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Six charged in Silicon Valley insider trading ring

177 points by edward 5y ago

ffggvv 5y ago
glad the sec spends all its time on 6 randos rather than meme stocks, scam chinese education companies, nft/crypto, scam spacs, tesla, etc… definitely have their priorities right
- BeFlatXIII 5y ago
  The stock market should be an honest unregulated casino. Don’t invest if you can’t afford to lose it all should be the name of the game.
  - wpietri 5y ago
    It really shouldn't. At a societal level, the point of having a stock market at all is to increase the amount of investment capital available. An unregulated market where people are at significant risk of big losses due to crime, fraud, etc is one that will not attract nearly as much capital. Less investment capital means less growth and a poorer society. As proof that regulation is valuable, look at all of the foreign companies that list on the US's highly regulated markets. They are willing to meet US transparency and accountability standards because that's how they get lots of cheap capital. In other words, the marketplace of marketplaces proves the value of highly regulated public markets.
    - BeFlatXIII 5y ago
      Fair point on the marketplace of marketplaces. Using taxpayer dollars and prisons to enforce a transparent and accountable market still rubs me the wrong way. Outright fraud (eg. a dishonest broker pocketing the $100 instead of purchasing the stock for his client), I have no problems prosecuting with the full force of the government. It’s the rules that provide an illusion of being something other than buyer beware that I chafe at the idea of government intervention.
      - wpietri 5y ago
        From the US perspective, the markets run at a healthy profit; they surely generate far more in taxes than they require in regulatory expenditures. And the exchanges themselves do much of the policing of companies, so the actual costs are low. Public markets require the same sort of policing as public streets if they're to remain reasonably safe and effective for the public.
- math-dev 5y ago
  SEC is clearly corrupt…which is a sad reflection of current affairs
asah 5y ago
This is how the SEC spends its resources? This is considered newsworthy? $2M is considered material in 2021? If they'd been in charge of the WW2 military, instead of Omaha Beach, we'd have a press release about one random dead Nazi.
- wpietri 5y ago
  You seem to be implying this is the only thing they have done, which is odd. I think they should go after big fish of course. But there's also value in going after the littler fish. You don't want people thinking they can get away with insider trading if they just keep their crimes under the big-fish threshold. After all, there are a lot more little fish out there, and most serious criminals have a long pattern of escalation. It's valuable to keep people off the path entirely.
- renewiltord 5y ago
  The SEC has a habit of going after all sorts of small fry. My favourite is when they went after this moron who made $3100 off call options by performing this elaborate scam to make it seem like Fitbit was being acquired. The guy is a class A dummkopf since he performed all this easily traceable nonsense for a miserable $3100. But it's still only $3100 hahaha. The only thing the press release is good for is for entertainment. https://www.sec.gov/news/press-release/2017-107 https://www.sec.gov/news/press-release/2017-107
- throwaway789256 5y ago
  I agree with this. The SEC cracks down on amateur inside-traders, because the professionals no how to cover their tracks: they have the resources to fight it in court; and the smart ones hire the SEC staff via the revolving door. This case is hilarious, and for that I applaud the SEC, but it's also theater.
qqtt 5y ago
I'm not sure if this is standard for SEC press releases, but why do they include details such as, "he was a school teacher" and, "he owed gambling debts"? I've always suspected the SEC investigations regarding things like insider trading are typically the opposite of justice and designed to go after the smallest possible players while giving the illusion of enforcement. And these details in an allegedly serious investigation just seem to make the whole thing reek of small time gossip material. It's just kind of surreal seeing this type of language in an official SEC press release regarding what I'm sure they would like us to believe they consider a serious crime.
- VWWHFSfQ 5y ago
  > designed to go after the smallest possible players SEC doesn't have infinite resources to go after every possible financial crime. They go after the ones that have the highest likelihood of successful prosecution. This is the case with most prosecutions like this.
  - spaceribs 5y ago
    > SEC doesn't have infinite resources to go after every possible financial crime. So that makes token gestures acceptable?
  - throwaway0a5e 5y ago
    That's called "revenue policing" and the only people who like it are the people high status enough to not be subject to it.
    - notsureaboutpg 5y ago
      Whatever it's called doesn't matter. There's not a viable alternative. If you don't prosecute charges with substantial evidence, the risk of loss increases and eventually the department bleeds money at too large a degree and gets shut down causing no enforcement
    - JumpCrisscross 5y ago
hkmurakami 5y ago
Today’s Matt Levine post on this is a must read https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-pay-gambling-debts-by-insider-trading https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...
- wp381640 5y ago
  That column is pretty much always a must-read
- nostrademons 5y ago
  Followed a couple links from that and came upon this doozy of a story on insider trading tradecraft: https://archive.is/zYj0R https://archive.is/zYj0R
fny 5y ago
