11 ms·

An Executive Bought a Rival's Stock. The SEC Says That's Insider Trading

20 points by marc__1 3y ago

ZeroGravitas 3y ago
Hiring sociopaths only motivated by money to run your corporation is like training an AI. They'll constantly find novel ways to achieve their goals without meeting yours.
henvic 3y ago
There's nothing evil in inside trading. It's a shame that it's against the rules in most markets. It only benefits some parties that aren't really invested into the company.
- bigbillheck 3y ago
  > It only benefits some parties that aren't really invested into the company. Whoever's on the other side of the trade is by definition invested into the company, either before the sale, after the sale, or both.
- aqme28 3y ago
  That is not true. An executive that is allowed to insider trade can make a lot more money mismanaging the company in volatile ways.
  - koolba 3y ago
    Deliberately mismanaging a company would be a violation of the executive’s fiduciary responsibility.
    - aqme28 3y ago
      Well then good thing it was only "accidental." This also ignores the large number of people with insider information who are not execs at the company. Clients, partnering firms, etc. If it's all about fiduciary duty, then the law firm doing a large M+A deal should mismanage that deal, so they can trade on it for their own profit.
    - happymellon 3y ago
      And then would be fired. Getting their golden parachute and insider trading bonus.
    - bigbillheck 3y ago
      Good luck proving it.
    - acdha 3y ago
      The problem is that you’re moving from a simple easily-proven fact to something which requires two judgement calls. Any prosecutor can show that you made a trade before certain information became public, but proving that something was mismanagement (as opposed to a mistake or bad luck) or that it was a deliberate attempt to play share price games is so much harder that most executives would evade punishment even if pretty much everyone would find their actions hard to explain otherwise. White collar crimes are already enforced laxly due to the challenge of needing to prove intent in many cases, there’s no benefit to making it even easier to defraud investors.
    - EchoChamberMan 3y ago
      Only problem is humans constantly fail to take, or purposefully avoid, responsibility.
- chrisfowles 3y ago
  I might agree with buying, it's pretty damaging with selling though.
  - mcmoor 3y ago
    I've been thinking about it sometimes and this seems correct. Abolish this law and delay every single selling. Of course I haven't think this through and this may end catastrophically but I'd like to see a simulation.
- NeoTar 3y ago
  Can you elaborate? It feels pretty damned unfair to me!
- ninetyninenine 3y ago
  Insider trading is theft. You know the stock will go up, the other party unfairly doesn't. The other party would not have sold if he had known, so you have cheated the other party. Same if you know the stock will go down. The other party would not buy if he had known the thing you unfairly do. This is also cheating someone. Buying a rivals stock depends on the reason why, but it would be against company interest. The SEC doesn't need to enforce this, the board should fire him for it.
- blagie 3y ago
  Public markets are intentionally set up to "benefits some parties that aren't really invested into the company" -- e.g. your retirement savings and your grandma's. That's a feature. Not a bug. Indeed, the main point of regulated public markets (as opposed to private ones) is to insulate your grandma's retirement funds from shenanigans like this, because before that, people would lose life savings to scammers. If you want to allow shenanigans and / or only people with a vested interest, stay private and buy / sell only to savvy investors. That's allowed too. Insider trading means insiders can and will: 1) Buy stock and launch (dishonest) positive press releases 2) Sell stock thereafter and launch (dishonest) negative press releases Loop, rinse, and repeat. That happened, and if permitted, that would happen again. Much worse things happened too. Your grandma can't do due diligence on every stock in her index fund. A savvy investor making targeted investments can.
- Miner49er 3y ago
  I guess morals are subjective, but I think insider trading is definitely immoral. It's theft.
- dktp 3y ago
  Insider trading being illegal encourages participation in markets for people outside the company. As well as discourages intentionally messing up within the company and profiting from short selling The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public Seems like a worthy tradeoff to me
  - phpisthebest 3y ago
    >>As well as discourages intentionally messing up within the company and profiting from short selling While I do not agree with the OP on insider trading being good.... I also think short selling is a net negative and should be banned right along side insider trading
    - scrlk 3y ago
      > I also think short selling is a net negative and should be banned Why? The potential losses for shorting are infinite whereas the profit is capped, so entering a short requires high conviction. Stock markets are also a market for information: banning short selling takes away a large amount of information and has negative impacts on price discovery, liquidity etc.
