14 ms·

"This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tip

"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.
    - radicaldreamer 5y ago
      Yes, there have been several people charged with insider trading who actually lost money on the trades.
      - jabedude 5y ago
        How were they caught then?
        paulpauper 5y ago
        insider trading does not imply making money. just trading on insider info.
        mason55 5y ago
        The SEC will send a list to your compliance dept if they see weird trades (e.g. short-dated out-of-the-money calls) and ask if anyone on the list works there. The compliance dept also has a list of people with material non-public info and they get the list of people who made weird trades with the question “do you know any of these people?” If you know one and you didn’t provide them info then you say so because the implied threat is they’ll find out either way that you know one of them.
        1-more 5y ago
        And the wild thing is that lying to a federal investigator is a crime in and of itself! So don't say you don't know the person they ask about. 18 U.S. Code § 1001 - Statements or entries generally https://www.law.cornell.edu/uscode/text/18/1001 https://www.law.cornell.edu/uscode/text/18/1001
        5y ago
  - rasz 5y ago
    Nah, the safest way involves relatives in politics.
    - skrtskrt 5y ago
      or just being a senator
      - sroussey 5y ago
        Yeah, the write the laws and exempt themselves.
    - stevespang 5y ago
      Yeah, like Pelosi's husband getting insider information as wide as the Grand Canyon ! I knew a guy in Houston 20 some odd years ago who got tagged for commercial bribery. He hustled/befriended the employee of his much larger competitor to buy crates of his junk cylinder heads he bought at 10 cents on the dollar - - - for 90 cents on the dollar. A total of like $700,000. The prosecutor told him if he copped out he would reduce the charges to some misdemeanor, no jail, and no fine. It was a no brainer, he kept all the ill gotten gains. Crime pays.
  - Kluny 5y ago
    The thing is, 1 million is a pretty cheap price to sell your integrity. If you do get caught, you got caught over a relatively small sum. Once you've gotten your hands dirty, why not go all in? Why not go for James Bond villain money? That's not rational, of course, but humans aren't rational.
    - xvector 5y ago
      It is rational if the punishment for insider trading stays relatively constant but the benefit increases with money traded - which it probably does.
      - skrtskrt 5y ago
        pretty sure they claw it all back, then fine you, then you pay your lawyers, then they maybe throw you in jail.
        deleted 5y ago
        [deleted]
        sumedh 5y ago
        > then they maybe throw you in jail. If you are very rich they dont throw you in jail.
      - thinkloop 5y ago
        You forgot the (non-linear) increased risk of getting caught with each iteration.
    - Johnny555 5y ago
      You don't always have that option, rarely does someone say "Hey, I have a plan to steal unlimited amounts of money, do you think we should steal $1M or $100M" Besides, unless you're already wealthy it's harder to hide the theft of huge sums of money.
- bostonsre 5y ago
  Yea, I'd imagine if you have enough discipline (e.g. don't use your family to make the trades) and use tradecraft well (e.g. don't talk about it on slack or in text messages), it should be possible to get away with it. It would be neat to know how many hedgefunds do it and what process they follow to do it.
  - throwawaytemp27 5y ago
    I am not uncertain. (Billions reference) To elaborate - use someone who gets their hands dirty gathering info then communicates their certainty in code and in person.
- tshaddox 5y ago
  It's worse than that. It's also something similar to no true Scotsman, because presumably the act of getting caught is the only piece of evidence used to argue that they're complete idiots.
- spaetzleesser 5y ago
  “ This is selection bias. The people who get CAUGHT doing it are complete idiots.” I used to know a Wall Street guy sometime around 2005. The way he presented it was that there is a ton of variations of insider trading going on. People talk to each other and insiders are always ahead of the general investors. I tend to believe that. As creative , greedy, competitive and smart these people are I can’t imagine them not taking advantage of every opportunity they see. Also, in most other industries the regulators mostly go after the smaller guys because the big guys are too hard and expensive to prosecute.
- sngz 5y ago
  congressmen and women have been caught doing it yet nothing is ever done.
  - hermitdev 5y ago
    Congress critters are exempt from insider trading laws. Insider trading by congress (and their staffers and family) was briefly made illegal by the STOCK Act of 2012 [0] and quietly neutered a year later. [0] "STOCK Act - Wikipedia" https://en.m.wikipedia.org/wiki/STOCK_Act https://en.m.wikipedia.org/wiki/STOCK_Act
traceroute66 5y ago