> Bannon agreed to pay a civil penalty of $281,497, Rauch agreed to pay a civil penalty of $128,230, and Ramaiya agreed to pay a civil penalty of $65,780. Sood also consented to the entry of a final judgment and agreed to pay a civil penalty of $178,320. So the SEC claims they found $1.7M in insider trading, and they only collect $700K. This assumes the ring didn't do more. No wonder bigger players do this in size. What a joke.
- Retric 5y ago
  Not quite: Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC’s litigation against Brown is continuing. In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood.
- jwineinger 5y ago
  IANAL, but I assume these penalties be on top of the seizure of the illicit gains. If not, I completely agree with your sentiment.
- u678u 5y ago
  I'm guessing the penalty is low because they're not professionals. > No wonder bigger players do this in size. What a joke. Not sure who you mean by that. SEC is all over every major player.
  - zhengyi13 5y ago
    I don't know who GP might have had in mind, if any specifics, but what comes immediately to my mind at least is the whole-lotta-smoke that seems to come from the general vicinity of Congress (e.g. https://en.wikipedia.org/wiki/2020_congressional_insider_trading_scandal https://en.wikipedia.org/wiki/2020_congressional_insider_tra...).
- JumpCrisscross 5y ago
  > the SEC claims they found $1.7M in insider trading, and they only collect $700K Nothing has been collected. This is a complaint [1] being put to court demanding a jury trial. The § 21A civil monetary penalties are in addition to "further relief as the Court deems appropriate," which is legal speak for we don't know how to divvy up the gains just yet but want to put specific dollar fines in the complaint attached to each defendant. (The SEC doesn't put people in jail. The DoJ is conducting its criminal investigation, which takes more time for obvious reasons.) There is a stark difference between financial professionals and laypeople in terms of how they judge the risk of getting caught for insider trading and the scale of the punishment that comes with it. [1] https://www.sec.gov/litigation/complaints/2021/comp-pr2021-103.pdf https://www.sec.gov/litigation/complaints/2021/comp-pr2021-1...
williesleg 5y ago
Where's Pelosi?
endisneigh 5y ago
White collar crimes are barely punished - what a joke. Insider trading isn’t larceny, but for the sake of conversation let’s say it was - 1 million in insider trading would be like 4000 counts of grand larceny, each of which carry a max fine of 25K each. If people were actually fined 100 million for 1 million of insider trading I bet you it’d stop happening. For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison.
- drstewart 5y ago
  >If people were actually fined 100 million for 1 million of insider trading I bet you it’d stop happening. >For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison. And as we all know, there's no more grand larceny
  - endisneigh 5y ago
    Larceny sentencing is also incredibly lenient in practice. This month an Erie County bookkeeper stole 90K from her clients and only had to pay 50K in restitution. My general point is that white collar criminals are hardly punished in practice - not that insider trading should be treated as larceny. (Because as I pointed out the sentencing is generally light anyway)
- brianwawok 5y ago
  Right. But if someone has total assets of say 500k... whats the difference of a 1 million or a 100 million dollar fine? You literally cannot collect either before the person dies / moves to Mexico.
- WalterBright 5y ago
  > I bet you it’d stop happening You'd lose that bet. The death penalty didn't stop pickpocketing, or any other crimes, for that matter. People just don't work like that. Constantly ratcheting up the penalties starts moving into medieval territory rather quickly.
  - 5y ago
wp381640 5y ago
> Nathaniel Brown, [..] repeatedly tipped Infinera’s unannounced quarterly earnings and financial performance to his best friend, Benjamin Wylam > Wylam, [..] and also tipped Naveen Sood > Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya It's less a ring and more a tree One of the issues with leaking the info - you have no control over what is done with it and who acts on it, and it all potentially leads back to you There was a case in Australia where a gov insider was leaking government data. He thought he had a partnership with a co-conspirator where they would make low-tens-of-thousands He only found out after his arrest that his co-conspirator who was placing the trades was making millions - which is what got them noticed (he was one of the largest individual currency traders in the country - and never missed)
- mdoms 5y ago
  There's an incredibly good 7-part podcast on the Australian case you're talking about, if anyone's interested. It's called The Sure Thing. https://www.afr.com/podcast/the-sure-thing https://www.afr.com/podcast/the-sure-thing
  - tayloramurphy 5y ago
    Thank you for sharing this! I'm going to add it to my listening queue.
- dheera 5y ago
  Why don't we apply Darwinism to the financial world? The fittest survive. If you can make friends with people who have insider info, you should be rewarded with your networking prowess. It's quite an underrated skill. That's how startup investing works anyway. Separately, announce earnings with some injected noise. Keep announcing corrections in the following several days so that it eventually converges to the correct value. That would be fun! I'd absolutely love to see the Wall Street suit-and-tie hedgehog fund people writhing in anguish while the retail investors don't take a shit.
  - aeternum 5y ago
tw600040 5y ago
For anything worth securing we have security engineered into it, like passwords, encryption what not. But for insider trading we are just supposed to assume that the players play right without any checks or balances? I don't think just the SEC is sufficient to prevent this.
- elliekelly 5y ago
