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Silicon Valley IT Administrator and Friends Charged in Insider Trading Ring
- lioeters 7y agoThe allegation: > ..A former IT administrator then at Palo Alto Networks Inc., was at the center of the trading ring, using his IT credentials and work contacts to obtain highly confidential information about his employer’s quarterly earnings and financial performance. How they were caught: > This case highlights [SEC's] use of enhanced data analysis tools to spot suspicious trading patterns and identify the traders behind them. Total estimated profit from this scheme, between 2015~17: > Defendants’ trades in advance of the announcement generated profits that exceeded $3 million. EDIT: Oops, I found this line from the same source: "At the peak of their scheme in 2017, [the defendants] achieved more than $7 million in illegal trading profits." (Source: https://www.sec.gov/litigation/complaints/2019/comp-pr2019-261.pdf https://www.sec.gov/litigation/complaints/2019/comp-pr2019-2...)
- Aaronstotle 7y agoFeel like they were trying to get caught, communicating over text/email for insider trading isn't the brightest move. Then again, criminals usually aren't the smartest.
- orf 7y ago> criminals usually aren’t the smartest Selection bias.
- tradertef 7y agoI was thinking exactly the same thing. I wonder how much is being made using insider trading and never got caught.
- everdev 7y agoAnyone who consistently outperforms the market is a good candidate. My guess is if you're beating the market you're keeping it to yourself or a few high net worth clients.
- imglorp 7y agoSounds like playing in a casino. They're cool with it until you win too much.
- everdev 7y agoExactly. And to further the analogy it's challenging to tell the difference between investing and gambling.
- arthurcolle 7y agoJames Simons?
- shagbag 7y agoSimons doesn't do insider trading. Arguably he paid long term capital gains on a basket that should have been short term capital gains. But his system of short term, automated, stat arb / signal detection based trades are clearly not based on classified corporate data. I suggest you read The Man Who Solved the Market for more info.
- deleted 7y ago[deleted]
- harry8 7y agoWell you don't know that, it's Simon's assertion that he doesn't do insider trading and whether you or I believe him (and I do, fwiw) stating that he doesn't as an incontravertable fact is going too far. "There's zero evidence that Simons and Renaissance do any insider trading." Is a better way to state it.
- thepete2 7y agoabsolutely, you never hear about the successful ones
- TheSpiceIsLife 7y agoNot specifically, no. But organised crime is an ongoing concern.
- aishvar 7y ago> criminals usually aren't the smartest. Well, the ones getting caught definitely aren't.
- ct520 7y agoLOL I agree. I would expect a message board tied to entrepreneurship to have it fair share of risk takers. Maybe tech is different but most if not all the self made people I know uh were not always so squeaky clean, just good at not getting caught.
- WheelsAtLarge 7y agoSuccessful entrepreneurs break the rules all the time. They just make sure they are not the type that will send them to jail. The perfect examples are Uber and Facebook. I'm sure their founders broke the rules left and right, and we've all read about some of the cases, as they grew their startups. The difference is that they were sure not to break the ones that got them in legal trouble.
- TeMPOraL 7y agoKind of. Uber's a bad example - that company turned breaking the law into a business model, using investment money to move fast and keep the lawmen at bay.
- ct520 7y agoIMO I agree with your statement but I would not say they just make sure they are not the type that will send them to jail. More along the lines as - when they do take a risk that could line them in jail they are more prepared / smarter then the average criminal and avoid jail. (Civil lawsuits more likely)
- seansmccullough 7y agohttps://www.google.com/amp/s/www.bloomberg.com/amp/opinion/articles/2018-08-12/the-10-laws-of-insider-trading https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/a... It’s one of Matt Levine’s satirical rules of insider trading not to do that.
- eps 7y agoThe original link, sans the Google junk - https://www.bloomberg.com/amp/opinion/articles/2018-08-12/the-10-laws-of-insider-trading https://www.bloomberg.com/amp/opinion/articles/2018-08-12/th...
- seansmccullough 7y agoSorry, I was on mobile.
- NDizzle 7y agoPrison, baby!
- webkike 7y agoOnly $3 million from 2 years of insider trading? They weren't doing this very well.