> People who do it are just complete idiots. Exactly this. Especially in the 21st century world of big data, ML algorithms and all that jazz. The closer you are to the action, the higher the chances of getting caught. If you work for a finance firm, its pretty much guaranteed you'll be caught. Firms are hot on it and they take all sorts of layered measures to prevent it and stamp it out. If you work for a finance firm, in most cases its actually harder to obtain the insider information in the first place than it is to act on it as a PA trade. One of the most well funded and well-staffed departments in any finance firm is the compliance department and they have the power to kill your career instantly (you'll get escorted from the office the moment they suspect anything, forced to stay at home on gardening leave whilst they investigate and then once that's over - and assuming it doesn't go legal - you'll find nobody in finance will employ someone who was sacked for compliance reasons). If you work for a listed company, then like these guys eventually found out, you'll be caught. A bit of data mining at the SEC will soon weed out transactions made by people who likely knew what was going on before the public did. All this hard work on compliance makes the stockmarket one of the most even playing fields there is for investors, because the work of the SEC and other regulators around the world is there to ensure John Doe has the same chances as Warren Buffet to make money on the stockmarket. (Yes, the world of HFT is a bit different with their technological edge, but that's another story).
- fhood 5y ago
  Having recently left a fintech job for just a normal tech job I was surprised to find that 4 hours of mandatory insider trading training was not the standard.
  - traceroute66 5y ago
    Interesting. How far removed were you from regulated activities ? Did your firm and/or role have a retail facing element or only institutional ? Most places I know of would not only have the sort of induction training you imply, but regular refreshers for anyone involved in regulated or at-risk activities.
    - 5y ago
dilyevsky 5y ago
Your solution is easily sidestepped by trading through an entity that can’t be automatically traced to you. I’m pretty sure it’s more complicated than that and involves some form of anomaly analysis involving high gains on low activity accounts at suss timing
- whoisjuan 5y ago
  Entity trading is not going to obfuscate things that much. If you trade as an entity you probably have to provide an obscene amount of information to your trading platform like who are the stakeholders of the entity and who are the traders. Not saying that SEC doesn't have sophisticated tools but I think in most cases they don't need that. Their power lies in their regulatory ability to collect personal information of who trades, when and how much.
  - rurp 5y ago
    I think the idea is to use an entity that you don't have any sort of formal agreement or paperwork with. Eg. work out a verbal agreement with an old friend that you trust, send them the insider info in an encrypted or analog way, then they send you a cut through some unrelated method. That all seems plausible for a normal motivated person to execute on and very hard to prove.
    - wiredfool 5y ago
      Congratulations, that's now a conspiracy to commit insider trading.
      - rurp 5y ago
        Well, yeah, that's the point. We're talking about ways insider traders can evade detection.
  - jjk166 5y ago
    I think the idea is more like "get my acquaintance Bob to go to his broker and make the trades based on my information, Bob and I split the profits under the table." The SEC can collect all the information it wants, but people committing securities fraud may not provide accurate information.
wil421 5y ago
Look at companies where stocks dip or rise a few days to the day before earnings are announced. How does this happen if they don’t know something the general public or most other investment firms don’t know? Agreed that the people getting caught are dumb. Especially making trades about your ex employer when you’ve already started an insider trading ring.
deleted 5y ago
[deleted]
amelius 5y ago
How about family members/friends of employees of Y company?
sakopov 5y ago
> People who do it are complete idiots. US Senators would likely disagree with your assessment. [1] [1] https://unusualwhales.com/i_am_the_senate https://unusualwhales.com/i_am_the_senate
- whoisjuan 5y ago
  They are idiots that can inside trade with impunity.
- nhumrich 5y ago
  I am the senate
pryce 5y ago
So how would we expect people who want to evade that system to react? A simple proposal they would quickly grasp is to have insider trading but spread out over two or more companies, let's call them ACME and Weyland-Yutani. They would have the Weyland-Yutani employees make profit off insider info passed from ACME employees, and have ACME employees make profits off insider info passed from employees of Weyland-Yutani. I imagine they would also want to prevent the groups involved from becoming too large.