  I was on a call last week about the SEC’s changing priorities under Chairperson Gensler and the consensus among all of the attorneys on the call was that they will be more data-driven and have already been using data analytics far more extensively than ever before. I suspect the case in the linked release came about from those efforts: > “Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable to ensure the integrity of our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. I think in time the SEC’s enforcement in this area will become more automated and efficient.
  - monkeybutton 5y ago
    Is there somewhere that I could read more about the analytics used to catch insider trading?
    - elliekelly 5y ago
      I don’t have a good resource to point you to because most of what I know is from having seen data requests and from discussions with colleagues. To my knowledge the SEC hasn’t said much about how they use analytics and I suspect that’s deliberate. The SEC has been gathering data after big price swings to identify potential insider trading for a while but my understanding is that they’re now able to assign an insider-trading risk-score to transactions that made money (or avoided a loss) by trading just before the swing. What’s interesting is the risk-score seems to involve some degree of “who you know” and seems to de-emphasize the old metric used to prioritize investigations: how big your profit/loss avoided was. So rather than having to identify the big winners (or loss avoiders) and investigate those transactions they can instead focus on the transactions most likely to have been “tipped” by an insider. (This is entirely my own speculation but I think you can see it a bit in the attached press release. It’s an unusual chain of relationships between and among the six people charged and the two public companies. Insider > tips friend > tips guy who owes him money > tips three friends. I’d venture to guess there was some transaction data that allowed the SEC to form the link between the accounts profiting and the insiders because $1.7 million isn't a terribly huge sum to have SEC staff chasing after.) It also seems, judging by Gensler’s recent comments, they’re considering gathering data about planned and forgone 10b5-1 transactions presumably for the purpose of applying insider trading analytics.
sanguy 5y ago
The penalty should be: - Seizure of all stock holdings: logic is it's all tainted - Ban from all future trading for life, except index funds
- camel_Snake 5y ago
  this sounds ripe for abuse.
runawaybottle 5y ago
Sounds like a scare tactic to warn any pump and dumpers on Stocktwits and wsb with any kind of knowledge on large upcoming inflows into a stock. They are obviously out there and hidden in a raucous crowd.
arduinomancer 5y ago
> Using sophisticated data analysis Curious what that entails. Does the SEC have some automated alerting of suspiciously well timed trades?
- gene91 5y ago
  SEC and FINRA invest a lot in Data Analytics. Go to https://technology.finra.org/tech.html https://technology.finra.org/tech.html and you'll see that they use the same tools as the internet industry.
- cldellow 5y ago
  I'm not even sure you need sophisticated data analysis. The two people who did the biggest trades: - weren't involved in the finance industry (a school teacher and an equipment leasing business) - had never traded options before - did the brokerage know-your-client process to get approved for options 1-2 weeks before quarterly earnings came out - profited $884,000 and $175,000 A SQL query looking for people who made > 100K within 2 weeks of opening their account would catch these people, and probably have relatively few false positives.
anonygler 5y ago
$1.7m can't even buy a house. This is nothing compared to the ubiquitous congressional insider trading that goes on.
- atatatat 5y ago
  lol...you should move.
- Karsteski 5y ago
  > $1.7m can't even buy a house. I really dislike when people make such obviously inane statements like this...
jb775 5y ago
> Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable Anyone know details about the analysis they do? I'm assuming some sort of scan that notices when multiple people in the same geographic area and/or are publicly connected in some way (i.e. are fb friends) simultaneously place massive stock market orders on the same security.
underseacables 5y ago
It’s amazing the SEC is able to find the stuff out. It’s like what happen with Josh Chassion at Facebook. Eventually leaking confidential data is going to get you in trouble, and maybe jail, but people still do it.
jb775 5y ago
The SEC is the HR department of hedge funds. (i.e. it exists to protect hedge fund managers) There's systemic corruption at the highest levels, but the SEC decides to go after a handful of little guys. The next French Revolution is a ticking time-bomb.
moron4hire 5y ago
So what was their mistake? Not including any US senators?
- jessaustin 5y ago
  They didn't even have any company executives. The highest ranking manager was something called a "revenue recognition manager". Dude should have known that insider trading regulations are how chief executives punish defectors from their ongoing conspiracy against the investing public.
omarhaneef 5y ago
Covered in Matt Levine today and highlights some details: https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-pay-gambling-debts-by-insider-trading https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-... Such as: Shortly after seeing the screenshot of Wylam’s account on July 28, Brown called Wylam on the telephone. During the call, Wylam explained how he made such large profits purchasing Infinera put options before the July 27 announcement. Brown “flipped out” because, in his view, the massive size of Wylam’s trades and profits raised an “obvious red flag.”
- tw04 5y ago
  https://archive.is/Y6H89 https://archive.is/Y6H89
throwaway0a5e 5y ago
