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SEC charges Netflix insider trading ring

550 points by hhs 5y ago

clpm4j 5y ago
"Sung Mo Jun, Joon Jun, and Chon allegedly used encrypted messaging applications to discuss their trading in an attempt to evade detection. According to the complaint, Sung Mo Jun, Joon Jun, and Chon made approximately $3 million in total profits from the illegal scheme. The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time." I'm curious which messaging app they used. I also wonder if someone tipped off the SEC or they just uncovered this in their own analysis work - it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface, but idk I'm not an expert... maybe the timing of the buy orders and also looking into what other trades they were making (if any) was easy to spot.
- H8crilA 5y ago
  Some of these guys just buy weekly options ahead of an earnings call, after a few hits it's basically screaming to some statistical algorithm at the SEC "hey, please put me in jail!". Digging up admissible evidence is harder, though.
  - bpodgursky 5y ago
    Maybe one of them cracked.
    - droopyEyelids 5y ago
      They probably all cracked. The SEC could put them in a perfect "prisoner's dilemma" game and we're only talking about regular people, not hardened operators with like, a suicide capsule in their molar.
      - H8crilA 5y ago
        Yeah. Reminder: if you witness something of this sort consider using the SEC Whistleblower Office (http://sec.gov/whistleblower http://sec.gov/whistleblower). You'll get 10% - 30% of the collected fines, and there's a cottage industry of lawyers that will compile the case for you (or tell you that you don't actually have a good case, which I heard is actually common).
        DaveExeter 5y ago
        Snitching is wrong.
        H8crilA 5y ago
        It could be considered wrong, depending on your personal ethics. That's why I wrote "consider".
        renewiltord 5y ago
        It’s not snitching. It’s predating on prey. If you don’t want to be prey, don’t try to insider trade where I can eat you.
        ahtihn 5y ago
        Breaking the law is wrong. Snitching is a civic duty.
  - socialist_coder 5y ago
    Do brokerages give all this info to the SEC so they can do this type of analysis and then be able to personally identify the buyers/sellers? It seems wrong that my personal info is being given out by my brokerage, in a way that lets them identify my personal trades.
    - haney 5y ago
      Talked with an SEC guy at a conference one time, they have access to every order that touches any American exchange (filled or not) in a huge data warehouse, apparently most of this detection is just a series of SQL queries.
      - RobertoG 5y ago
        Inside trading of the information in that database would be something!
        cyral 5y ago
        You can buy access to every trade being made (executed or not), but it won't have the information the SEC has like your name attached to it or if it was an opening or closing trade.
        kenned3 5y ago
        you can find this information online, trades (orders after they have been completed) are "public knowledge". insiders are required to report their trades (search for "sec Edgar"). it is hard to make money knowing that a trade has taken place.. you need to know BEFORE and this is clearly illegal with very serious penalties (martha stewart served jail time...).
    - empraptor 5y ago
      Might be a regulation that brokerages have to comply with? Seems like a reasonable solution if such regulation was made in order to detect insider trading.
  - alecst 5y ago
    Yea, possibly this plus messaging metadata.
  - vineyardmike 5y ago
    > Some of these guys just buy weekly options ahead of an earnings call, Obviously working for the company in question makes it different, but this doesn't seem crazy or unusual. I've worked placed where it was very easy to predict the stock movements ahead of earnings call since the company's success/failure is in public eye a lot (same true for netflix?). The top 5 companies in terms of market cap get lots of attention and analysis. I bet most people could review that data before the earnings call and guess the movement of the stock enough to make money. Again, i would never touch my companies stock on the market but it doesn't seem like you need insider knowledge at a lot of big companies.
    - H8crilA 5y ago
      Then why aren't you a multi-millionaire yet? One can easily multiply their pot every 3 months playing a few companies with simple option strategies, provided it's really that predictable. More importantly, if this is predictable then why is there volatility around earnings? Surely enough people would have figured it out by now.
      - vineyardmike 5y ago
        > Then why aren't you a multi-millionaire yet? Well, as you said, not everything is a win, and sometimes you lose. Some people don't have the money to deal with options and handle a loss. But who said i wasn't a millionaire ;)
      - smabie 5y ago
        How do you know he isn't?
        rurp 5y ago
        Okay then, why aren't a million people doing it to the point where the "free" money has been squeezed out of the price?
        vineyardmike 5y ago
  - andylynch 5y ago
    Not legal advice but in many common jurisdictions that would not necessary be a offence since they aren’t acting on inside information but rather executing planned trades. Though it would likely raise eyebrows and one would need to be mindful of related concerns like closed periods in the securities, which are far easier to monitor.
- artur_makly 5y ago
  do they get jail time? or just fines?
  - kevin_thibedeau 5y ago
    If they lie they get the Martha Stewart special which is apparently harsher than an attempted coup.
- codazoda 5y ago
  The article goes on to say that tools the SEC uses made the success of the trades look improbable. The only fine I see listed is for about $72k. I can't tell if the scheme was profitable or not because that was just one person. I assume the others are going to trial, so we won't know for a while.
- elliekelly 5y ago
  It’s part of their new “EPS Initiative” where they use an analytics tool called ARTEMIS (I forget what the acronym stands for) to assign a risk score to certain transactions and traders. It’s interesting because although the SEC has been pretty tight-lipped about the data inputs it appears there is some degree of “who-you-know” factored into the risk score. So two people can make the exact same trade at the exact same time but if I have a close friend or family member affiliated with Netflix and you don’t then my trade will receive a higher risk score. It’s part of a broader change in the way the SEC approaches insider trading. Previously they took an “issuer based” approach where a big pop or loss in $ABC triggered a look at all the trades in the right direction prior to the announcement. Now they take a “trader based” approach where they look at person’s pattern of activity over time. So if your spouse or sibling works in M&A and tips you off to potential deals so you can make (relatively) small investments on the inside information the scheme will be flagged and investigated much more quickly.
  - notadog 5y ago
    ARTEMIS stands for the Advanced Relational Trading Enforcement Metrics Investigation System.
    - antman 5y ago
      Also Artemis was the goddess of hunting in Ancient Greece.
      - unmole 5y ago
        And perhaps more interesting to WSB folks, Artemis is also the goddess of the Moon.
  - deleted 5y ago
    [deleted]
  - hatsunearu 5y ago
    How do they know whose friends are friends with whoever else?
- benatkin 5y ago
  Should have used Kakao. Guessing they used something based in the US.
  - HanaShiratori 5y ago
    I'm pretty certain that kakao provides data to international intelligence, so wouldn't make a difference
- PragmaticPulp 5y ago
