[HN Gopher] SEC charges Netflix insider trading ring
___________________________________________________________________
SEC charges Netflix insider trading ring
Author : hhs
Score : 123 points
Date : 2021-08-18 21:10 UTC (1 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| khazhoux wrote:
| 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 wrote:
| 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.
| enchiridion wrote:
| I've always thought that's because the stock has already moved
| before earnings. So the day after earnings is just any other
| day for the big players.
|
| It'd be interesting to look at correlation of a rolling average
| with earnings call metrics.
| clpm4j wrote:
| "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.
| elliekelly wrote:
| 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.
| Trias11 wrote:
| I don't think SEC has any encrypted messaging reading
| capabilities but average guy suddenly making regular killing
| on the market with the same stock does turn on red flags.
|
| And then it's a matter of connecting the dots - most often
| the dots between the "lucky" guy and someone within the
| company.
|
| Done.
| notadog wrote:
| ARTEMIS stands for the Advanced Relational Trading
| Enforcement Metrics Investigation System.
| antman wrote:
| Also Artemis was the goddess of hunting in Ancient Greece.
| [deleted]
| hatsunearu wrote:
| How do they know whose friends are friends with whoever else?
| jedberg wrote:
| Your public friends list on LinkedIn, Facebook, etc?
| kyleee wrote:
| I'm certain it's easier than basically any point in human
| history to obtain such information from: intelligence
| agencies, social media companies, data brokers/advertisers,
| etc.
| benatkin wrote:
| Should have used Kakao. Guessing they used something based in
| the US.
| H8crilA wrote:
| 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.
| vineyardmike wrote:
| > 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.
| fred_is_fred wrote:
| >I bet most people could review that data before the
| earnings call and guess the movement of the stock enough to
| make money.
|
| If "most people" could do this, "most people" would.
| H8crilA wrote:
| _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 wrote:
| > 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 ;)
| bpodgursky wrote:
| Maybe one of them cracked.
| droopyEyelids wrote:
| 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 wrote:
| Yeah. Reminder: if you witness something of this sort
| consider using the SEC Whistleblower Office
| (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 wrote:
| Snitching is wrong.
| H8crilA wrote:
| It could be considered wrong, depending on your personal
| ethics. That's why I wrote "consider".
| socialist_coder wrote:
| 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.
| skrtskrt wrote:
| You're trading securities in the United States on a
| registered exchange through a registered broker, it is all
| _heavily_ monitored and regulated, to assume there would be
| any sort of anonymity on a trade is delusional.
| traceroute66 wrote:
| >It seems wrong that my personal info is being given out by
| my brokerage, in a way that lets them identify my personal
| trades.
|
| Unlikely.
|
| More likely is that the brokerages and/or exchanges submit
| transactional order-book trade data to the SEC (i.e.
| anonymous numbers .... timestamps, quantity traded,
| direction).
|
| If the SEC then spot something, its just a case of picking
| up the phone to the brokerage and asking to ID the client
| for the transaction at a given timestamp.
| quickthrowman wrote:
| What do you expect from SEC regulated markets/exchanges
| with AML/KYC and heavy regulation? Anonymity?
| fshbbdssbbgdd wrote:
| Sometimes privacy has costs, so do the cost-benefit
| analysis. What's more important, your privacy from some
| investigator at the SEC who has access and abuses their
| position, or the SEC's ability to detect insider trading?
| haney wrote:
| 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 wrote:
| Inside trading of the information in that database would
| be something!
| cyral wrote:
| 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.
| empraptor wrote:
| 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.
| nojito wrote:
| Trading information is essentially public.
|
| It's just a matter of finding suspicious trades to start an
| investigation.
| TuringNYC wrote:
| Trading information is public (quotes and trades) but the
| originating person/entity is not, so it would be hard to
| detect this via the public trade log or quote book since
| you couldnt see track records or profitability.
|
| That said, the SEC _does_ have access to the full dataset
| including the person /entity making the trades.
| np- wrote:
| If you are trading on an SEC regulated exchange:
| https://www.sec.gov/fast-
| answers/divisionsmarketregmrexchang..., then yes the SEC
| can see everything.
| willdearden wrote:
| Most trades through a brokerage don't make it on an
| exchange. They're internalized by a wholesaler like
| Citadel Securities. Which is the reason for the question.
| alecst wrote:
| Yea, possibly this plus messaging metadata.
| artur_makly wrote:
| do they get jail time? or just fines?
| kevin_thibedeau wrote:
| If they lie they get the Martha Stewart special which is
| apparently harsher than an attempted coup.
| codazoda wrote:
| 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.
| hooloovoo_zoo wrote:
| 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 wrote:
| and with those Netflix salaries, it does not look that worth
| the risk to begin with it
| spoonjim wrote:
| Crazy to lose your >$500K job and get a felony record for $3
| million in profit split among accomplices.
| pcbro141 wrote:
| 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...
| jonny_eh wrote:
| Criminals don't expect to get caught.
| elliekelly wrote:
| 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.
| wjd2030 wrote:
| Meanwhile members of congress continue to get rich using their
| positions and its all good.
| seriousquestion wrote:
| 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
| a-dub wrote:
| 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.
| whoisjuan wrote:
| "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.
| [deleted]
| amelius wrote:
| How about family members/friends of employees of Y company?
| sakopov wrote:
| > People who do it are complete idiots.
|
| US Senators would likely disagree with your assessment. [1]
|
| [1] https://unusualwhales.com/i_am_the_senate
| pryce wrote:
| 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.
| traceroute66 wrote:
| > 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
| and then 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).
| dilyevsky wrote:
| 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
| wil421 wrote:
| 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.
| cortesoft wrote:
| > 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 wrote:
| True!
| bostonsre wrote:
| 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.
| skrtskrt wrote:
| > 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.
| Kluny wrote:
| 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 wrote:
| It is rational if the punishment for insider trading
| stays relatively constant but the benefit increases with
| money traded - which it probably does.
| Retric wrote:
| 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 wrote:
| Yes, there have been several people charged with insider
| trading who actually lost money on the trades.
| skrtskrt wrote:
| Good point - we'll file making negative money under "make
| under $1 million".
|
| Even if you lost money the one time you did it, I'd
| probably still recommend doing it approximately once.
| rasz wrote:
| Nah, the safest way involves relatives in politics.
| skrtskrt wrote:
| or just being a senator
| cardosof wrote:
| Bringing the big harpoons for the small fish. What about the
| whales?
___________________________________________________________________
(page generated 2021-08-18 23:00 UTC)