> Brown ... repeatedly tipped ... to his best friend Wylam ... Wylam ... traded on this information and also tipped Sood .. Sood traded on this information and tipped his three friends also illegally traded on the information. (edited for brevity) So it sounds like Brown texted his bestie something he shouldn't have. Bestie then passed it on to people who made lot of money on it. The SEC, through some combination of SQL select statements and creative greps managed to nab the bigger idiots and follow them back to the source. Everyone who obviously violated the law by trading on info they shouldn't have has settled and the SEC is still trying to nail Brown. Since Brown didn't trade I fail to see where he violated the law. Contractual obligations with his employer maybe. Regulatory requirements maybe. But you generally need to trade or have reason to suspect that someone will trade in order to insider trade. Edit: by "the law" I mean the subsection of 10b that the SEC release implies the whole crew violated. Not some unrelated regulatory law.
- deleted 5y ago
  [deleted]
- bobbylarrybobby 5y ago
  > Since Brown didn't trade I fail to see where he violated the law This article suggests that he may have engaged in conspiracy to commit securities fraud. https://www.latimes.com/business/la-fi-supreme-court-insider-trading-20161206-story.html https://www.latimes.com/business/la-fi-supreme-court-insider...
  - throwaway0a5e 5y ago
    That article seems to be talking about Wylan, not Brown. >$1.5 million in stock profits by trading on confidential tips that originated from his brother-in-law, an investment banker in California. Brown may have violated some minor regulatory laws depending on the specific details of his employment but you generally need to trade, benefit or have reason to think trading is happening on your info in order to get slapped for insider trading.
- johntb86 5y ago
  The SEC complaint mentions this: > On August 5, 2016, Brown—whose tips enabled his friend, Wylam, to make nearly one million dollars—texted his then-girlfriend to inform her that he was going to Wylam’s house to, among other things, “talk to him about $.” One week later, on or around August 12, Brown took a photograph of numerous one hundred dollar bills spread across his bathroom sink. > On or about October 10, 2016, Wylam took Brown to a San Francisco Giants playoff game. Wylam bought both tickets—for seats only a few feet from the field—and paid more than $2,500 for each ticket. Brown understood that Wylam bought the tickets, at least in part, to thank Brown for providing inside information about Infinera.
vmception 5y ago
> In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood. Press F to pay respects
paulpauper 5y ago
>The SEC’s complaint further alleges that Bannon tipped Sood with material, nonpublic information concerning Bannon’s employer, Fortinet Inc. As alleged in the complaint, Bannon learned in early October 2016 that Fortinet was going to unexpectedly announce preliminary negative financial results. Bannon allegedly tipped this information to Sood, who used it to trade. After learning the information, Sood allegedly tipped Wylam and Ramaiya, who also traded. It's like the stock market equivalent of the blockchain. No matter how long or convoluted the chain of communication is , they can always piece it together.
spoonjim 5y ago
I’ll post what I posted a week ago: > Insider trade a million, you’ve got a problem. You have to insider trade a billion so that you’re untouchable. This is probably the hourly volume of insider trading at many hedge funds like SAC.
JKCalhoun 5y ago
I'm still reeling from "six-figure gambling debt". Man, who are these people?
- Simulacra 5y ago
  That is a shockingly high number. I think it's the same people in that meme things you realize when you're adult: More people do cocaine than you think. Gambling, drugs, OnlyFans, eventually debt adds up.
- purple_ferret 5y ago
  Davey Scatino
bosswipe 5y ago
> Using sophisticated data analysis, the SEC was able to uncover this insider trading ring I wonder if there's any ML involved here.
onemoresoop 5y ago
SEC is such a joke, they let a lot of wrongdoing go by then once in a while find a small fry to show that they're doing something. SEC cannot enforce naked shorting for example and it comes down to the transgressor to report themselves.
Sr_developer 5y ago
1 MM earned in an inside trading? That should be in the position number 2340 in last year alone. Glad to see the SEC has their priorities straight.
zeruch 5y ago
Holy crap...I'm pretty sure that the Marcus Bannon mentioned is someone I went to high school with. What an utterly bizarre, and shrinking universe.
cltby 5y ago
In light of the AP's new policy on minor crime reporting, I was curious how they would treat this story. Unfortunately, their website has no coverage. However, they did report today on another (alleged) insider trading case, and they use names liberally. [1] https://apnews.com/article/nyc-state-wire-ny-state-wire-new-york-business-585df5a8f6a43b426f03826c6b64b589 https://apnews.com/article/nyc-state-wire-ny-state-wire-new-...
plank_time 5y ago
I guess the way you throw off the algorithms is by having a strategy of making large wins and medium losses and only taking the delta between the two. Then it would be pretty hard to prove insider trading just from the trading records.
mrtweetyhack 5y ago
The whole stock market is a giant scam
nphard85 5y ago
Curious about this scenario: Bob works for company A which is a vendor for companies B, C and D. Most of company A's revenue stream is dependent on how well B, C and D are doing. Bob has insider knowledge of Company A's finances using which he trades stocks of B, C and D. Is this considered insider trading or not?
sam345 5y ago
I believe the standard economic argument to allow insider trading is that it would encourage much quicker uncovering of and dissemination of good and bad news. E.g. if people inside Enron had traded on inside info that Enron had cooked the books than it likely would have kept the brakes on the stock price. Instead you have regs that jail insiders (usually people lower down on the totem pole as the higher ups benefit from the coverup) for leaking correct information and preventing a correct (lower) price.