  > it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface It can actually be harder to make money off of insider information than it sounds. The market doesn't always react in the precise way you might expect. As a result, inside traders usually make large sums of money one of two ways: 1) With single, huge bets placed on huge news that shocks the stock price. 2) With many, medium bets placed around regular earnings reports. In the first case: If someone never trades options and then suddenly places a single, large, highly-leveraged trade that happens to pay out handsomely, that's an easy red flag to spot. In the second case: If someone is pattern trading in the right general direction around most earnings releases and they happen to work for the company (can be as simple as a public LinkedIn search) then it's obviously a red flag. The encrypted messaging app is a red herring. The SEC isn't eavesdropping on their comms. They're getting one or more of the conspirators to flip on the others in exchange for reduced sentences. One of them gladly gave up the messages as part of a bargain.
  - ChrisKnott 5y ago
    > "They're getting one or more of the conspirators to flip on the others in exchange for reduced sentences. One of them gladly gave up the messages as part of a bargain." That's possible but they also could have just seized one of their phones or whatever and recovered the chat history that way.
- paxys 5y ago
  "Encrypted messaging application" is probably used as a scare phrase to bolster their case. iMessage, WhatsApp, Facebook Messenger, Signal, Telegram and lots more would qualify.
- nemonemo 5y ago
  I think the word "allegedly" probably indicates SEC did not use the messaging app as the route to uncover this. If I were a part of SEC, unless there is some regulatory hurdle, I'd use some other information (e.g., some gov documents? linkedin?), and use that to construct a giant watch list for insider trading even before trades are made.
  - philip1209 5y ago
    Can the SEC get a search warrant to seize the endpoint devices and search them? (If not, can they use evidence gathered by the parallel criminal inquiries?)
  - dehrmann 5y ago
    The word allegedly indicates the accused haven't been convicted of a crime, yet. Not using that word implies guilt, which the SEC hasn't proven, yet. It's pretty standard practice to see that word used like that.
- rich_sasha 5y ago
  > it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface It is often the manner in which this money is made. Very concentrated bets, like buying far out-of-the-money options, that let you get enormous leverage - buy the option for pennies, exercise for $50. Combined with the absence of activity on other stocks, lack of other regular trading etc. If you just had a "hunch", bought some shares of Netflix, maybe some other techy stocks for camouflage, and made your "measly" 10% return a few times, you'd probably never be caught. But that's not life-changing of course. To make the $3m over, say, 4 trades, you'd need to have $7.5m to play with, which is quite a lot.
- anonu 5y ago
  Basically don't make outsized short dated option bets on earnings stocks if you want to stay out of jail. Almost every case of insider trading is because of this pattern. It makes sense. You have information that you think gives you an edge. Trading "linear" stocks is boring. You need something that will give you an asymmetric payoff to compensate you for the asymmetric info you just stole.
whoisjuan 5y ago
"This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events." Lol, I don't think there's a lot of sophistication in this. They want to make it sound like some sort of powerful magic box they have that can find anyone doing something dubious when in reality this is probably a very simple interesection between two datasets: The one that contains all the people who yielded profits over X amount when trading the stock of a Y company during a timeframe, and another dataset that contains all the current and former employees of that Y company. That's the thing about insider trading. People who do it are just complete idiots. They think that they can leverage some assymetry of information when in reality there's no such thing. If you trade the stock of your current or former employer (especially before earnings calls) and yield unrealistic gains you're going to get flagged and someone is going to manually review your shit.
- cortesoft 5y ago
  > That's the thing about insider trading. People who do it are just complete idiots. This is selection bias. The people who get CAUGHT doing it are complete idiots.
  - whoisjuan 5y ago
    True!
  - skrtskrt 5y ago
    > The people who get CAUGHT doing it are complete idiots and/or greedy. Even if you're "smart" about it, you can only hit so many lottery tickets before you come under suspicion. I'd bet the best way to get away with insider trading is to do it once, make under $1 million, then walk the hell away and never speak of it.
    - Retric 5y ago
      Insider information isn’t guaranteed to let you predict the stock price. You are much more likely to actually make money with multiple small bets than any one big bet.
hooloovoo_zoo 5y ago
What's the penalty for this? If the total profits were 3M over several years and at least 3 Netflix engineers were involved (who combined would have made that much anyway over that period), it seems awfully risky unless the penalty is trivial.
- criloz2 5y ago
  and with those Netflix salaries, it does not look that worth the risk to begin with it
spoonjim 5y ago
Crazy to lose your >$500K job and get a felony record for $3 million in profit split among accomplices.
- jonny_eh 5y ago
  Criminals don't expect to get caught.
- elliekelly 5y ago
  NFL player Mychal Kendricks traded on insider information provided by a friend working at Goldman Sachs to make just over a million dollars. Kendricks got off fairly light and even kept his job but it’s nuts that two people in two highly-coveted and well-compensated positions would risk so much for such a (relatively) small amount. Money makes people do stupid stuff, I guess.
- pcbro141 5y ago
  A Chicago pharmacist just got charged for selling CDC vaccination cards for $10 each for total $1250 in profit. Lost his $100k+ job and faces at least a few years in prison. Crazy what some people will risk for a little money. https://news.wttw.com/2021/08/17/chicago-pharmacist-arrested-selling-vaccination-cards-10-feds https://news.wttw.com/2021/08/17/chicago-pharmacist-arrested...
- downrightmike 5y ago
  Once you have a lot of money, it becomes a accumulation game. So that's why they risked it. Basic psychology.
wjd2030 5y ago
Meanwhile members of congress continue to get rich using their positions and its all good.
seriousquestion 5y ago
Now that they got a small fish at Netflix, how about looking into the whales in congress? https://unusualwhales.com/i_am_the_senate/congress https://unusualwhales.com/i_am_the_senate/congress
- not2b 5y ago
  Many of these trades aren't really inside information, like buying stock in the vaccine companies shortly before government deals to bulk-purchase vaccines. Any careful observer would know the rough timing of those deals. Just the same, Congresspeople should be restricted from dealing in individual stocks and making trades that are going to look expensive. They have to put their money somewhere, but they could be restricted to index funds. Or they could have trading windows, like corporate execs do, limiting their ability to profit on insider knowledge.
a-dub 5y ago
important to keep in mind: if you work for a publicly traded company and share mnpi without even realizing it and someone trades on it (or perhaps something else) without even telling you, you could still face criminal liability.
- smabie 5y ago
  Is this even true? As far as I know sharing information with random people while drink is not a crime.
  - throwaway0a5e 5y ago
    It's legally debatable but in practice the feds can screw anyone if they want to. The laws related to insider trading are broad enough (because they kind of need to be to do the job) and enough people want it to be true that the commenter can soak up easy virtue points.
    - a-dub 5y ago
      it seems pretty simple to me: if you believe that you've learned something through your job that you wouldn't know otherwise, that may have a material effect on the movement of your job's stock price, and you tell someone about it and they trade on it, you've opened up an exposure for yourself.
    - sumedh 5y ago
      > but in practice the feds can screw anyone if they want to. If you are in the billionaire club, you will pay a fine but the Fed wont put you in jail.
  - jessaustin 5y ago
    There's going to be a massive crackdown on people who yell "my company sucks!" while drinking...
cardosof 5y ago
Bringing the big harpoons for the small fish. What about the whales?