Exuma 5y ago
But wasn't it his friends though? I would imagine they were friends who didn't work there, so how would it find them then?
- jays 5y ago
  I'd guess his friends bragged about their trades to someone who disclosed it directly or indirectly to the authorities.
paulpauper 5y ago
>People who do it are just complete idiots. or maybe they underestimate the determination of feds the govt is very good at tracking this stuff.
smabie 5y ago
Just trade mirrored stocks on blockchain. Easy
- paulpauper 5y ago
  no options
andrewcamel 5y ago
I think it's easy to assume government agencies have weak / outdated tech, but the SEC is notoriously pretty advanced in how they identify bad actors. Think about situations where someone is passing information to a friend who does not work at a company and gets a cash kickback. Somewhere they're getting a graph of relationships, and then merging that with transactions + likely some detail around known public disclosures, and doing this all at a scale of hundreds of millions of people and billions[?] in daily trades.
jkuria 5y ago
I am curious, what percentage of insider trading would you estimate never gets detected?
jjk166 5y ago
> 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. There are a lot more sophisticated methods of insider trading. Just for starters, get someone else who has no apparent insider status to make the trades for you. It doesn't take a genius to come up with strategies like burying your insider trades in a much larger number of regular trades to make the profits less conspicuous, or getting fake blog posts written that essentially say to do exactly what the inside trader is planning to do thus creating a plausible explanation besides insider knowledge for an agents strategy. It's like money laundering: the methods you see on TV are the simple versions that are easy for an audience to understand, they're not what people who have actually taken the time to come up with a strategy do.
- paulpauper 5y ago
  Just for starters, get someone else who has no apparent insider status to make the trades for you. they already do that. sometimes the info is passed through many ppl and still get caught.
  - jjk166 5y ago
    Hence the "just for starters"
- yellow_lead 5y ago
  You can also trade certain big name stocks anonymously via cryptocurrencies that track them. I think FTX has some.
  - trident5000 5y ago
    Off topic but: watching cryptocurrencies move before recent legislation news (infrastructure bill) hit any public source confirmed to me that DC is the insider trading capital of the country. You dont even need to look hard...like Pelosi's husband buying Amazon calls right before they scored a large cloud computing govt contract. That was absurd.
deleted 5y ago
[deleted]
- deleted 5y ago
  [deleted]
darksaints 5y ago
Your scheme only captures the biggest idiots. There are plenty of ways that require much more sophisticated methods to detect. An example is insider reciprocity: an insider at company A trades inside information with an insider at company B. They both profit from the insider information but neither trades in the instrument for which they could easily be flagged as an insider.
ChuckMcM 5y ago
I can confirm this happens. I happened to have a set of standing instructions for a number of technology companies which consisted of buying stock when it dropped more than 5% below the 90 moving average, and selling stock when it exceeded more than 5% the 90 day moving average. For a lot of tech companies this was basically a money pump since they rose and fell quite cyclically. Then I went to work at one of the companies on my list (NetApp) and one quarter EMC announced they were going to miss their earnings and all storage companies dropped. Two weeks later NetApp announced their earnings which were better than expected. When I got my brokerage statement for the month I had a nice gain because they had bought NetApp on the dip, and then when the earnings were announced the stock went up so they sold the shares that had been bought. About three weeks after that I got a call from the SEC. I referred them to my broker which showed both the standing order, and that they had been in place for a couple of years before that event, and the SEC went away. However I did take NetApp out of the mix because, well it is always unnerving when your phone tells you the SEC is calling. :-).
- hermitdev 5y ago
  I'm surprised they got to you that quickly. Having worked in finance most of my career, some of which involved fielding SEC inquiries, my impression is they are way behind enforcement. Although, to be fair, usually the inquiries I was fielding were more to do with spoofing and manipulation, not insider trading.
  - vxNsr 5y ago
    I know a few ppl in compliance at different exchanges, they move pretty quickly if they think it’s a one off, if it looks like it’s part of a larger game they’ll be more methodical. But this sounds pretty standard, it looked odd but not too odd so just warranted a quick call.
- notyourwork 5y ago