- throwawaymath 7y agoActually, that's exceptionally good performance. You'd be surprised how hard it is to profit consistently even when you have advance knowledge of material earnings results. The market is fickle and lossy, and fundamental analysis is only is only one component of what the most sophisticated trading strategies do. I used to develop and sell novel earnings forecasts which would outperform analyst consensus. Typically my research would have a <1% margin of error on forecasting a specific KPI directly relevant to corporate revenue and profit for an equity. The best hedge funds were able to successfully trade on this information because they combined it with a significant amount of complementary data. But I would not want to develop a trading strategy based on that data alone. These guys did very well considering the information they had to work with and how primitive trading earnings is. The real money in insider trading is in more illiquid OTC markets, or in mergers/acquisitions.
- arkadiyt 7y agoChloe Xie published a research paper [1] on exactly the topic of how hard it is to profit despite advance knowledge of earnings results. It was summarized by Matt Levine in his aptly titled "Knowing the Future Isn’t That Helpful" [2]. [1]: http://chloexie.com/pdf/ChloeXie_JMP.pdf http://chloexie.com/pdf/ChloeXie_JMP.pdf [2]: https://www.bloomberg.com/opinion/articles/2019-11-26/knowing-the-future-isn-t-that-helpful https://www.bloomberg.com/opinion/articles/2019-11-26/knowin...
- ENOTTY 7y agoI also highly recommend playing the insider trading video game https://insider-trading-game.netlify.com/ https://insider-trading-game.netlify.com/
- 7y ago
- djrogers 7y ago> Total estimated profit from this scheme, between 2015~17: > Defendants’ trades in advance of the announcement generated profits that exceeded $3 million. That was actually just the take from one earnings announcement, not the entire scheme. It says elsewhere they cleared $7m in the first year.
- vkou 7y agoOpening a trading account, putting a bunch of money into it, and naked-short-selling a single company's stock right before the release of disastrous earnings sets off so many alarm bells at the SEC, that you'd have to be an absolute idiot to do it. Fortunately, the world has never had a shortage of idiots.
- larnmar 7y agoThe best way to cover your tracks would be to post about it in advance on /r/wallstreetbets so that you look like just another YOLOing idiot.
- rolltiide 7y agoeh you can do a lot with erroneous trading patterns for weeks/months before your big trades but if you work for the same company its best not to do the trade at all instead of looking for an 8% move, just get the 2% move in the ETF that the company is part of. there is a prohibition that extends to derived or linked securities, but this is much harder to detect and prove. its just ammunition without a weapon but really, better to play the sector as a whole. if I worked for Expedia and saw what affected their earnings, I would trade Priceline expecting exposure to the same trends.
- elliekelly 7y ago“Baby” has got to be one of the worst insider trading code words of all time. “Enter few baby” is a really weird thing to write in a work email no matter the context.
- addisonl 7y agoAnd who's bright idea was it to send anything related to this on a work email. You'd think someone in this space would understand encrypted communication.
- unlinked_dll 7y agowell the easiest way to not get caught is to not commit crimes. In general, criminals aren't especially smart. Or the ones that get caught at least.
- vermilingua 7y ago"Criminals aren't smart" is the textbook example of anti-survivorship bias.
- divbyzer0 7y agoDumb criminals are dumb, and get caught more readily. Smart criminals have sophisticated networks, trust funds, art deals and charities to obscure their activities, and do not get caught as frequently. for ref: Mossack Fonseca.
- jcslzr 7y agoFucking Epstein had his own Internet network that is really covering your ass
- sushid 7y agoSeriously, you’d think that an IT guy at a security company would know better than that.
- cryptozeus 7y agoJust say Palo Alto Networks ...what does Silicon Valley has to do with one company?
- DevKoala 7y agoThe friends were in SV but did not work for Palo Alto Networks.
- skyyler 7y ago"Silicon Valley" is used in the title to describe where the IT Administrator that the article is about is located. Similar to "Florida man"
- songshuu 7y agoI like where this is going... "Silicon Valley Man found doing insider trading with buddies." "Silicon Valley Man is pumping the blood of the youth through his veins."
- nullc 7y ago"Florida man" is largely due to Florida's extremely aggressive open records laws making the tawdry details of every nutball's minor arrest instantly public. What's Silicon Valley's excuse?