- not2b 5y ago
  I know an SEC lawyer. He admits that the SEC doesn't have the resources to go after the really big fish because they can afford to fight like hell in court, while the smaller fish are much easier to convict. So they have to pick their battles. Doesn't mean that they never go after the big ones but they'd have to have an overwhelming case, which is tough.
- JohnWhigham 5y ago
  The chickenshit club strikes again.
- jessaustin 5y ago
  Insider trading regulations are intended precisely to punish small-time defectors from ongoing executive-suite conspiracies against the investing public. Prosecutors know very well that charging CxOs who trade their own firms on inside information would quickly result in Congress radically changing the relevant laws.
  - vmception 5y ago
    There really does need to be Congressional leadership here US insider trading laws confuse the courts, waste all the appeals courts times, and unnecessarily burden everyone The securities regulator just dangles a Sword of Damocles over everyone’s head without having a single “Insider Trading Act” to rely upon, just their own opinion leveraging their blanket fraud statute, curbstomped by the courts until its cranium is molded into narrowly tailored brain matter, with exceptions oozing out the ears into gutter
- dotcommand 5y ago
  So eloquently stated. Couldn't have said it better myself. Hunt the minnows while at the SEC. Get hired by the whales after leaving the SEC.
khazhoux 5y ago
Here's what I don't understand: How does knowing the growth numbers actually translate into an actionable buy-or-sell plan? To my naive eye, the market effect of key metrics always seems fairly random. And besides, in recent memory, all the FAANGs have been reporting positive numbers for all metrics, with just a few exceptions. I mean it's like, here's my "insider tip": FAANGs saw usage and revenue growth this quarter. Ok, now are you gonna make money off this secret info?
- RandallBrown 5y ago
  If growth numbers are higher than expected, you can buy stock now before the numbers are released. When they announce the true numbers, the stock will probably rise and you will make money.
  - toddmatthews 5y ago
    but half the time the headline is "X Company beats expectations, stock slides anyway".... unless these are super outliers, it seems like the effect on the stock can be random
    - ramraj07 5y ago
      Is that a calculated metric or anecdotal? Netflix shares definitely trailed their subscriber number following expectations.
    - RandallBrown 5y ago
      Effect on stock can be random, but if you're trading on insider information I believe it's still illegal even if you're wrong about the outcome.
    - martinpw 5y ago
      If it was truly half the time you would be right. But in reality it is less than half the time, so you can still come out ahead on average across multiple trades. The example quote you give does happen of course but you tend to remember those cases more than the more common beats-expectations-stock-rises cases precisely because they feel more unexpected.
m101 5y ago
Taking the other side of this argument for a second.. Doesn't insider trading just move expected profits from the wide and distributed network of people betting on information gathered through personal networks, and towards the concentrated group who can code the fastest trading algorithms? I would like someone to suggest reasons why we should favour the coders over the people with friends. I guess a more fundamental difference (in defence of insider trading regulations) could be an insider trade may be able to be put on in larger size, whilst market movements around news events may move the market with lower volumes.
- thatcat 5y ago
  if you want to prioritize friends then don't go public
- smabie 5y ago
  Insider trading is about theft of intellectual property not fairness: i.e these individuals were stealing from Netflix. It's just that corporate lobbyists have convinced the government to take up the fight for then. In my opinion it should be a civil matter.
  - a-dub 5y ago
    huh. insider trading is about information asymmetry. material nonpublic information harms those who take the other side of tipped trades and therefore harms everyone in the market. intellectual property is about actual things and how they're made, and unlike mnpi it has intrinsic value outside of speculating on securities prices. tradable material nonpublic information isn't useful as most intellectual property is, but intellectual property, or knowledge of its development, can be tradable material nonpublic information. netflix isn't harmed when their employees leak business performance numbers and their associates trade on them, the people who took the other side of those trades are the ones who are harmed. if it happens a lot, the whole market is harmed, if it happens a lot in one company, then that one company is harmed. it ain't rocket science.
    - cwkoss 5y ago
slt2021 5y ago
When is Nancy Pelosi gonna get charged for insider trading AMZN on JEDI contract news?
- inetknght 5y ago
  When is any member of the US government going to get charged for insider trading?
  - hoppyhoppy2 5y ago
    Chris Collins (R-NY) in 2018
- vmception 5y ago
  She won’t. And this has nothing to do with her being a Representative or her husband making the trades. Its not illegal to just know non-public information. Insider trading requires a lot of things such as trading and having a contractual obligation with the company not to say anything (employees, board, executive) or trading and getting the information from someone with the aforementioned duty. Just knowing what a federal agency is going to do isn't one of them.
  - deleted 5y ago
    [deleted]
seventytwo 5y ago
Now do congress
tdhz77 5y ago
He trades like he codes. He deserves prison for his coding ability if nothing else. He introduced more bugs at Netflix than any engineer in history.
- stefan_ 5y ago
  The trades beat the market though.
  - solumos 5y ago
    maybe we should wait and see how that nets out with the SEC fines + civil suit...
  - tdhz77 5y ago
    Illegal exceptions
    - dagurp 5y ago
      better to ask for forgiveness than permission
- philosopher1234 5y ago
  This guy is well known inside netflix?
- par 5y ago
  Sounds like a PIP is in order, a .... puts on sunglasses... prison initiation plan.
- swyx 5y ago
  perhaps during those periods he was short $NFLX. did he cause any outages?
- nabakin 5y ago
  You can't leave us without context! We must know!
oars 5y ago
If they were white like the Congress would the SEC have cared?
Shadonototro 5y ago
3 millions in profit and only just a $72,875 fine, what a joke
- solumos 5y ago
  There will be additional criminal + civil penalties decided in court. As far as I can tell, the $72K fine is imposed directly by the SEC for breaking the rule.
kaminar 5y ago
Insider trading is a game of cat and mouse...go big or don't go...even if you get caught, have the legal side ready in advance, plus various trusts protecting all the real value...plea out, do a few years or community service, then enjoy the profits they never knew existed...
paxys 5y ago
Low-mid value insider trading, tax fraud and other similar white-collar crimes are a terrible idea. They are ridiculously easy to detect, and the authorities will go after you because $3M is enough of a haul to set an example and further some careers, but not enough to give you the means to hire fancy lawyers to defend yourself.
- elevenoh 5y ago
  No they're not 'ridiculously easy to detect'...at all. They give insider info to corps & non-related individuals to act on. Good luck tracing that.
TeeMassive 5y ago
Now let's drop the immunity that members of the US Congress and Senate has for insider trading.
xpressvideoz 5y ago
> Sung Mo Jun, Joon Jun, Chon, Ayden Lee They are all Korean names. I was surprised to see Korean names in a SEC complaint.
- sumedh 5y ago
  Why were you surprised?
  - oars 5y ago
    > Why were you surprised? It's rare to see Korean names mentioned in the news, yet alone when it's related to crime.
    - sumedh 5y ago
      What did you expect the SEC to do, not publish their names because they are Korean?
hintymad 5y ago
I don’t get why they would do it in the first place. It’s merely $3M over three years for at least four people. Substantial amount, sure, but compared with the risk and their income from Netflix salary and generous options, I just don’t see where the incentive was.