  Interesting story, I can imagine you were pretty worried at first. What brokerage do you use to configure that type of automated order execution?
iratewizard 5y ago
There are insider trading rings on tor. If you work at any billion plus dollar publicly traded company, you post insider information you have in exchange for insider information from others. That way the stock bets you make aren't tied to your place of employment. I've got no idea how legit any of it is, though. My company isn't publicly traded.
inter_netuser 5y ago
There are quite a few foreign hedge funds that hire hackers to breach companies and steal data. Trades are back-fitted into some model for plausible deniability, and they also purchase political and legal cover, often at the highest levels. I wouldn't surprised some are just a front for an APT that needs more cash for their black budgets. They generate a lot of asymmetry, billions upon billions. Here's some patsies that got caught: https://www.theverge.com/2018/8/22/17716622/sec-business-wire-hack-stolen-press-release-fraud-ukraine https://www.theverge.com/2018/8/22/17716622/sec-business-wir...
hogFeast 5y ago
The people doing it do not trade themselves. And the SEC does not have a list of all current and former employees of the company (only certain officers have to actually report with the SEC). People who do this are not idiots...most of them do not get caught (selection bias, you only see the people who got caught, there are individuals who have made $100m, $200m doing this...never been caught or charged). Also, the way they do this is by examining trading patterns. The SEC is 100x better at this than most other countries. Insider trading prosecutions are very rare outside the US (not just because it is hard to catch, it is very hard to win insider trading cases at trial). It requires a fairly sophisticated approach to uncover suspicious trades (every day, billions of trades, millions of securities, you have no idea who works where, you have no idea who their family is, you have no idea who their friends are...not easy).
nojito 5y ago
This isn’t true. SEC vs Welhouse shows how sophisticated people get and yet get caught via data analytics https://www.sec.gov/litigation/admin/2015/34-75319.pdf https://www.sec.gov/litigation/admin/2015/34-75319.pdf
dvtheswe 5y ago
non-tech loves to black box tech that tech wants to open source
hellbannedguy 5y ago
"That's the thing about insider trading. People who do it are just complete idiots." Maybe in this pumped up bull market certain individuals have restrained from Insider Trading, but it's alive and well. In college, I was a errand boy at a finance business in SF. The amount of insider tips I heard was staggering. I would be a rich man today if I had a bit of money back then. (The owner of the business did get close to going to jail, but it was over something else. I believe it was tax evasion. It didn't help he was Ed Meese's Financial Planner at the time. I live in Marin County. A wealthy enclave that espouses liberal values, but are ruthless when it comes to their money. They share info at Wholefoods, or the charity dinner they get tipsy at. Hell, if I had money, I'd be tempted. They trade a lot of information. For years, the SEC was very small, and it's not much bigger today. Hell, the only real money my dad made in the 90's was from an insider tip over thanksgiving dinner from a father in-law. (My dad passed, and the SOL is long gone.)
sumedh 5y ago
> People who do it are just complete idiots. No not really. Billionaires do it as well and they dont go to jail. https://en.wikipedia.org/wiki/Steve_Cohen_(businessman)#SEC_investigation_(2012%E2%80%932016) https://en.wikipedia.org/wiki/Steve_Cohen_(businessman)#SEC_...
adrianmonk 5y ago
> They want to make it sound like some sort of powerful magic box they have that can find anyone doing something dubious It might not just be bragging. Arguably it's in society's interest because some people might believe it and be convinced not to try insider trading.
jliptzin 5y ago
People who get caught are complete idiots. The vast majority don’t.
hobbyjogger 5y ago
It's much more sophisticated than just (a) do you or did you work there and (b) did you make money on a trade. I work at a law firm that does public M&A deals and we occasionally get inquiries from the SEC about, e.g., people that went to my high school (but a different class year) who bought stock in a company my firm did work for in the months leading up to the deal. Obviously neither me or the other person ever worked at either company (or even had any connection to them), but they still identify us as a potential risk because I could have potentially obtained insider info through the firm and then passed it on.
ransom1538 5y ago
"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" That is what friends are for.
Gtex555 5y ago
What if I tell someone unrelated to me to make the trade. Insider trading can work and has worked in the past, you just never hear about the guys who don't get caught cause they don't just do it as stupidly as you are assuming