- skyyler 7y agoYou misunderstand my comment. Using a location before the words "man" or "woman" implies that the man or woman is from that location. When I say "Chicago woman makes thirty pizzas for homeless shelters", you wouldn't ask about the relevance of the word 'Chicago' because it adds to your understanding of the woman.
- badfrog 7y agoI, for one, know what Silicon Valley is but have never heard of Palo Alto Networks before. So the title as written is much more meaningful to me.
- yalogin 7y agoThis is just one that got caught. Wonder how much insider trading happens.
- perfectlyzero 7y agoYeah, it seems way to easy to do this.
- deleted 7y ago[deleted]
- frostyj 7y agoCurious how SEC decides which of his friends was part of the insider trade? What if they never tipped him anything?
- vkou 7y agoThe SEC has a few tools for catching insider traders. 1. They look at suspicious trades that made a lot of money. Putting all your money into shorting a stock, right before earnings come out qualifies. Doing it multiple times gets them very interested in you. 2. They start asking questions, conducting interviews, and getting search warrants. If nothing suspicious comes up, they drop it. Occasionally, traders get lucky, right? 3. They get wiretap warrants for their core suspects, and place a few friendly phone calls to those people, to ask a few friendly questions about some stock trades. At this point, they have two branching options. 4.1. Tap the phone lines, and wait to see who the core suspects call. 4.2. Drop by the core supects' homes, slap some handcuffs on them, pretend to thumb through a seven-hundred page thick binder, and ask them very nicely, if they would be willing to share the names and roles of their accomplices, in exchange for a lesser prison sentence. It would also be great if they could call said accomplices, and inconspicuously get them to chat about the financial crimes that the group has been doing in the past few months. (Admitting to financial crimes over the phone makes the subsequent convictions much easier.) Repeat, recursively, until step 3 fails to add new nodes to the graph.
- paggle 7y agoI thought they were insider trading the stock of Ring, the doorbell company, by sniffing their traffic if they were using Palo Alto Networks security systems. Now THAT would be a big fucking scandal.
- anon9001 7y agoIf anyone here has ever prepared earnings reports, how is that process usually handled? I'm guessing it's just a spreadsheet on some finance person's computer until it's certified for release? Are there best practices for making sure data doesn't leak ahead of the official earnings report?
- mike_d 7y agoTake a look at Intralinks and Diligent. They are basically Dropbox + embedded Office 365 but with ultra tight security controls. No SSO, no IT/security access, no local storage. Generally only your head of finance, a few people from legal, and board members will have accounts. I know of a major investment firm that has a separate GSuite instance that execs from their investments are given accounts on for sharing data.
- eckesicle 7y agoYeah, The market is called 'board portals' and it's a comparatively niche product offering. There's a couple of other companies beyond Diligent and Interlinks that offer the service. Board Intelligence is probably the best one imho.
- asdf21 7y agoSo you're saying to figure out what stocks employees at Board Portals are trading and jump on board.
- netman21 7y agoI visited Dell in the mid-90s. Their offices were giant rooms full of cubicles housing sales people. Finance was in a similar room. Every quarter as they started the process of rolling up the financial results these huge firedoors would roll down separating finance from the rest of the company. Probably just a show of secrecy but it was dramatic.
- kryogen1c 7y ago>The SEC’s complaint alleges that the defendants sought to evade detection, with Nellore insisting that the ring use the code word “baby” in texts and emails to refer to his employer’s stock, and advising they “exit baby,” or “enter few baby.” Security through obfuscation. One wonders how good of IT administrators they were.
- chii 7y agoif only they just used something like end-to-end encryption, then there'd be no evidence to charge them with!
- rolltiide 7y agounless they nabbed literally any participant's phone while unlocked, or ran an exploit that got a client side dump without it being unlocked
- trthomps 7y agoSignal (or Keybase), with expiring messages. I've become quite paranoid about my digital communication, I've worked in the field long enough to know all of them are being scanned. I'm not even doing anything illegal, I'm just uncomfortable with it. Or just never talk digitally, only talk IRL. All these guys lived near each other and worked at the same company, could have easily just dropped by each others desk with a wink or a nod.