177 points by edward 5y ago

glad the sec spends all its time on 6 randos rather than meme stocks, scam chinese education companies, nft/crypto, scam spacs, tesla, etc… definitely have their priorities right

BeFlatXIII 5y ago
The stock market should be an honest unregulated casino. Don’t invest if you can’t afford to lose it all should be the name of the game.
- wpietri 5y ago
  It really shouldn't. At a societal level, the point of having a stock market at all is to increase the amount of investment capital available. An unregulated market where people are at significant risk of big losses due to crime, fraud, etc is one that will not attract nearly as much capital. Less investment capital means less growth and a poorer society. As proof that regulation is valuable, look at all of the foreign companies that list on the US's highly regulated markets. They are willing to meet US transparency and accountability standards because that's how they get lots of cheap capital. In other words, the marketplace of marketplaces proves the value of highly regulated public markets.
  - BeFlatXIII 5y ago
    Fair point on the marketplace of marketplaces. Using taxpayer dollars and prisons to enforce a transparent and accountable market still rubs me the wrong way. Outright fraud (eg. a dishonest broker pocketing the $100 instead of purchasing the stock for his client), I have no problems prosecuting with the full force of the government. It’s the rules that provide an illusion of being something other than buyer beware that I chafe at the idea of government intervention.
    - wpietri 5y ago
      From the US perspective, the markets run at a healthy profit; they surely generate far more in taxes than they require in regulatory expenditures. And the exchanges themselves do much of the policing of companies, so the actual costs are low. Public markets require the same sort of policing as public streets if they're to remain reasonably safe and effective for the public.
math-dev 5y ago
SEC is clearly corrupt…which is a sad reflection of current affairs

asah 5y ago

This is how the SEC spends its resources? This is considered newsworthy? $2M is considered material in 2021? If they'd been in charge of the WW2 military, instead of Omaha Beach, we'd have a press release about one random dead Nazi.

wpietri 5y ago
You seem to be implying this is the only thing they have done, which is odd. I think they should go after big fish of course. But there's also value in going after the littler fish. You don't want people thinking they can get away with insider trading if they just keep their crimes under the big-fish threshold. After all, there are a lot more little fish out there, and most serious criminals have a long pattern of escalation. It's valuable to keep people off the path entirely.
renewiltord 5y ago
The SEC has a habit of going after all sorts of small fry. My favourite is when they went after this moron who made $3100 off call options by performing this elaborate scam to make it seem like Fitbit was being acquired. The guy is a class A dummkopf since he performed all this easily traceable nonsense for a miserable $3100. But it's still only $3100 hahaha. The only thing the press release is good for is for entertainment. https://www.sec.gov/news/press-release/2017-107 https://www.sec.gov/news/press-release/2017-107
throwaway789256 5y ago
I agree with this. The SEC cracks down on amateur inside-traders, because the professionals no how to cover their tracks: they have the resources to fight it in court; and the smart ones hire the SEC staff via the revolving door. This case is hilarious, and for that I applaud the SEC, but it's also theater.

qqtt 5y ago

I'm not sure if this is standard for SEC press releases, but why do they include details such as, "he was a school teacher" and, "he owed gambling debts"? I've always suspected the SEC investigations regarding things like insider trading are typically the opposite of justice and designed to go after the smallest possible players while giving the illusion of enforcement. And these details in an allegedly serious investigation just seem to make the whole thing reek of small time gossip material. It's just kind of surreal seeing this type of language in an official SEC press release regarding what I'm sure they would like us to believe they consider a serious crime.

VWWHFSfQ 5y ago
> designed to go after the smallest possible players SEC doesn't have infinite resources to go after every possible financial crime. They go after the ones that have the highest likelihood of successful prosecution. This is the case with most prosecutions like this.
- spaceribs 5y ago
  > SEC doesn't have infinite resources to go after every possible financial crime. So that makes token gestures acceptable?
- throwaway0a5e 5y ago
  That's called "revenue policing" and the only people who like it are the people high status enough to not be subject to it.
  - notsureaboutpg 5y ago
    Whatever it's called doesn't matter. There's not a viable alternative. If you don't prosecute charges with substantial evidence, the risk of loss increases and eventually the department bleeds money at too large a degree and gets shut down causing no enforcement
  - JumpCrisscross 5y ago

hkmurakami 5y ago

Today’s Matt Levine post on this is a must read https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-pay-gambling-debts-by-insider-trading https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...

wp381640 5y ago
That column is pretty much always a must-read
nostrademons 5y ago
Followed a couple links from that and came upon this doozy of a story on insider trading tradecraft: https://archive.is/zYj0R https://archive.is/zYj0R

fny 5y ago

> Bannon agreed to pay a civil penalty of $281,497, Rauch agreed to pay a civil penalty of $128,230, and Ramaiya agreed to pay a civil penalty of $65,780. Sood also consented to the entry of a final judgment and agreed to pay a civil penalty of $178,320. So the SEC claims they found $1.7M in insider trading, and they only collect $700K. This assumes the ring didn't do more. No wonder bigger players do this in size. What a joke.