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.
  - radicaldreamer 5y ago
    Yes, there have been several people charged with insider trading who actually lost money on the trades.
    - jabedude 5y ago
      How were they caught then?
      - paulpauper 5y ago
        insider trading does not imply making money. just trading on insider info.
      - mason55 5y ago
        The SEC will send a list to your compliance dept if they see weird trades (e.g. short-dated out-of-the-money calls) and ask if anyone on the list works there. The compliance dept also has a list of people with material non-public info and they get the list of people who made weird trades with the question “do you know any of these people?” If you know one and you didn’t provide them info then you say so because the implied threat is they’ll find out either way that you know one of them.
        1-more 5y ago
        And the wild thing is that lying to a federal investigator is a crime in and of itself! So don't say you don't know the person they ask about. 18 U.S. Code § 1001 - Statements or entries generally https://www.law.cornell.edu/uscode/text/18/1001 https://www.law.cornell.edu/uscode/text/18/1001
        5y ago
- rasz 5y ago
  Nah, the safest way involves relatives in politics.
  - skrtskrt 5y ago
    or just being a senator
    - sroussey 5y ago
      Yeah, the write the laws and exempt themselves.
  - stevespang 5y ago
    Yeah, like Pelosi's husband getting insider information as wide as the Grand Canyon ! I knew a guy in Houston 20 some odd years ago who got tagged for commercial bribery. He hustled/befriended the employee of his much larger competitor to buy crates of his junk cylinder heads he bought at 10 cents on the dollar - - - for 90 cents on the dollar. A total of like $700,000. The prosecutor told him if he copped out he would reduce the charges to some misdemeanor, no jail, and no fine. It was a no brainer, he kept all the ill gotten gains. Crime pays.
- Kluny 5y ago
  The thing is, 1 million is a pretty cheap price to sell your integrity. If you do get caught, you got caught over a relatively small sum. Once you've gotten your hands dirty, why not go all in? Why not go for James Bond villain money? That's not rational, of course, but humans aren't rational.
  - xvector 5y ago
    It is rational if the punishment for insider trading stays relatively constant but the benefit increases with money traded - which it probably does.
    - skrtskrt 5y ago
      pretty sure they claw it all back, then fine you, then you pay your lawyers, then they maybe throw you in jail.
      - deleted 5y ago
        [deleted]
      - sumedh 5y ago
        > then they maybe throw you in jail. If you are very rich they dont throw you in jail.
    - thinkloop 5y ago
      You forgot the (non-linear) increased risk of getting caught with each iteration.
  - Johnny555 5y ago
    You don't always have that option, rarely does someone say "Hey, I have a plan to steal unlimited amounts of money, do you think we should steal $1M or $100M" Besides, unless you're already wealthy it's harder to hide the theft of huge sums of money.
bostonsre 5y ago
Yea, I'd imagine if you have enough discipline (e.g. don't use your family to make the trades) and use tradecraft well (e.g. don't talk about it on slack or in text messages), it should be possible to get away with it. It would be neat to know how many hedgefunds do it and what process they follow to do it.
- throwawaytemp27 5y ago
  I am not uncertain. (Billions reference) To elaborate - use someone who gets their hands dirty gathering info then communicates their certainty in code and in person.
tshaddox 5y ago
It's worse than that. It's also something similar to no true Scotsman, because presumably the act of getting caught is the only piece of evidence used to argue that they're complete idiots.
spaetzleesser 5y ago
“ This is selection bias. The people who get CAUGHT doing it are complete idiots.” I used to know a Wall Street guy sometime around 2005. The way he presented it was that there is a ton of variations of insider trading going on. People talk to each other and insiders are always ahead of the general investors. I tend to believe that. As creative , greedy, competitive and smart these people are I can’t imagine them not taking advantage of every opportunity they see. Also, in most other industries the regulators mostly go after the smaller guys because the big guys are too hard and expensive to prosecute.
sngz 5y ago
congressmen and women have been caught doing it yet nothing is ever done.
- hermitdev 5y ago
  Congress critters are exempt from insider trading laws. Insider trading by congress (and their staffers and family) was briefly made illegal by the STOCK Act of 2012 [0] and quietly neutered a year later. [0] "STOCK Act - Wikipedia" https://en.m.wikipedia.org/wiki/STOCK_Act https://en.m.wikipedia.org/wiki/STOCK_Act