- deleted 5y ago
  [deleted]
- jonas21 5y ago
  First, I'm sure they thought the probability of being caught, and thus the risk to themselves, was low. And who knows? They may have even been right about this -- without knowing how many people get away with insider trading, it's impossible to say. Second, nearly all of the profits were allegedly made by Joon Jun and Junwoo Chon, who did not work at Netflix. $3M over 3 years was probably a lot of money for them, as it would be for most people.
  - hintymad 5y ago
    Wow, I somehow thought they all worked for Netflix.
- pacetherace 5y ago
  Crimnals tend to start small, if uncaught, go big.
- elevenoh 5y ago
  Can you imagine the low traceability info they gave family/friends (e.g. with different last name) to trade on? 3M RIO under their name. How bout under others' names
demarq 5y ago
They need to make a documentary about this. MetaTime!
calcsam 5y ago
A few years ago, Matt Levine wrote an article about a similar case, at Capital One: https://www.bloomberg.com/opinion/articles/2015-01-23/capital-one-fraud-researchers-may-also-have-done-some-fraud https://www.bloomberg.com/opinion/articles/2015-01-23/capita... Incidentally, the article is hilarious.
stevespang 5y ago
"This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events." I call B.S. Somebody snitched them off - - the old fashioned way, then the SEC may have stepped in with analytical tools.
kazinator 5y ago
Millions of people can now feel better about their five-houshold Netflix account insider sharing ring.
vmception 5y ago
The whole trading ring made $3mm lol The engineers could have just bought Netflix shares via the Employee Stock Purchase plan and made as much or even more, by now Smooth brain
_RPL5_ 5y ago
Perhaps, I am a bit naive, but what qualifies as insider trading? If I work at a company, I am bound to know things that are not public knowledge. This means that any trade I make is technically insider trading. Example: I am an engineer, working on a new unannounced product which I think will do well. I buy shares of my company in advance of the release of that product. A few years later, after the product has shipped and delivered the expected gains, I sell my stock. Will I go to jail for insider trading?
- izgzhen 5y ago
  Typically publicly traded companies have trading window limitations for its employees, and one purpose is to avoid insider trading risks. But that works for “normal engineer”. Executives who have more privileged info might need to consult their lawyers case by case.
  - ehsankia 5y ago
    One common approach also it to have auto-sell, which will automatically sell your stock on a schedule which is set long in advance, so there's no suspicion of insider trading. Honestly I think that should be the only way to sell stocks of your own company, either that or schedule a sale at least a quarter in advance.
- TrackerFF 5y ago
  https://www.law.cornell.edu/wex/insider_trading https://www.law.cornell.edu/wex/insider_trading
- ec109685 5y ago
  Good question. Same thing applies if you decide not to sell your company’s stock because you have confidence in the internal roadmap. However, at most companies, there’s a segment of data that is kept more confidential, and those people with access have more guardrails on their trading. Netflix is an exception in that most of their workforce is “insider” and thus financial data such as what was shared within this indictment is more freely available.
- 5y ago
alexrivera027 5y ago
When will the SEC review the Pelosi’s?
SevenSigs 5y ago
lets get the small fish....
andredz 5y ago
About insider trading, I've enjoyed reading Matt Levine's Money Stuff column: https://lawsofinsidertrading.com/ https://lawsofinsidertrading.com/ Pretty fun.
syspec 5y ago
> permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 and imposing a civil penalty of $72,875.
TechBro8615 5y ago
I’m surprised that access to subscriber numbers was enough signal to generate alpha. Just off the top of my head, I can think of multiple public or semi-public data sources that you could use as a rough proxy for Netflix subscription numbers. Think DNS logs, VPN providers, peering data, credit card transactions... and that’s without reverse engineering the app at all. I’m sure if you really dig into it you can find a few methods for estimating subscriber count. You don’t even need a count, just a well-distributed sample of delta. If Wall St estimates subscriber growth of 1%, but your model shows 5%, who cares what the exact numbers are?
- AmericanChopper 5y ago
  That’s just typical (and legal) quantitative analysis. Like using satellite imagery to track utilization of Walmart car parks.
- mdoms 5y ago
  The fact that they netted 3 million bucks indicates it's not as easy as you think.
  - TechBro8615 5y ago
    Or perhaps it’s easier than I thought, since I assumed surely those sources would be fully mined, such that insider knowledge of subscriber numbers wouldn’t be enough to reliably know which way the stock will move after an earnings announcement.
ad8e 5y ago
We are perhaps the only public company that shares financial results internally in the weeks before the quarter is closed. We announce these numbers at a quarterly business review meeting with our top seven hundred or so managers. The financial world sees this as reckless. But the information has never been leaked. When it does one day leak (I imagine it will), we won’t overreact. We’ll just deal with that one case and continue with transparency. The CEO of Netflix says this in Ch 5 of his book No Rules Rules. The leak is a predictable result and will happen again. He believes the tradeoff in openness is worth it. If this $3 million is the only incident, maybe he is right.
- tw04 5y ago
  Honestly it seems like a win-win. Anyone trading on the information is likely to be caught and I doubt they want someone in a position of power who would commit that sort of crime. As far as I can tell the company isn’t legally or financially liable so I don’t see a downside?
  - daniel_iversen 5y ago
    Aren't Netflix essentially enabling market manipulation (which insider trading technically could be a part of) which surely must violate some sort of legal codes (maybe even for the directors of the company! I.e. in Australia we have laws around "Director Duties" where as a director can be held liable for all kinds of behaviour when it reaches a certain scale incl. honesty, debt, insider trading etc.)
- yashap 5y ago
  IMO it’d be great if going public meant that you had to publish open, online, real(ish)-time dashboards of your company’s core metrics. Like if it’s a metric in every quarterly report, it goes in the public dashboard, and has to be no more than X stale (1 hour? 1 day? Something like that). Many public companies already have something like this internally, it’s just really locked down. Open it up and most insider trading goes away.
  - judge2020 5y ago
sjg007 5y ago
If anyone actually cares, the SEC uses the all seeing stone. That’s public knowledge.
blobbers 5y ago
3M over years of insider trading? Bravo SEC, bravo. Slow clap.
farmerstan 5y ago
My wife has been in finance in public companies since we met. Now she's a C-suite at a public company. I avoid not only trading the company stock but the entire sector. I usually just trade SPY or other ETFs in order to completely avoid any chance of looking bad. It's just not worth it given how much my wife makes.
elevenoh 5y ago
And we wonder why inequality is so bad. Bankers & insiders have all the valuable info/data streams.
- jd115 5y ago
  Ah, poor poor people... If only they had more info / data streams.
  - elevenoh 5y ago
    Seriously tho..
yalok 5y ago
"The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time." Fascinating tool! I remember a video we had to watch at my previous employer, explaining what insider trading is and discouraging it. Part of it had a testimony from a real guy from that company, who was caught on insider trading, was convicted with a jail time, and was very remorseful on the video, explaining how he ended up going that slippery path, and how awful the consequences are. Maybe he even got some time reduced by doing that video, don't know. But it definitely left a lasting impression...
saos 5y ago
Software engineer at FAANG company unhappy with large salary? :/