Retric 5y ago
Not quite: Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC’s litigation against Brown is continuing. In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood.
jwineinger 5y ago
IANAL, but I assume these penalties be on top of the seizure of the illicit gains. If not, I completely agree with your sentiment.
u678u 5y ago
I'm guessing the penalty is low because they're not professionals. > No wonder bigger players do this in size. What a joke. Not sure who you mean by that. SEC is all over every major player.
- zhengyi13 5y ago
  I don't know who GP might have had in mind, if any specifics, but what comes immediately to my mind at least is the whole-lotta-smoke that seems to come from the general vicinity of Congress (e.g. https://en.wikipedia.org/wiki/2020_congressional_insider_trading_scandal https://en.wikipedia.org/wiki/2020_congressional_insider_tra...).
JumpCrisscross 5y ago
> the SEC claims they found $1.7M in insider trading, and they only collect $700K Nothing has been collected. This is a complaint [1] being put to court demanding a jury trial. The § 21A civil monetary penalties are in addition to "further relief as the Court deems appropriate," which is legal speak for we don't know how to divvy up the gains just yet but want to put specific dollar fines in the complaint attached to each defendant. (The SEC doesn't put people in jail. The DoJ is conducting its criminal investigation, which takes more time for obvious reasons.) There is a stark difference between financial professionals and laypeople in terms of how they judge the risk of getting caught for insider trading and the scale of the punishment that comes with it. [1] https://www.sec.gov/litigation/complaints/2021/comp-pr2021-103.pdf https://www.sec.gov/litigation/complaints/2021/comp-pr2021-1...

williesleg 5y ago

Where's Pelosi?

endisneigh 5y ago

White collar crimes are barely punished - what a joke. Insider trading isn’t larceny, but for the sake of conversation let’s say it was - 1 million in insider trading would be like 4000 counts of grand larceny, each of which carry a max fine of 25K each. If people were actually fined 100 million for 1 million of insider trading I bet you it’d stop happening. For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison.

drstewart 5y ago
>If people were actually fined 100 million for 1 million of insider trading I bet you it’d stop happening. >For comparison $250 or more stolen is grand larceny and has a max fine of 25K and/or 5 years in state prison. And as we all know, there's no more grand larceny
- endisneigh 5y ago
  Larceny sentencing is also incredibly lenient in practice. This month an Erie County bookkeeper stole 90K from her clients and only had to pay 50K in restitution. My general point is that white collar criminals are hardly punished in practice - not that insider trading should be treated as larceny. (Because as I pointed out the sentencing is generally light anyway)
brianwawok 5y ago
Right. But if someone has total assets of say 500k... whats the difference of a 1 million or a 100 million dollar fine? You literally cannot collect either before the person dies / moves to Mexico.
WalterBright 5y ago
> I bet you it’d stop happening You'd lose that bet. The death penalty didn't stop pickpocketing, or any other crimes, for that matter. People just don't work like that. Constantly ratcheting up the penalties starts moving into medieval territory rather quickly.
- 5y ago

wp381640 5y ago

> Nathaniel Brown, [..] repeatedly tipped Infinera’s unannounced quarterly earnings and financial performance to his best friend, Benjamin Wylam > Wylam, [..] and also tipped Naveen Sood > Sood allegedly traded on this information and tipped his three friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya It's less a ring and more a tree One of the issues with leaking the info - you have no control over what is done with it and who acts on it, and it all potentially leads back to you There was a case in Australia where a gov insider was leaking government data. He thought he had a partnership with a co-conspirator where they would make low-tens-of-thousands He only found out after his arrest that his co-conspirator who was placing the trades was making millions - which is what got them noticed (he was one of the largest individual currency traders in the country - and never missed)

mdoms 5y ago
There's an incredibly good 7-part podcast on the Australian case you're talking about, if anyone's interested. It's called The Sure Thing. https://www.afr.com/podcast/the-sure-thing https://www.afr.com/podcast/the-sure-thing
- tayloramurphy 5y ago
  Thank you for sharing this! I'm going to add it to my listening queue.
dheera 5y ago
Why don't we apply Darwinism to the financial world? The fittest survive. If you can make friends with people who have insider info, you should be rewarded with your networking prowess. It's quite an underrated skill. That's how startup investing works anyway. Separately, announce earnings with some injected noise. Keep announcing corrections in the following several days so that it eventually converges to the correct value. That would be fun! I'd absolutely love to see the Wall Street suit-and-tie hedgehog fund people writhing in anguish while the retail investors don't take a shit.
- aeternum 5y ago

tw600040 5y ago

For anything worth securing we have security engineered into it, like passwords, encryption what not. But for insider trading we are just supposed to assume that the players play right without any checks or balances? I don't think just the SEC is sufficient to prevent this.