traceroute66 5y ago

> People who do it are just complete idiots. Exactly this. Especially in the 21st century world of big data, ML algorithms and all that jazz. The closer you are to the action, the higher the chances of getting caught. If you work for a finance firm, its pretty much guaranteed you'll be caught. Firms are hot on it and they take all sorts of layered measures to prevent it and stamp it out. If you work for a finance firm, in most cases its actually harder to obtain the insider information in the first place than it is to act on it as a PA trade. One of the most well funded and well-staffed departments in any finance firm is the compliance department and they have the power to kill your career instantly (you'll get escorted from the office the moment they suspect anything, forced to stay at home on gardening leave whilst they investigate and then once that's over - and assuming it doesn't go legal - you'll find nobody in finance will employ someone who was sacked for compliance reasons). If you work for a listed company, then like these guys eventually found out, you'll be caught. A bit of data mining at the SEC will soon weed out transactions made by people who likely knew what was going on before the public did. All this hard work on compliance makes the stockmarket one of the most even playing fields there is for investors, because the work of the SEC and other regulators around the world is there to ensure John Doe has the same chances as Warren Buffet to make money on the stockmarket. (Yes, the world of HFT is a bit different with their technological edge, but that's another story).

fhood 5y ago
Having recently left a fintech job for just a normal tech job I was surprised to find that 4 hours of mandatory insider trading training was not the standard.
- traceroute66 5y ago
  Interesting. How far removed were you from regulated activities ? Did your firm and/or role have a retail facing element or only institutional ? Most places I know of would not only have the sort of induction training you imply, but regular refreshers for anyone involved in regulated or at-risk activities.
  - 5y ago

dilyevsky 5y ago

Your solution is easily sidestepped by trading through an entity that can’t be automatically traced to you. I’m pretty sure it’s more complicated than that and involves some form of anomaly analysis involving high gains on low activity accounts at suss timing

whoisjuan 5y ago
Entity trading is not going to obfuscate things that much. If you trade as an entity you probably have to provide an obscene amount of information to your trading platform like who are the stakeholders of the entity and who are the traders. Not saying that SEC doesn't have sophisticated tools but I think in most cases they don't need that. Their power lies in their regulatory ability to collect personal information of who trades, when and how much.
- rurp 5y ago
  I think the idea is to use an entity that you don't have any sort of formal agreement or paperwork with. Eg. work out a verbal agreement with an old friend that you trust, send them the insider info in an encrypted or analog way, then they send you a cut through some unrelated method. That all seems plausible for a normal motivated person to execute on and very hard to prove.
  - wiredfool 5y ago
    Congratulations, that's now a conspiracy to commit insider trading.
    - rurp 5y ago
      Well, yeah, that's the point. We're talking about ways insider traders can evade detection.
- jjk166 5y ago
  I think the idea is more like "get my acquaintance Bob to go to his broker and make the trades based on my information, Bob and I split the profits under the table." The SEC can collect all the information it wants, but people committing securities fraud may not provide accurate information.

wil421 5y ago

Look at companies where stocks dip or rise a few days to the day before earnings are announced. How does this happen if they don’t know something the general public or most other investment firms don’t know? Agreed that the people getting caught are dumb. Especially making trades about your ex employer when you’ve already started an insider trading ring.

deleted 5y ago

[deleted]

amelius 5y ago

How about family members/friends of employees of Y company?

sakopov 5y ago

> People who do it are complete idiots. US Senators would likely disagree with your assessment. [1] [1] https://unusualwhales.com/i_am_the_senate https://unusualwhales.com/i_am_the_senate

whoisjuan 5y ago
They are idiots that can inside trade with impunity.
nhumrich 5y ago
I am the senate

pryce 5y ago

So how would we expect people who want to evade that system to react? A simple proposal they would quickly grasp is to have insider trading but spread out over two or more companies, let's call them ACME and Weyland-Yutani. They would have the Weyland-Yutani employees make profit off insider info passed from ACME employees, and have ACME employees make profits off insider info passed from employees of Weyland-Yutani. I imagine they would also want to prevent the groups involved from becoming too large.