550 points by hhs 5y ago

"Sung Mo Jun, Joon Jun, and Chon allegedly used encrypted messaging applications to discuss their trading in an attempt to evade detection. According to the complaint, Sung Mo Jun, Joon Jun, and Chon made approximately $3 million in total profits from the illegal scheme. The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time." I'm curious which messaging app they used. I also wonder if someone tipped off the SEC or they just uncovered this in their own analysis work - it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface, but idk I'm not an expert... maybe the timing of the buy orders and also looking into what other trades they were making (if any) was easy to spot.

H8crilA 5y ago
Some of these guys just buy weekly options ahead of an earnings call, after a few hits it's basically screaming to some statistical algorithm at the SEC "hey, please put me in jail!". Digging up admissible evidence is harder, though.
- bpodgursky 5y ago
  Maybe one of them cracked.
  - droopyEyelids 5y ago
    They probably all cracked. The SEC could put them in a perfect "prisoner's dilemma" game and we're only talking about regular people, not hardened operators with like, a suicide capsule in their molar.
    - H8crilA 5y ago
      Yeah. Reminder: if you witness something of this sort consider using the SEC Whistleblower Office (http://sec.gov/whistleblower http://sec.gov/whistleblower). You'll get 10% - 30% of the collected fines, and there's a cottage industry of lawyers that will compile the case for you (or tell you that you don't actually have a good case, which I heard is actually common).
      - DaveExeter 5y ago
        Snitching is wrong.
        H8crilA 5y ago
        It could be considered wrong, depending on your personal ethics. That's why I wrote "consider".
        renewiltord 5y ago
        It’s not snitching. It’s predating on prey. If you don’t want to be prey, don’t try to insider trade where I can eat you.
        ahtihn 5y ago
        Breaking the law is wrong. Snitching is a civic duty.
- socialist_coder 5y ago
  Do brokerages give all this info to the SEC so they can do this type of analysis and then be able to personally identify the buyers/sellers? It seems wrong that my personal info is being given out by my brokerage, in a way that lets them identify my personal trades.
  - haney 5y ago
    Talked with an SEC guy at a conference one time, they have access to every order that touches any American exchange (filled or not) in a huge data warehouse, apparently most of this detection is just a series of SQL queries.
    - RobertoG 5y ago
      Inside trading of the information in that database would be something!
      - cyral 5y ago
        You can buy access to every trade being made (executed or not), but it won't have the information the SEC has like your name attached to it or if it was an opening or closing trade.
      - kenned3 5y ago
        you can find this information online, trades (orders after they have been completed) are "public knowledge". insiders are required to report their trades (search for "sec Edgar"). it is hard to make money knowing that a trade has taken place.. you need to know BEFORE and this is clearly illegal with very serious penalties (martha stewart served jail time...).
  - empraptor 5y ago
    Might be a regulation that brokerages have to comply with? Seems like a reasonable solution if such regulation was made in order to detect insider trading.
- alecst 5y ago
  Yea, possibly this plus messaging metadata.
- vineyardmike 5y ago
  > Some of these guys just buy weekly options ahead of an earnings call, Obviously working for the company in question makes it different, but this doesn't seem crazy or unusual. I've worked placed where it was very easy to predict the stock movements ahead of earnings call since the company's success/failure is in public eye a lot (same true for netflix?). The top 5 companies in terms of market cap get lots of attention and analysis. I bet most people could review that data before the earnings call and guess the movement of the stock enough to make money. Again, i would never touch my companies stock on the market but it doesn't seem like you need insider knowledge at a lot of big companies.
  - H8crilA 5y ago
    Then why aren't you a multi-millionaire yet? One can easily multiply their pot every 3 months playing a few companies with simple option strategies, provided it's really that predictable. More importantly, if this is predictable then why is there volatility around earnings? Surely enough people would have figured it out by now.
    - vineyardmike 5y ago
      > Then why aren't you a multi-millionaire yet? Well, as you said, not everything is a win, and sometimes you lose. Some people don't have the money to deal with options and handle a loss. But who said i wasn't a millionaire ;)
    - smabie 5y ago
      How do you know he isn't?
      - rurp 5y ago
        Okay then, why aren't a million people doing it to the point where the "free" money has been squeezed out of the price?
        vineyardmike 5y ago
- andylynch 5y ago
  Not legal advice but in many common jurisdictions that would not necessary be a offence since they aren’t acting on inside information but rather executing planned trades. Though it would likely raise eyebrows and one would need to be mindful of related concerns like closed periods in the securities, which are far easier to monitor.
artur_makly 5y ago
do they get jail time? or just fines?
- kevin_thibedeau 5y ago
  If they lie they get the Martha Stewart special which is apparently harsher than an attempted coup.
codazoda 5y ago
The article goes on to say that tools the SEC uses made the success of the trades look improbable. The only fine I see listed is for about $72k. I can't tell if the scheme was profitable or not because that was just one person. I assume the others are going to trial, so we won't know for a while.
elliekelly 5y ago
It’s part of their new “EPS Initiative” where they use an analytics tool called ARTEMIS (I forget what the acronym stands for) to assign a risk score to certain transactions and traders. It’s interesting because although the SEC has been pretty tight-lipped about the data inputs it appears there is some degree of “who-you-know” factored into the risk score. So two people can make the exact same trade at the exact same time but if I have a close friend or family member affiliated with Netflix and you don’t then my trade will receive a higher risk score. It’s part of a broader change in the way the SEC approaches insider trading. Previously they took an “issuer based” approach where a big pop or loss in $ABC triggered a look at all the trades in the right direction prior to the announcement. Now they take a “trader based” approach where they look at person’s pattern of activity over time. So if your spouse or sibling works in M&A and tips you off to potential deals so you can make (relatively) small investments on the inside information the scheme will be flagged and investigated much more quickly.
- notadog 5y ago
  ARTEMIS stands for the Advanced Relational Trading Enforcement Metrics Investigation System.
  - antman 5y ago
    Also Artemis was the goddess of hunting in Ancient Greece.
    - unmole 5y ago
      And perhaps more interesting to WSB folks, Artemis is also the goddess of the Moon.
- deleted 5y ago
  [deleted]
- hatsunearu 5y ago
  How do they know whose friends are friends with whoever else?
benatkin 5y ago
Should have used Kakao. Guessing they used something based in the US.
- HanaShiratori 5y ago
  I'm pretty certain that kakao provides data to international intelligence, so wouldn't make a difference
PragmaticPulp 5y ago
> it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface It can actually be harder to make money off of insider information than it sounds. The market doesn't always react in the precise way you might expect. As a result, inside traders usually make large sums of money one of two ways: 1) With single, huge bets placed on huge news that shocks the stock price. 2) With many, medium bets placed around regular earnings reports. In the first case: If someone never trades options and then suddenly places a single, large, highly-leveraged trade that happens to pay out handsomely, that's an easy red flag to spot. In the second case: If someone is pattern trading in the right general direction around most earnings releases and they happen to work for the company (can be as simple as a public LinkedIn search) then it's obviously a red flag. The encrypted messaging app is a red herring. The SEC isn't eavesdropping on their comms. They're getting one or more of the conspirators to flip on the others in exchange for reduced sentences. One of them gladly gave up the messages as part of a bargain.
- ChrisKnott 5y ago
  > "They're getting one or more of the conspirators to flip on the others in exchange for reduced sentences. One of them gladly gave up the messages as part of a bargain." That's possible but they also could have just seized one of their phones or whatever and recovered the chat history that way.
paxys 5y ago
"Encrypted messaging application" is probably used as a scare phrase to bolster their case. iMessage, WhatsApp, Facebook Messenger, Signal, Telegram and lots more would qualify.
nemonemo 5y ago
I think the word "allegedly" probably indicates SEC did not use the messaging app as the route to uncover this. If I were a part of SEC, unless there is some regulatory hurdle, I'd use some other information (e.g., some gov documents? linkedin?), and use that to construct a giant watch list for insider trading even before trades are made.
- philip1209 5y ago
  Can the SEC get a search warrant to seize the endpoint devices and search them? (If not, can they use evidence gathered by the parallel criminal inquiries?)
- dehrmann 5y ago
  The word allegedly indicates the accused haven't been convicted of a crime, yet. Not using that word implies guilt, which the SEC hasn't proven, yet. It's pretty standard practice to see that word used like that.
rich_sasha 5y ago
> it doesn't seem like making $3m off Netflix stock trades over a couple of years is particularly alarming on the surface It is often the manner in which this money is made. Very concentrated bets, like buying far out-of-the-money options, that let you get enormous leverage - buy the option for pennies, exercise for $50. Combined with the absence of activity on other stocks, lack of other regular trading etc. If you just had a "hunch", bought some shares of Netflix, maybe some other techy stocks for camouflage, and made your "measly" 10% return a few times, you'd probably never be caught. But that's not life-changing of course. To make the $3m over, say, 4 trades, you'd need to have $7.5m to play with, which is quite a lot.
anonu 5y ago
Basically don't make outsized short dated option bets on earnings stocks if you want to stay out of jail. Almost every case of insider trading is because of this pattern. It makes sense. You have information that you think gives you an edge. Trading "linear" stocks is boring. You need something that will give you an asymmetric payoff to compensate you for the asymmetric info you just stole.