    - Nursie 3y ago
      Why? If you think a stock is underpriced, you can buy it and bet your knowledge is superior to the general market’s. Shorting is just the logical reverse, and aids price discovery in the opposite direction.
    - auc 3y ago
      > I also think short selling is a net negative and should be banned right along side insider trading How would you incentivize people to find fraudulent companies like Enron?
  - graemep 3y ago
    > The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public If that is true, then markets would be even more efficient is such information was made public immediately.
- eemil 3y ago
  It's not a question of morals, but a fundamental requirement for the publicly traded stock market to function. If insider trading is allowed, the market will turn into a game called 'who has the best insider information'. No one will buy or sell stocks based on public information alone, because they will always be at a disadvantage.
  - deleted 3y ago
    [deleted]
  - zarathustreal 3y ago
    If you’re buying stocks based on public information alone, in this age of web scraping and algorithmic trading, you’re already always at a disadvantage.
    - prepend 3y ago
      The idea is to minimize disadvantages, not eliminate.
    - Jenk 3y ago
      Web scraping and "algorithmic trading" both depend upon publically available information
    - bigbillheck 3y ago
      I'd be OK with banning automatic trading.
    - bluGill 3y ago
      That is all public information. I'm not convinced it is valuable information, but it is pudlic and you should cunsider how pou use it
- prepend 3y ago
  It harms the other side of the trade that doesn’t have the information.
ttyprintk 3y ago
https://archive.ph/SGklv https://archive.ph/SGklv
sealeck 3y ago
There's always the devil's advocate case that insider trading is good because it makes for more accurate price discovery (as in executives have access to non public information, so e.g. if the company has had a great quarter and the executives buy shares before the earnings figures are released then the price goes up and the market price more accurately reflects the value of the shares). Of course this case is total nonsense but it is fun to make at parties (if you're weird like me) or something. In reality the market being fair is super important for it to function because people won't invest if they're continually being fleeced by people using inside information.
- kasey_junk 3y ago
  In the US insider trading laws are not based on fairness. They are based on theft, insiders using material non-public information are stealing from other shareholders. There is no expectation of fairness in US public markets.
  - sealeck 3y ago
    Theft is unfair? I mean fairness in "no market participants have access to information that is not public". Using a satellite to work out the usage rates of a real estate company's car parking centres? Fine. Bribing an executive to give you non public information? Unfair.
  - NoboruWataya 3y ago
    Insider trading is not unlawful because it is theft. It is considered theft because it is unlawful. Trading with someone when you have knowledge they don't is not "theft" in the general sense of the word. If it was, there wouldn't need to be insider trading laws, because theft is already a crime. The only thing you have really taken from your trading counterparty is the expectation of additional profit (or reduced loss) had both parties traded only on public information. That is an expectation that is created by insider trading laws. "Fairness" is a vague term. There is an expectation of fairness in US public markets in the limited sense that it is expected that traders generally have access to the same material information about the underlying security.
CamelCaseName 3y ago
> Panuwat traded on his work computer just seven minutes after he allegedly learned that Pfizer would buy his company. Really? What an idiot.
yieldcrv 3y ago
> First, his employer, Medivation, had a policy that forbade trading other companies’ shares when employees had material nonpublic information about Medivation Note: many financial crimes rely on the government finding your employer agreement that limits you The SEC would have had no case even in their wildest stretch, if the employer didn’t have this policy Many financial crimes are contingent on this
- maratc 3y ago
  How? Violating your employment agreement is not a crime, you may get fired but you can't go to prison for that.
  - yieldcrv 3y ago
    The government relies on the existence of the policy to leverage the governments own civil and criminal statutes
  - dragonwriter 3y ago
    > Violating your employment agreement is not a crime, In and of itself? Sure. Can it differentiate between crime and not-crime for certain otherwise similar behavior patterns? Absolutely.
- dboreham 3y ago
  > Many financial crimes are contingent on this That's a technical detail. What he did was clearly wrong.
  - yieldcrv 3y ago
    technical details are the only thing important when the government is involved
- Miner49er 3y ago
  This is textbook insider trading, regardless of the policy.