elliekelly 5y ago
I was on a call last week about the SEC’s changing priorities under Chairperson Gensler and the consensus among all of the attorneys on the call was that they will be more data-driven and have already been using data analytics far more extensively than ever before. I suspect the case in the linked release came about from those efforts: > “Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable to ensure the integrity of our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. I think in time the SEC’s enforcement in this area will become more automated and efficient.
- monkeybutton 5y ago
  Is there somewhere that I could read more about the analytics used to catch insider trading?
  - elliekelly 5y ago
    I don’t have a good resource to point you to because most of what I know is from having seen data requests and from discussions with colleagues. To my knowledge the SEC hasn’t said much about how they use analytics and I suspect that’s deliberate. The SEC has been gathering data after big price swings to identify potential insider trading for a while but my understanding is that they’re now able to assign an insider-trading risk-score to transactions that made money (or avoided a loss) by trading just before the swing. What’s interesting is the risk-score seems to involve some degree of “who you know” and seems to de-emphasize the old metric used to prioritize investigations: how big your profit/loss avoided was. So rather than having to identify the big winners (or loss avoiders) and investigate those transactions they can instead focus on the transactions most likely to have been “tipped” by an insider. (This is entirely my own speculation but I think you can see it a bit in the attached press release. It’s an unusual chain of relationships between and among the six people charged and the two public companies. Insider > tips friend > tips guy who owes him money > tips three friends. I’d venture to guess there was some transaction data that allowed the SEC to form the link between the accounts profiting and the insiders because $1.7 million isn't a terribly huge sum to have SEC staff chasing after.) It also seems, judging by Gensler’s recent comments, they’re considering gathering data about planned and forgone 10b5-1 transactions presumably for the purpose of applying insider trading analytics.

sanguy 5y ago

The penalty should be: - Seizure of all stock holdings: logic is it's all tainted - Ban from all future trading for life, except index funds

camel_Snake 5y ago
this sounds ripe for abuse.

runawaybottle 5y ago

Sounds like a scare tactic to warn any pump and dumpers on Stocktwits and wsb with any kind of knowledge on large upcoming inflows into a stock. They are obviously out there and hidden in a raucous crowd.

arduinomancer 5y ago

> Using sophisticated data analysis Curious what that entails. Does the SEC have some automated alerting of suspiciously well timed trades?

gene91 5y ago
SEC and FINRA invest a lot in Data Analytics. Go to https://technology.finra.org/tech.html https://technology.finra.org/tech.html and you'll see that they use the same tools as the internet industry.
cldellow 5y ago
I'm not even sure you need sophisticated data analysis. The two people who did the biggest trades: - weren't involved in the finance industry (a school teacher and an equipment leasing business) - had never traded options before - did the brokerage know-your-client process to get approved for options 1-2 weeks before quarterly earnings came out - profited $884,000 and $175,000 A SQL query looking for people who made > 100K within 2 weeks of opening their account would catch these people, and probably have relatively few false positives.

anonygler 5y ago

$1.7m can't even buy a house. This is nothing compared to the ubiquitous congressional insider trading that goes on.

atatatat 5y ago
lol...you should move.
Karsteski 5y ago
> $1.7m can't even buy a house. I really dislike when people make such obviously inane statements like this...

jb775 5y ago

> Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable Anyone know details about the analysis they do? I'm assuming some sort of scan that notices when multiple people in the same geographic area and/or are publicly connected in some way (i.e. are fb friends) simultaneously place massive stock market orders on the same security.

underseacables 5y ago

It’s amazing the SEC is able to find the stuff out. It’s like what happen with Josh Chassion at Facebook. Eventually leaking confidential data is going to get you in trouble, and maybe jail, but people still do it.

jb775 5y ago

The SEC is the HR department of hedge funds. (i.e. it exists to protect hedge fund managers) There's systemic corruption at the highest levels, but the SEC decides to go after a handful of little guys. The next French Revolution is a ticking time-bomb.

moron4hire 5y ago

So what was their mistake? Not including any US senators?

jessaustin 5y ago
They didn't even have any company executives. The highest ranking manager was something called a "revenue recognition manager". Dude should have known that insider trading regulations are how chief executives punish defectors from their ongoing conspiracy against the investing public.

omarhaneef 5y ago

Covered in Matt Levine today and highlights some details: https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-pay-gambling-debts-by-insider-trading https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-... Such as: Shortly after seeing the screenshot of Wylam’s account on July 28, Brown called Wylam on the telephone. During the call, Wylam explained how he made such large profits purchasing Infinera put options before the July 27 announcement. Brown “flipped out” because, in his view, the massive size of Wylam’s trades and profits raised an “obvious red flag.”

tw04 5y ago
https://archive.is/Y6H89 https://archive.is/Y6H89

throwaway0a5e 5y ago

> Brown ... repeatedly tipped ... to his best friend Wylam ... Wylam ... traded on this information and also tipped Sood .. Sood traded on this information and tipped his three friends also illegally traded on the information. (edited for brevity) So it sounds like Brown texted his bestie something he shouldn't have. Bestie then passed it on to people who made lot of money on it. The SEC, through some combination of SQL select statements and creative greps managed to nab the bigger idiots and follow them back to the source. Everyone who obviously violated the law by trading on info they shouldn't have has settled and the SEC is still trying to nail Brown. Since Brown didn't trade I fail to see where he violated the law. Contractual obligations with his employer maybe. Regulatory requirements maybe. But you generally need to trade or have reason to suspect that someone will trade in order to insider trade. Edit: by "the law" I mean the subsection of 10b that the SEC release implies the whole crew violated. Not some unrelated regulatory law.