whoisjuan 5y ago

"This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events." Lol, I don't think there's a lot of sophistication in this. They want to make it sound like some sort of powerful magic box they have that can find anyone doing something dubious when in reality this is probably a very simple interesection between two datasets: The one that contains all the people who yielded profits over X amount when trading the stock of a Y company during a timeframe, and another dataset that contains all the current and former employees of that Y company. That's the thing about insider trading. People who do it are just complete idiots. They think that they can leverage some assymetry of information when in reality there's no such thing. If you trade the stock of your current or former employer (especially before earnings calls) and yield unrealistic gains you're going to get flagged and someone is going to manually review your shit.

cortesoft 5y ago
> That's the thing about insider trading. People who do it are just complete idiots. This is selection bias. The people who get CAUGHT doing it are complete idiots.
- whoisjuan 5y ago
  True!
- skrtskrt 5y ago
  > The people who get CAUGHT doing it are complete idiots and/or greedy. Even if you're "smart" about it, you can only hit so many lottery tickets before you come under suspicion. I'd bet the best way to get away with insider trading is to do it once, make under $1 million, then walk the hell away and never speak of it.
  - Retric 5y ago
    Insider information isn’t guaranteed to let you predict the stock price. You are much more likely to actually make money with multiple small bets than any one big bet.

hooloovoo_zoo 5y ago

What's the penalty for this? If the total profits were 3M over several years and at least 3 Netflix engineers were involved (who combined would have made that much anyway over that period), it seems awfully risky unless the penalty is trivial.

criloz2 5y ago
and with those Netflix salaries, it does not look that worth the risk to begin with it

spoonjim 5y ago

Crazy to lose your >$500K job and get a felony record for $3 million in profit split among accomplices.

jonny_eh 5y ago
Criminals don't expect to get caught.
elliekelly 5y ago
NFL player Mychal Kendricks traded on insider information provided by a friend working at Goldman Sachs to make just over a million dollars. Kendricks got off fairly light and even kept his job but it’s nuts that two people in two highly-coveted and well-compensated positions would risk so much for such a (relatively) small amount. Money makes people do stupid stuff, I guess.
pcbro141 5y ago
A Chicago pharmacist just got charged for selling CDC vaccination cards for $10 each for total $1250 in profit. Lost his $100k+ job and faces at least a few years in prison. Crazy what some people will risk for a little money. https://news.wttw.com/2021/08/17/chicago-pharmacist-arrested-selling-vaccination-cards-10-feds https://news.wttw.com/2021/08/17/chicago-pharmacist-arrested...
downrightmike 5y ago
Once you have a lot of money, it becomes a accumulation game. So that's why they risked it. Basic psychology.

wjd2030 5y ago

Meanwhile members of congress continue to get rich using their positions and its all good.

seriousquestion 5y ago

Now that they got a small fish at Netflix, how about looking into the whales in congress? https://unusualwhales.com/i_am_the_senate/congress https://unusualwhales.com/i_am_the_senate/congress

not2b 5y ago
Many of these trades aren't really inside information, like buying stock in the vaccine companies shortly before government deals to bulk-purchase vaccines. Any careful observer would know the rough timing of those deals. Just the same, Congresspeople should be restricted from dealing in individual stocks and making trades that are going to look expensive. They have to put their money somewhere, but they could be restricted to index funds. Or they could have trading windows, like corporate execs do, limiting their ability to profit on insider knowledge.

a-dub 5y ago

important to keep in mind: if you work for a publicly traded company and share mnpi without even realizing it and someone trades on it (or perhaps something else) without even telling you, you could still face criminal liability.

smabie 5y ago
Is this even true? As far as I know sharing information with random people while drink is not a crime.
- throwaway0a5e 5y ago
  It's legally debatable but in practice the feds can screw anyone if they want to. The laws related to insider trading are broad enough (because they kind of need to be to do the job) and enough people want it to be true that the commenter can soak up easy virtue points.
  - a-dub 5y ago
    it seems pretty simple to me: if you believe that you've learned something through your job that you wouldn't know otherwise, that may have a material effect on the movement of your job's stock price, and you tell someone about it and they trade on it, you've opened up an exposure for yourself.
  - sumedh 5y ago
    > but in practice the feds can screw anyone if they want to. If you are in the billionaire club, you will pay a fine but the Fed wont put you in jail.
- jessaustin 5y ago
  There's going to be a massive crackdown on people who yell "my company sucks!" while drinking...

cardosof 5y ago

Bringing the big harpoons for the small fish. What about the whales?

