perform in a way related to the stock you have information on. AFAIK, theres nothing stopping you from acting on that hunch. So of the 3 options presented, its probably a mixture between 1 and 3, leaning towards 1.

49 points by newman8r 8y ago

How long before the people who complain about AAs being denied college admissions, notice insider trading prosecution rates?

gsibble 8y ago
I mean, wow.
- jessaustin 8y ago
  I certainly didn't imply that Asian-Americans commit more insider trading than other groups. If anything, they probably commit less. I made an observation about the Justice Department.
  - swiss_beatz 8y ago
    Lol, fuck you dude.
  - wavefunction 8y ago
    I thought you meant alcoholics anonymous you shitheel Thank goodness!
wmf 8y ago
Do they even prosecute enough people to make any statistically significant conclusions?
duxup 8y ago
How are those related?
- jessaustin 8y ago
  Asian-Americans are denied entry to the best colleges in order to make room for less qualified students of other races. My Asian roommates and friends were certainly more qualified than I was. This is for "cultural reasons". I haven't done an in-depth study, but when I recall insider trading prosecutions of note, it's all Asians, plus Martha Stewart. TFA ain't about Martha. This is also for cultural reasons. Insider trading is a fake crime anyway. It isn't surprising that something based entirely on prosecutorial discretion would illuminate the bias of prosecutors. There is a certain atmosphere of "Justice Department is always right" permeating recently, which although at some odds with history presumably explains the downvotes.
  - pvg 8y ago
    The SEC is not part of DOJ.
  - ABCLAW 8y ago
    >Insider trading is a fake crime anyway. Wow. >when I recall insider trading prosecutions of note, it's all Asians What..? I just looked up the history of enforcement actions taken by the SEC from 2016 to 2010 and the most striking ethnic theme is how WASPy the names are.

nostromo 8y ago

> “Our agency’s ever-evolving data analytics enabled us to detect Li’s otherwise inconspicuous trading as an overall pattern to profit off multiple earnings announcements,” said Jina Choi, Director of the SEC’s San Francisco Regional Office. I mean... he worked for the company and shorted their stock before earnings releases. This isn't exactly rocket science.

fisherjeff 8y ago
Well, sure. I think the novelty is in the fact that this is not a single huge transaction of a high-profile corporation’s stock. Total profit was $200k over several trades – gross proceeds had to be a tiny blip in overall volume.
- darawk 8y ago
  > SELECT * FROM trades WHERE works_at = ticker;
  - Lazare 8y ago
    The issue, of course, is that there's no such database, nor does the idea of one even make much sense. There's too many complex ways you can structure a transaction so that you gain an economic benefit when a company does well, but you haven't personally made an outright purchase of that company's equity. (Most obviously: You can tip an acquaintance and agree to split the profits, but that's just the start.) Since we can't get a categorical list of "transactions top executives at company X have made, or caused to be made, or otherwise may benefit from", traditionally enforcement has revolved around looking for super suspicious transactions, and then working backwards to figure out if they were made by someone who shouldn't have been making them. And since normal stock trades basically always look unsuspicious, that generally means looking for people, eg, buying short-dated out of the money call options[1]. It's not proof of wrong-doing, but it's a bit like finding someone who's won three lotteries in the past month: It's probably worth checking to see if they've got an uncle who works for the lottery commission. :) But the flip side of that is that it's generally been assumed that if you don't do something blatantly dumb like buying short-dated out of the money call options, you won't show up on anyone's radar, and you'll get away with it. But maybe not any longer! [1]: Hacker News's favourite financial journalist, Matt Levine, talks about this a lot, and with good reason. The vast bulk of SEC enforcement actions for insider trading involve people that seem to be almost trying to be caught.

mwerd 8y ago

>The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Options Regulatory Surveillance Authority. As Matt Levine at Bloomberg is fond of saying, if you don't want to get caught insider trading, don't use options. https://www.bloomberg.com/view/articles/2014-06-17/there-might-be-a-lot-of-insider-trading https://www.bloomberg.com/view/articles/2014-06-17/there-mig...?