- rolltiide 7y agoThere was a ring 6 years ago that was run over snapchat - expiring client side but not e2ee - and it got busted by a 50 year old that had a screenshot in his email For my sensitive communications I’ve concluded not talking digitally too
- deleted 7y ago[deleted]
- downvoted55 7y agoJust another reminder to the third world immigration loving establishment that you cannot man a first world system with the third world people.
- asdf21 7y agoenter baby
- postingFourFast 7y agothis baby is crappy i need more babies is this a good time to make babies? sorry, i sold all my babies yeah, this codename has unlimited possibilities.
- thewileyone 7y agoNot much of a scandal since they were only profiting off their own company's stock value by analyzing the financial reports. Could have surmised a similar trend by monitoring purchase and shipment orders versus staffing headcount, quarter to quarter, month to month, etc. What I'm getting at is that if they are trading on their own company stock, what's the big deal? Stock markets are volatile anyway.
- deleted 7y ago[deleted]
- xmprt 7y agoI know it's hard to miss but if you look closely, insider trading has the word "insider" in it. Meaning people inside the company (typically those with the material nonpublic information you're talking about) are specifically not allowed to trade in their stocks using that information. I hope for your own sake you work at a private company.
- harry8 7y agoNot legal advice. IMNAL. The test for inside information is that it is "material, non-public information used to inform the trade decision." This is supposed to mean that the information is not available to normal market investors (nonpublic) and if it were published, eg via stock exchange announcement, it would move the market price more than "noise" (material) so you buy (inform a trade decision). e.g. we just closed a billion dollar deal with recurring revenue that nobody trading our securities knows about increasing our expected after tax profit by 300%. You work as a lawyer on that deal and buy short dated out of the money call options you're doing an illegal thing. Hiring is up by 5% this year, some of them were logistics experts. From this and other pieces of small knowledge none of which are by themselves marke moving you infer things are going well and buy. This is ok. The material information was inferred not provided. This is what good investors are supposed to do. You probably need to be pretty careful trading the stock of a company you work for. Definitely get legal advice.
- postingFourFast 7y ago
- campee 7y ago> After the FBI interviewed Nellore about the trading in May, he purchased one-way tickets to India for himself and his family and was arrested at the airport. How does the FBI get notified in advance when a suspect buys a plane ticket? You read about it all the time in stories like this. Is the FBI being sent passenger manifests for every commercial flight and are they being cross-referenced against a list of names of potential flight risks?
- cortesoft 7y agoNo, they flag a name and then get notified when that person buys a ticket.
- campee 7y agoI wonder if Mexico and Canada notify the FBI as well. Maybe Canada, but I doubt Mexico does. Drive there for the day, fly out of there with minimal luggage/possessions.
- gruez 7y agoAlso, say you were able to go to Mexico and fly home to India, what then? Your assets are probably going to be frozen (unless you stashed it in crypto), and India has extradition treaties with the US, are you going to be on the run for the rest of your life?
- trianglem 7y agoIt’s a lot easier to disappear in India.
- harry8 7y agoWell yes there are treaties but you get to fight extradition in an Indian court where the hometown decisions may not go against you they way they seem to in US courts. If you find yourself caught in a battle, engage where you have the high ground is a good idea compared to running into the chokepoint to engage there. I'm saying this while saying nothing at all about the guilt or innosence of the suspect or investigating agents in this particular case.
- newshorts 7y agoShort naked baby
- godelmachine 7y ago>>use of enhanced data analysis tools to spot suspicious trading patterns and identify the traders behind them Very curious to know about the tools and tech which they use. Would someone apprise on research paper/ blog where I can read it?
- vermilingua 7y agoI'm not sure the SEC would necessarily make their tools publicly available, if keeping their techniques hidden gives them an edge over fraudsters.
- philjohn 7y agoHMRC (UK equivalent of the IRS) has an interesting system called "Connect" which pulls together a myriad of data both that held by government, to corporate data, bank data and more to spot anomolous patterns. Could be something similar.
- yotamoron 7y agoSo an IT admin of an internet security company is caught trading on insider info, and texting with his co-conspirators about it? He should go to jail on the grounds of being totally stupid and incompetent. And so are the people who hired him. I know 3 year olds who have more brains.
- jcslzr 7y agoI believe you have my stapler.