deleted 5y ago
[deleted]
bobbylarrybobby 5y ago
> Since Brown didn't trade I fail to see where he violated the law This article suggests that he may have engaged in conspiracy to commit securities fraud. https://www.latimes.com/business/la-fi-supreme-court-insider-trading-20161206-story.html https://www.latimes.com/business/la-fi-supreme-court-insider...
- throwaway0a5e 5y ago
  That article seems to be talking about Wylan, not Brown. >$1.5 million in stock profits by trading on confidential tips that originated from his brother-in-law, an investment banker in California. Brown may have violated some minor regulatory laws depending on the specific details of his employment but you generally need to trade, benefit or have reason to think trading is happening on your info in order to get slapped for insider trading.
johntb86 5y ago
The SEC complaint mentions this: > On August 5, 2016, Brown—whose tips enabled his friend, Wylam, to make nearly one million dollars—texted his then-girlfriend to inform her that he was going to Wylam’s house to, among other things, “talk to him about $.” One week later, on or around August 12, Brown took a photograph of numerous one hundred dollar bills spread across his bathroom sink. > On or about October 10, 2016, Wylam took Brown to a San Francisco Giants playoff game. Wylam bought both tickets—for seats only a few feet from the field—and paid more than $2,500 for each ticket. Brown understood that Wylam bought the tickets, at least in part, to thank Brown for providing inside information about Infinera.

vmception 5y ago

> In parallel proceedings, the U.S. Attorney’s Office for the Northern District of California today announced related criminal charges against Brown, Wylam, and Sood. Press F to pay respects

paulpauper 5y ago

>The SEC’s complaint further alleges that Bannon tipped Sood with material, nonpublic information concerning Bannon’s employer, Fortinet Inc. As alleged in the complaint, Bannon learned in early October 2016 that Fortinet was going to unexpectedly announce preliminary negative financial results. Bannon allegedly tipped this information to Sood, who used it to trade. After learning the information, Sood allegedly tipped Wylam and Ramaiya, who also traded. It's like the stock market equivalent of the blockchain. No matter how long or convoluted the chain of communication is , they can always piece it together.

spoonjim 5y ago

I’ll post what I posted a week ago: > Insider trade a million, you’ve got a problem. You have to insider trade a billion so that you’re untouchable. This is probably the hourly volume of insider trading at many hedge funds like SAC.

JKCalhoun 5y ago

I'm still reeling from "six-figure gambling debt". Man, who are these people?

Simulacra 5y ago
That is a shockingly high number. I think it's the same people in that meme things you realize when you're adult: More people do cocaine than you think. Gambling, drugs, OnlyFans, eventually debt adds up.
purple_ferret 5y ago
Davey Scatino

bosswipe 5y ago

> Using sophisticated data analysis, the SEC was able to uncover this insider trading ring I wonder if there's any ML involved here.

onemoresoop 5y ago

SEC is such a joke, they let a lot of wrongdoing go by then once in a while find a small fry to show that they're doing something. SEC cannot enforce naked shorting for example and it comes down to the transgressor to report themselves.

Sr_developer 5y ago

1 MM earned in an inside trading? That should be in the position number 2340 in last year alone. Glad to see the SEC has their priorities straight.

zeruch 5y ago

Holy crap...I'm pretty sure that the Marcus Bannon mentioned is someone I went to high school with. What an utterly bizarre, and shrinking universe.

cltby 5y ago

In light of the AP's new policy on minor crime reporting, I was curious how they would treat this story. Unfortunately, their website has no coverage. However, they did report today on another (alleged) insider trading case, and they use names liberally. [1] https://apnews.com/article/nyc-state-wire-ny-state-wire-new-york-business-585df5a8f6a43b426f03826c6b64b589 https://apnews.com/article/nyc-state-wire-ny-state-wire-new-...

plank_time 5y ago

I guess the way you throw off the algorithms is by having a strategy of making large wins and medium losses and only taking the delta between the two. Then it would be pretty hard to prove insider trading just from the trading records.

mrtweetyhack 5y ago

The whole stock market is a giant scam

nphard85 5y ago

Curious about this scenario: Bob works for company A which is a vendor for companies B, C and D. Most of company A's revenue stream is dependent on how well B, C and D are doing. Bob has insider knowledge of Company A's finances using which he trades stocks of B, C and D. Is this considered insider trading or not?

sam345 5y ago

I believe the standard economic argument to allow insider trading is that it would encourage much quicker uncovering of and dissemination of good and bad news. E.g. if people inside Enron had traded on inside info that Enron had cooked the books than it likely would have kept the brakes on the stock price. Instead you have regs that jail insiders (usually people lower down on the totem pole as the higher ups benefit from the coverup) for leaking correct information and preventing a correct (lower) price.