DSingularity 8y ago
Seriously! What a greedy punk. Grr.
ghaff 8y ago
Even if they were relatively small trades, senior execs short selling in advance of earnings should set off flags. Heck, it's not that unusual AFAIK for companies to prohibit employees short selling company stock period.
minimax 8y ago
All the transactions detailed in the SEC order are outright sales of stock (not options). He was both selling stock he already owned to avoid losses and selling short to generate additional profit. Before it was acquired, AFOP never had a very substantial market cap so it’s possible AFOP didn’t actually have listed options, or that it did but they weren’t liquid. I suspect that AFOP was probably a typical low volume small cap and that Li’s selling while not large in nominal terms was probably still pretty significant relative to the average daily traded volume. Large enough to be picked up by a pretty simple screen anyway.
- schlumpf 8y ago
  The press release hints strongly at their toolkit: > improbably successful trading Even before considering trading volume they can look at in-the-money trades as a proportion of total trades. Then I expect they would look at smaller denominators to see if timing correlated with the announcement cycle. The use of short-selling would have made it (relatively) easier still to pick up: assuming the company was ~200MM market cap at the end of 2014, of which 28% was held by management and their strategic shareholder [proxy statement 20150417], borrow could have been expensive enough to limit the holding periods of short trades. As you and other commenters have pointed out, simple screens can indeed be effective. A short-term, infrequent trader (or small group of traders assuming, um, collusion) with a high win rate and presumably high risk-adjusted return would stick out.

duxup 8y ago

> Li agreed to cease and desist from further violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 Oh thank goodness they worked that out!

danielvf 8y ago
And here's the rest: "... he must pay disgorgement of $196,203, prejudgment interest of $23,062, and a $196,203 penalty for a total of $415,468. Li also agreed to be prohibited from acting as an officer or director of a public company for a period of five years." The last one is probably the real kicker for an executive.

daveguy 8y ago

If he had shorted a correlated stock or bought a competitor stock would it have been: 1) completely legal or much less illegal? 2) just as illegal and just as likely to get caught? 3) just as illegal but less likely to get caught? I guess the question in general is: does insider trading apply to your company only, or the entire industry / stock market?

brisance 8y ago
It's hard to prove a link that someone knows something about a competitor's company and thus counting on the stock to tank. However, depending on the prosecution they may charge the miscreant with other crimes e.g. possession of trade secrets. FWIW the CIO of Equifax found out about the Equifax breach obliquely and was charged with insider trading while the CEO made sone suspicious trades before the press release and was not charged. https://money.cnn.com/2018/03/14/news/companies/equifax-insider-trading/index.html https://money.cnn.com/2018/03/14/news/companies/equifax-insi... As for your last point, I think that's the role of the market speculators and usually the SEC or other enforcement agencies do not take an active role in policing these actions unless there is compelling evidence that a crime has been committed.
- jessaustin 8y ago
  Any executive team is a conspiracy against the trading public (among other parties), and insider trading laws are used to punish defectors from that conspiracy. Thus these laws harm the trading public and the economy as a whole. By definition, a CEO isn't a defector, since she's running the conspiracy. Jr. VPs like a CIO, though, should definitely be careful when attempting to profit from nonpublic knowledge.
arawde 8y ago
I'm going to take a stab at answering this, but I am not an expert. Insider trading applies to instances where you have _material, non-public_ information about a company. The criteria of what makes information material and non-public are a little bit of a gray area, but I'm going to just use it to mean "I know something about a company because I am in a position to be trusted by that company" In other words, your example wouldn't be insider trading. You have no material, non-public information about correlated stocks or a competitors stock. You have a hunch that that stock will perform in a way related to the stock you have information on. AFAIK, theres nothing stopping you from acting on that hunch. So of the 3 options presented, its probably a mixture between 1 and 3, leaning towards 1.