20 points by marc__1 3y ago

Hiring sociopaths only motivated by money to run your corporation is like training an AI. They'll constantly find novel ways to achieve their goals without meeting yours.

henvic 3y ago

There's nothing evil in inside trading. It's a shame that it's against the rules in most markets. It only benefits some parties that aren't really invested into the company.

bigbillheck 3y ago
> It only benefits some parties that aren't really invested into the company. Whoever's on the other side of the trade is by definition invested into the company, either before the sale, after the sale, or both.
aqme28 3y ago
That is not true. An executive that is allowed to insider trade can make a lot more money mismanaging the company in volatile ways.
- koolba 3y ago
  Deliberately mismanaging a company would be a violation of the executive’s fiduciary responsibility.
  - aqme28 3y ago
    Well then good thing it was only "accidental." This also ignores the large number of people with insider information who are not execs at the company. Clients, partnering firms, etc. If it's all about fiduciary duty, then the law firm doing a large M+A deal should mismanage that deal, so they can trade on it for their own profit.
  - happymellon 3y ago
    And then would be fired. Getting their golden parachute and insider trading bonus.
  - bigbillheck 3y ago
    Good luck proving it.
  - acdha 3y ago
    The problem is that you’re moving from a simple easily-proven fact to something which requires two judgement calls. Any prosecutor can show that you made a trade before certain information became public, but proving that something was mismanagement (as opposed to a mistake or bad luck) or that it was a deliberate attempt to play share price games is so much harder that most executives would evade punishment even if pretty much everyone would find their actions hard to explain otherwise. White collar crimes are already enforced laxly due to the challenge of needing to prove intent in many cases, there’s no benefit to making it even easier to defraud investors.
  - EchoChamberMan 3y ago
    Only problem is humans constantly fail to take, or purposefully avoid, responsibility.
chrisfowles 3y ago
I might agree with buying, it's pretty damaging with selling though.
- mcmoor 3y ago
  I've been thinking about it sometimes and this seems correct. Abolish this law and delay every single selling. Of course I haven't think this through and this may end catastrophically but I'd like to see a simulation.
NeoTar 3y ago
Can you elaborate? It feels pretty damned unfair to me!
ninetyninenine 3y ago
Insider trading is theft. You know the stock will go up, the other party unfairly doesn't. The other party would not have sold if he had known, so you have cheated the other party. Same if you know the stock will go down. The other party would not buy if he had known the thing you unfairly do. This is also cheating someone. Buying a rivals stock depends on the reason why, but it would be against company interest. The SEC doesn't need to enforce this, the board should fire him for it.
blagie 3y ago
Public markets are intentionally set up to "benefits some parties that aren't really invested into the company" -- e.g. your retirement savings and your grandma's. That's a feature. Not a bug. Indeed, the main point of regulated public markets (as opposed to private ones) is to insulate your grandma's retirement funds from shenanigans like this, because before that, people would lose life savings to scammers. If you want to allow shenanigans and / or only people with a vested interest, stay private and buy / sell only to savvy investors. That's allowed too. Insider trading means insiders can and will: 1) Buy stock and launch (dishonest) positive press releases 2) Sell stock thereafter and launch (dishonest) negative press releases Loop, rinse, and repeat. That happened, and if permitted, that would happen again. Much worse things happened too. Your grandma can't do due diligence on every stock in her index fund. A savvy investor making targeted investments can.
Miner49er 3y ago
I guess morals are subjective, but I think insider trading is definitely immoral. It's theft.
dktp 3y ago
Insider trading being illegal encourages participation in markets for people outside the company. As well as discourages intentionally messing up within the company and profiting from short selling The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public Seems like a worthy tradeoff to me
- phpisthebest 3y ago
  >>As well as discourages intentionally messing up within the company and profiting from short selling While I do not agree with the OP on insider trading being good.... I also think short selling is a net negative and should be banned right along side insider trading
  - scrlk 3y ago
    > I also think short selling is a net negative and should be banned Why? The potential losses for shorting are infinite whereas the profit is capped, so entering a short requires high conviction. Stock markets are also a market for information: banning short selling takes away a large amount of information and has negative impacts on price discovery, liquidity etc.
  - Nursie 3y ago
    Why? If you think a stock is underpriced, you can buy it and bet your knowledge is superior to the general market’s. Shorting is just the logical reverse, and aids price discovery in the opposite direction.
  - auc 3y ago
    > I also think short selling is a net negative and should be banned right along side insider trading How would you incentivize people to find fraudulent companies like Enron?
- graemep 3y ago
  > The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public If that is true, then markets would be even more efficient is such information was made public immediately.
eemil 3y ago
It's not a question of morals, but a fundamental requirement for the publicly traded stock market to function. If insider trading is allowed, the market will turn into a game called 'who has the best insider information'. No one will buy or sell stocks based on public information alone, because they will always be at a disadvantage.
- deleted 3y ago
  [deleted]
- zarathustreal 3y ago
  If you’re buying stocks based on public information alone, in this age of web scraping and algorithmic trading, you’re already always at a disadvantage.
  - prepend 3y ago
    The idea is to minimize disadvantages, not eliminate.
  - Jenk 3y ago
    Web scraping and "algorithmic trading" both depend upon publically available information
  - bigbillheck 3y ago
    I'd be OK with banning automatic trading.
  - bluGill 3y ago
    That is all public information. I'm not convinced it is valuable information, but it is pudlic and you should cunsider how pou use it
prepend 3y ago
It harms the other side of the trade that doesn’t have the information.