not2b 5y ago
I know an SEC lawyer. He admits that the SEC doesn't have the resources to go after the really big fish because they can afford to fight like hell in court, while the smaller fish are much easier to convict. So they have to pick their battles. Doesn't mean that they never go after the big ones but they'd have to have an overwhelming case, which is tough.
JohnWhigham 5y ago
The chickenshit club strikes again.
jessaustin 5y ago
Insider trading regulations are intended precisely to punish small-time defectors from ongoing executive-suite conspiracies against the investing public. Prosecutors know very well that charging CxOs who trade their own firms on inside information would quickly result in Congress radically changing the relevant laws.
- vmception 5y ago
  There really does need to be Congressional leadership here US insider trading laws confuse the courts, waste all the appeals courts times, and unnecessarily burden everyone The securities regulator just dangles a Sword of Damocles over everyone’s head without having a single “Insider Trading Act” to rely upon, just their own opinion leveraging their blanket fraud statute, curbstomped by the courts until its cranium is molded into narrowly tailored brain matter, with exceptions oozing out the ears into gutter
dotcommand 5y ago
So eloquently stated. Couldn't have said it better myself. Hunt the minnows while at the SEC. Get hired by the whales after leaving the SEC.

khazhoux 5y ago

Here's what I don't understand: How does knowing the growth numbers actually translate into an actionable buy-or-sell plan? To my naive eye, the market effect of key metrics always seems fairly random. And besides, in recent memory, all the FAANGs have been reporting positive numbers for all metrics, with just a few exceptions. I mean it's like, here's my "insider tip": FAANGs saw usage and revenue growth this quarter. Ok, now are you gonna make money off this secret info?

RandallBrown 5y ago
If growth numbers are higher than expected, you can buy stock now before the numbers are released. When they announce the true numbers, the stock will probably rise and you will make money.
- toddmatthews 5y ago
  but half the time the headline is "X Company beats expectations, stock slides anyway".... unless these are super outliers, it seems like the effect on the stock can be random
  - ramraj07 5y ago
    Is that a calculated metric or anecdotal? Netflix shares definitely trailed their subscriber number following expectations.
  - RandallBrown 5y ago
    Effect on stock can be random, but if you're trading on insider information I believe it's still illegal even if you're wrong about the outcome.
  - martinpw 5y ago
    If it was truly half the time you would be right. But in reality it is less than half the time, so you can still come out ahead on average across multiple trades. The example quote you give does happen of course but you tend to remember those cases more than the more common beats-expectations-stock-rises cases precisely because they feel more unexpected.

m101 5y ago

Taking the other side of this argument for a second.. Doesn't insider trading just move expected profits from the wide and distributed network of people betting on information gathered through personal networks, and towards the concentrated group who can code the fastest trading algorithms? I would like someone to suggest reasons why we should favour the coders over the people with friends. I guess a more fundamental difference (in defence of insider trading regulations) could be an insider trade may be able to be put on in larger size, whilst market movements around news events may move the market with lower volumes.

thatcat 5y ago
if you want to prioritize friends then don't go public
smabie 5y ago
Insider trading is about theft of intellectual property not fairness: i.e these individuals were stealing from Netflix. It's just that corporate lobbyists have convinced the government to take up the fight for then. In my opinion it should be a civil matter.
- a-dub 5y ago
  huh. insider trading is about information asymmetry. material nonpublic information harms those who take the other side of tipped trades and therefore harms everyone in the market. intellectual property is about actual things and how they're made, and unlike mnpi it has intrinsic value outside of speculating on securities prices. tradable material nonpublic information isn't useful as most intellectual property is, but intellectual property, or knowledge of its development, can be tradable material nonpublic information. netflix isn't harmed when their employees leak business performance numbers and their associates trade on them, the people who took the other side of those trades are the ones who are harmed. if it happens a lot, the whole market is harmed, if it happens a lot in one company, then that one company is harmed. it ain't rocket science.
  - cwkoss 5y ago

slt2021 5y ago

When is Nancy Pelosi gonna get charged for insider trading AMZN on JEDI contract news?

inetknght 5y ago
When is any member of the US government going to get charged for insider trading?
- hoppyhoppy2 5y ago
  Chris Collins (R-NY) in 2018
vmception 5y ago
She won’t. And this has nothing to do with her being a Representative or her husband making the trades. Its not illegal to just know non-public information. Insider trading requires a lot of things such as trading and having a contractual obligation with the company not to say anything (employees, board, executive) or trading and getting the information from someone with the aforementioned duty. Just knowing what a federal agency is going to do isn't one of them.
- deleted 5y ago
  [deleted]

seventytwo 5y ago

Now do congress

tdhz77 5y ago

He trades like he codes. He deserves prison for his coding ability if nothing else. He introduced more bugs at Netflix than any engineer in history.

stefan_ 5y ago
The trades beat the market though.
- solumos 5y ago
  maybe we should wait and see how that nets out with the SEC fines + civil suit...
- tdhz77 5y ago
  Illegal exceptions
  - dagurp 5y ago
    better to ask for forgiveness than permission
philosopher1234 5y ago
This guy is well known inside netflix?
par 5y ago
Sounds like a PIP is in order, a .... puts on sunglasses... prison initiation plan.
swyx 5y ago
perhaps during those periods he was short $NFLX. did he cause any outages?
nabakin 5y ago
You can't leave us without context! We must know!

oars 5y ago

If they were white like the Congress would the SEC have cared?

Shadonototro 5y ago

3 millions in profit and only just a $72,875 fine, what a joke

solumos 5y ago
There will be additional criminal + civil penalties decided in court. As far as I can tell, the $72K fine is imposed directly by the SEC for breaking the rule.

kaminar 5y ago

Insider trading is a game of cat and mouse...go big or don't go...even if you get caught, have the legal side ready in advance, plus various trusts protecting all the real value...plea out, do a few years or community service, then enjoy the profits they never knew existed...

paxys 5y ago

Low-mid value insider trading, tax fraud and other similar white-collar crimes are a terrible idea. They are ridiculously easy to detect, and the authorities will go after you because $3M is enough of a haul to set an example and further some careers, but not enough to give you the means to hire fancy lawyers to defend yourself.

elevenoh 5y ago
No they're not 'ridiculously easy to detect'...at all. They give insider info to corps & non-related individuals to act on. Good luck tracing that.

