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"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 com

• 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.