ttyprintk 3y ago

https://archive.ph/SGklv https://archive.ph/SGklv

sealeck 3y ago

There's always the devil's advocate case that insider trading is good because it makes for more accurate price discovery (as in executives have access to non public information, so e.g. if the company has had a great quarter and the executives buy shares before the earnings figures are released then the price goes up and the market price more accurately reflects the value of the shares). Of course this case is total nonsense but it is fun to make at parties (if you're weird like me) or something. In reality the market being fair is super important for it to function because people won't invest if they're continually being fleeced by people using inside information.

kasey_junk 3y ago
In the US insider trading laws are not based on fairness. They are based on theft, insiders using material non-public information are stealing from other shareholders. There is no expectation of fairness in US public markets.
- sealeck 3y ago
  Theft is unfair? I mean fairness in "no market participants have access to information that is not public". Using a satellite to work out the usage rates of a real estate company's car parking centres? Fine. Bribing an executive to give you non public information? Unfair.
- NoboruWataya 3y ago
  Insider trading is not unlawful because it is theft. It is considered theft because it is unlawful. Trading with someone when you have knowledge they don't is not "theft" in the general sense of the word. If it was, there wouldn't need to be insider trading laws, because theft is already a crime. The only thing you have really taken from your trading counterparty is the expectation of additional profit (or reduced loss) had both parties traded only on public information. That is an expectation that is created by insider trading laws. "Fairness" is a vague term. There is an expectation of fairness in US public markets in the limited sense that it is expected that traders generally have access to the same material information about the underlying security.

CamelCaseName 3y ago

> Panuwat traded on his work computer just seven minutes after he allegedly learned that Pfizer would buy his company. Really? What an idiot.

yieldcrv 3y ago

> First, his employer, Medivation, had a policy that forbade trading other companies’ shares when employees had material nonpublic information about Medivation Note: many financial crimes rely on the government finding your employer agreement that limits you The SEC would have had no case even in their wildest stretch, if the employer didn’t have this policy Many financial crimes are contingent on this

maratc 3y ago
How? Violating your employment agreement is not a crime, you may get fired but you can't go to prison for that.
- yieldcrv 3y ago
  The government relies on the existence of the policy to leverage the governments own civil and criminal statutes
- dragonwriter 3y ago
  > Violating your employment agreement is not a crime, In and of itself? Sure. Can it differentiate between crime and not-crime for certain otherwise similar behavior patterns? Absolutely.
dboreham 3y ago
> Many financial crimes are contingent on this That's a technical detail. What he did was clearly wrong.
- yieldcrv 3y ago
  technical details are the only thing important when the government is involved
Miner49er 3y ago
This is textbook insider trading, regardless of the policy.