TeeMassive 5y ago

Now let's drop the immunity that members of the US Congress and Senate has for insider trading.

xpressvideoz 5y ago

> Sung Mo Jun, Joon Jun, Chon, Ayden Lee They are all Korean names. I was surprised to see Korean names in a SEC complaint.

sumedh 5y ago
Why were you surprised?
- oars 5y ago
  > Why were you surprised? It's rare to see Korean names mentioned in the news, yet alone when it's related to crime.
  - sumedh 5y ago
    What did you expect the SEC to do, not publish their names because they are Korean?

hintymad 5y ago

I don’t get why they would do it in the first place. It’s merely $3M over three years for at least four people. Substantial amount, sure, but compared with the risk and their income from Netflix salary and generous options, I just don’t see where the incentive was.

deleted 5y ago
[deleted]
jonas21 5y ago
First, I'm sure they thought the probability of being caught, and thus the risk to themselves, was low. And who knows? They may have even been right about this -- without knowing how many people get away with insider trading, it's impossible to say. Second, nearly all of the profits were allegedly made by Joon Jun and Junwoo Chon, who did not work at Netflix. $3M over 3 years was probably a lot of money for them, as it would be for most people.
- hintymad 5y ago
  Wow, I somehow thought they all worked for Netflix.
pacetherace 5y ago
Crimnals tend to start small, if uncaught, go big.
elevenoh 5y ago
Can you imagine the low traceability info they gave family/friends (e.g. with different last name) to trade on? 3M RIO under their name. How bout under others' names

demarq 5y ago

They need to make a documentary about this. MetaTime!

calcsam 5y ago

A few years ago, Matt Levine wrote an article about a similar case, at Capital One: https://www.bloomberg.com/opinion/articles/2015-01-23/capital-one-fraud-researchers-may-also-have-done-some-fraud https://www.bloomberg.com/opinion/articles/2015-01-23/capita... Incidentally, the article is hilarious.

stevespang 5y ago

kazinator 5y ago

Millions of people can now feel better about their five-houshold Netflix account insider sharing ring.

vmception 5y ago

The whole trading ring made $3mm lol The engineers could have just bought Netflix shares via the Employee Stock Purchase plan and made as much or even more, by now Smooth brain

_RPL5_ 5y ago

Perhaps, I am a bit naive, but what qualifies as insider trading? If I work at a company, I am bound to know things that are not public knowledge. This means that any trade I make is technically insider trading. Example: I am an engineer, working on a new unannounced product which I think will do well. I buy shares of my company in advance of the release of that product. A few years later, after the product has shipped and delivered the expected gains, I sell my stock. Will I go to jail for insider trading?

izgzhen 5y ago
Typically publicly traded companies have trading window limitations for its employees, and one purpose is to avoid insider trading risks. But that works for “normal engineer”. Executives who have more privileged info might need to consult their lawyers case by case.
- ehsankia 5y ago
  One common approach also it to have auto-sell, which will automatically sell your stock on a schedule which is set long in advance, so there's no suspicion of insider trading. Honestly I think that should be the only way to sell stocks of your own company, either that or schedule a sale at least a quarter in advance.
TrackerFF 5y ago
https://www.law.cornell.edu/wex/insider_trading https://www.law.cornell.edu/wex/insider_trading
ec109685 5y ago
Good question. Same thing applies if you decide not to sell your company’s stock because you have confidence in the internal roadmap. However, at most companies, there’s a segment of data that is kept more confidential, and those people with access have more guardrails on their trading. Netflix is an exception in that most of their workforce is “insider” and thus financial data such as what was shared within this indictment is more freely available.
5y ago

alexrivera027 5y ago

When will the SEC review the Pelosi’s?

SevenSigs 5y ago

lets get the small fish....

andredz 5y ago

About insider trading, I've enjoyed reading Matt Levine's Money Stuff column: https://lawsofinsidertrading.com/ https://lawsofinsidertrading.com/ Pretty fun.

syspec 5y ago

> permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 and imposing a civil penalty of $72,875.

TechBro8615 5y ago

I’m surprised that access to subscriber numbers was enough signal to generate alpha. Just off the top of my head, I can think of multiple public or semi-public data sources that you could use as a rough proxy for Netflix subscription numbers. Think DNS logs, VPN providers, peering data, credit card transactions... and that’s without reverse engineering the app at all. I’m sure if you really dig into it you can find a few methods for estimating subscriber count. You don’t even need a count, just a well-distributed sample of delta. If Wall St estimates subscriber growth of 1%, but your model shows 5%, who cares what the exact numbers are?

AmericanChopper 5y ago
That’s just typical (and legal) quantitative analysis. Like using satellite imagery to track utilization of Walmart car parks.
mdoms 5y ago
The fact that they netted 3 million bucks indicates it's not as easy as you think.
- TechBro8615 5y ago
  Or perhaps it’s easier than I thought, since I assumed surely those sources would be fully mined, such that insider knowledge of subscriber numbers wouldn’t be enough to reliably know which way the stock will move after an earnings announcement.

ad8e 5y ago

We are perhaps the only public company that shares financial results internally in the weeks before the quarter is closed. We announce these numbers at a quarterly business review meeting with our top seven hundred or so managers. The financial world sees this as reckless. But the information has never been leaked. When it does one day leak (I imagine it will), we won’t overreact. We’ll just deal with that one case and continue with transparency. The CEO of Netflix says this in Ch 5 of his book No Rules Rules. The leak is a predictable result and will happen again. He believes the tradeoff in openness is worth it. If this $3 million is the only incident, maybe he is right.

tw04 5y ago
Honestly it seems like a win-win. Anyone trading on the information is likely to be caught and I doubt they want someone in a position of power who would commit that sort of crime. As far as I can tell the company isn’t legally or financially liable so I don’t see a downside?
- daniel_iversen 5y ago
  Aren't Netflix essentially enabling market manipulation (which insider trading technically could be a part of) which surely must violate some sort of legal codes (maybe even for the directors of the company! I.e. in Australia we have laws around "Director Duties" where as a director can be held liable for all kinds of behaviour when it reaches a certain scale incl. honesty, debt, insider trading etc.)
yashap 5y ago
IMO it’d be great if going public meant that you had to publish open, online, real(ish)-time dashboards of your company’s core metrics. Like if it’s a metric in every quarterly report, it goes in the public dashboard, and has to be no more than X stale (1 hour? 1 day? Something like that). Many public companies already have something like this internally, it’s just really locked down. Open it up and most insider trading goes away.
- judge2020 5y ago

sjg007 5y ago

If anyone actually cares, the SEC uses the all seeing stone. That’s public knowledge.

blobbers 5y ago

3M over years of insider trading? Bravo SEC, bravo. Slow clap.

farmerstan 5y ago

My wife has been in finance in public companies since we met. Now she's a C-suite at a public company. I avoid not only trading the company stock but the entire sector. I usually just trade SPY or other ETFs in order to completely avoid any chance of looking bad. It's just not worth it given how much my wife makes.

elevenoh 5y ago

And we wonder why inequality is so bad. Bankers & insiders have all the valuable info/data streams.

jd115 5y ago
Ah, poor poor people... If only they had more info / data streams.
- elevenoh 5y ago
  Seriously tho..

yalok 5y ago

"The SEC Market Abuse Unit's Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders' improbably successful trading over time." Fascinating tool! I remember a video we had to watch at my previous employer, explaining what insider trading is and discouraging it. Part of it had a testimony from a real guy from that company, who was caught on insider trading, was convicted with a jail time, and was very remorseful on the video, explaining how he ended up going that slippery path, and how awful the consequences are. Maybe he even got some time reduced by doing that video, don't know. But it definitely left a lasting impression...

saos 5y ago

Software engineer at FAANG company unhappy with large salary? :/