Exuma 5y ago

But wasn't it his friends though? I would imagine they were friends who didn't work there, so how would it find them then?

jays 5y ago
I'd guess his friends bragged about their trades to someone who disclosed it directly or indirectly to the authorities.

paulpauper 5y ago

>People who do it are just complete idiots. or maybe they underestimate the determination of feds the govt is very good at tracking this stuff.

smabie 5y ago

Just trade mirrored stocks on blockchain. Easy

paulpauper 5y ago
no options

andrewcamel 5y ago

I think it's easy to assume government agencies have weak / outdated tech, but the SEC is notoriously pretty advanced in how they identify bad actors. Think about situations where someone is passing information to a friend who does not work at a company and gets a cash kickback. Somewhere they're getting a graph of relationships, and then merging that with transactions + likely some detail around known public disclosures, and doing this all at a scale of hundreds of millions of people and billions[?] in daily trades.

jkuria 5y ago

I am curious, what percentage of insider trading would you estimate never gets detected?

jjk166 5y ago

> 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. There are a lot more sophisticated methods of insider trading. Just for starters, get someone else who has no apparent insider status to make the trades for you. It doesn't take a genius to come up with strategies like burying your insider trades in a much larger number of regular trades to make the profits less conspicuous, or getting fake blog posts written that essentially say to do exactly what the inside trader is planning to do thus creating a plausible explanation besides insider knowledge for an agents strategy. It's like money laundering: the methods you see on TV are the simple versions that are easy for an audience to understand, they're not what people who have actually taken the time to come up with a strategy do.

paulpauper 5y ago
Just for starters, get someone else who has no apparent insider status to make the trades for you. they already do that. sometimes the info is passed through many ppl and still get caught.
- jjk166 5y ago
  Hence the "just for starters"
yellow_lead 5y ago
You can also trade certain big name stocks anonymously via cryptocurrencies that track them. I think FTX has some.
- trident5000 5y ago
  Off topic but: watching cryptocurrencies move before recent legislation news (infrastructure bill) hit any public source confirmed to me that DC is the insider trading capital of the country. You dont even need to look hard...like Pelosi's husband buying Amazon calls right before they scored a large cloud computing govt contract. That was absurd.

deleted 5y ago

[deleted]

deleted 5y ago
[deleted]

darksaints 5y ago

Your scheme only captures the biggest idiots. There are plenty of ways that require much more sophisticated methods to detect. An example is insider reciprocity: an insider at company A trades inside information with an insider at company B. They both profit from the insider information but neither trades in the instrument for which they could easily be flagged as an insider.

ChuckMcM 5y ago

I can confirm this happens. I happened to have a set of standing instructions for a number of technology companies which consisted of buying stock when it dropped more than 5% below the 90 moving average, and selling stock when it exceeded more than 5% the 90 day moving average. For a lot of tech companies this was basically a money pump since they rose and fell quite cyclically. Then I went to work at one of the companies on my list (NetApp) and one quarter EMC announced they were going to miss their earnings and all storage companies dropped. Two weeks later NetApp announced their earnings which were better than expected. When I got my brokerage statement for the month I had a nice gain because they had bought NetApp on the dip, and then when the earnings were announced the stock went up so they sold the shares that had been bought. About three weeks after that I got a call from the SEC. I referred them to my broker which showed both the standing order, and that they had been in place for a couple of years before that event, and the SEC went away. However I did take NetApp out of the mix because, well it is always unnerving when your phone tells you the SEC is calling. :-).

hermitdev 5y ago
I'm surprised they got to you that quickly. Having worked in finance most of my career, some of which involved fielding SEC inquiries, my impression is they are way behind enforcement. Although, to be fair, usually the inquiries I was fielding were more to do with spoofing and manipulation, not insider trading.
- vxNsr 5y ago
  I know a few ppl in compliance at different exchanges, they move pretty quickly if they think it’s a one off, if it looks like it’s part of a larger game they’ll be more methodical. But this sounds pretty standard, it looked odd but not too odd so just warranted a quick call.
notyourwork 5y ago
Interesting story, I can imagine you were pretty worried at first. What brokerage do you use to configure that type of automated order execution?

iratewizard 5y ago

There are insider trading rings on tor. If you work at any billion plus dollar publicly traded company, you post insider information you have in exchange for insider information from others. That way the stock bets you make aren't tied to your place of employment. I've got no idea how legit any of it is, though. My company isn't publicly traded.

inter_netuser 5y ago

There are quite a few foreign hedge funds that hire hackers to breach companies and steal data. Trades are back-fitted into some model for plausible deniability, and they also purchase political and legal cover, often at the highest levels. I wouldn't surprised some are just a front for an APT that needs more cash for their black budgets. They generate a lot of asymmetry, billions upon billions. Here's some patsies that got caught: https://www.theverge.com/2018/8/22/17716622/sec-business-wire-hack-stolen-press-release-fraud-ukraine https://www.theverge.com/2018/8/22/17716622/sec-business-wir...

hogFeast 5y ago

The people doing it do not trade themselves. And the SEC does not have a list of all current and former employees of the company (only certain officers have to actually report with the SEC). People who do this are not idiots...most of them do not get caught (selection bias, you only see the people who got caught, there are individuals who have made $100m, $200m doing this...never been caught or charged). Also, the way they do this is by examining trading patterns. The SEC is 100x better at this than most other countries. Insider trading prosecutions are very rare outside the US (not just because it is hard to catch, it is very hard to win insider trading cases at trial). It requires a fairly sophisticated approach to uncover suspicious trades (every day, billions of trades, millions of securities, you have no idea who works where, you have no idea who their family is, you have no idea who their friends are...not easy).

nojito 5y ago

This isn’t true. SEC vs Welhouse shows how sophisticated people get and yet get caught via data analytics https://www.sec.gov/litigation/admin/2015/34-75319.pdf https://www.sec.gov/litigation/admin/2015/34-75319.pdf

dvtheswe 5y ago

non-tech loves to black box tech that tech wants to open source

hellbannedguy 5y ago

"That's the thing about insider trading. People who do it are just complete idiots." Maybe in this pumped up bull market certain individuals have restrained from Insider Trading, but it's alive and well. In college, I was a errand boy at a finance business in SF. The amount of insider tips I heard was staggering. I would be a rich man today if I had a bit of money back then. (The owner of the business did get close to going to jail, but it was over something else. I believe it was tax evasion. It didn't help he was Ed Meese's Financial Planner at the time. I live in Marin County. A wealthy enclave that espouses liberal values, but are ruthless when it comes to their money. They share info at Wholefoods, or the charity dinner they get tipsy at. Hell, if I had money, I'd be tempted. They trade a lot of information. For years, the SEC was very small, and it's not much bigger today. Hell, the only real money my dad made in the 90's was from an insider tip over thanksgiving dinner from a father in-law. (My dad passed, and the SOL is long gone.)

sumedh 5y ago

> People who do it are just complete idiots. No not really. Billionaires do it as well and they dont go to jail. https://en.wikipedia.org/wiki/Steve_Cohen_(businessman)#SEC_investigation_(2012%E2%80%932016) https://en.wikipedia.org/wiki/Steve_Cohen_(businessman)#SEC_...

adrianmonk 5y ago

> They want to make it sound like some sort of powerful magic box they have that can find anyone doing something dubious It might not just be bragging. Arguably it's in society's interest because some people might believe it and be convinced not to try insider trading.

jliptzin 5y ago

People who get caught are complete idiots. The vast majority don’t.

hobbyjogger 5y ago

It's much more sophisticated than just (a) do you or did you work there and (b) did you make money on a trade. I work at a law firm that does public M&A deals and we occasionally get inquiries from the SEC about, e.g., people that went to my high school (but a different class year) who bought stock in a company my firm did work for in the months leading up to the deal. Obviously neither me or the other person ever worked at either company (or even had any connection to them), but they still identify us as a potential risk because I could have potentially obtained insider info through the firm and then passed it on.

ransom1538 5y ago

"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" That is what friends are for.

Gtex555 5y ago

What if I tell someone unrelated to me to make the trade. Insider trading can work and has worked in the past, you just never hear about the guys who don't get caught cause they don't just do it as stupidly as you are assuming