[HN Gopher] Twilio employees, associates charged with insider tr...
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Twilio employees, associates charged with insider trading by SEC
Author : pcbro141
Score : 179 points
Date : 2022-03-28 19:59 UTC (3 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| throwaytwilios wrote:
| tempsy wrote:
| I can't understand the rationale behind blowing up your life and
| career in which you made $300k+/year for a tiny $1m gain split
| between 3 people and their families.
|
| Why are people who should otherwise be much smarter than this
| doing incredibly dumb things? Just greed? and entitlement?
| bsder wrote:
| Generally--because they're used to this kind of cheating and
| have never been busted for it before.
|
| The problem is that people think they've graduated to "no
| longer has to worry about consequences" at the $1 million
| range. And that's true--unless the Feds get involved. At that
| point, you need to be in the $100+ million range to get away
| with crime.
|
| So, there is this danger area between $1 million where you get
| lots of local feedback that you are above consequences and $100
| million where you actually _are_ above consequences.
|
| It's very easy to get complacent and trip up in that window.
| (I'm remembering the Silicon Valley option backdating fiasco
| and how many people it caught ...)
| npteljes wrote:
| And for the rush of it? And for the money itself? 300k when you
| earn 300k boosts you one year ahead. It's not a small amount of
| money. Also smart and wise is not the same.
| pm90 wrote:
| This is a total guess, but based on the fact that all the perps
| names are Indian, there is a chance that they are immigrants
| who are either not aware of the law or the serious consequences
| involved if you get caught. If they're convicted this will
| almost certainly affect their immigration status and likely get
| them deported too.
|
| Not excusing what they did at all, but it should be noted that
| the judicial systems in India and the US are very different;
| its not very common to get busted for financial crimes.
|
| I honestly think that whenever immigrants come over they should
| be required to attend a class about the law enforcement
| situation in the US, and how there's very real chances of
| getting prosecuted if you do crimes.
| metadat wrote:
| Publicly traded companies make office employees periodically
| (usually annually) go through a corporate anti-corruption
| training course covering inappropriate gifts and insider
| trading.
|
| If these fellas were smart enough to be hired at Twilio,
| claiming ignorance is beyond ridiculous.
|
| If somehow twilio decided to skip all these trainings, twilio
| can be held liable and sued by their employees who get in
| trouble. Do you think their savvy legal team (c'mon, it's in
| Telco space, they have a legal army) could be that dumb?
| Having been present during an IPO and working for publicly
| traded companies, I can confidently say "No, not a chance".
| sharemywin wrote:
| probably thought they could get away with it
| tempsy wrote:
| lol well yeah.
|
| but the SEC literally has to run one query that shows someone
| with a big gain buying stock and options before earnings and
| work at said company which i'm pretty sure you're not
| supposed to be doing in the first place whether you had
| special info or not
| [deleted]
| jasonlotito wrote:
| > Why are people who should otherwise be much smarter than this
|
| Being smart at your job doesn't mean you aren't ignorant. In
| fact, I'd say the culture of equating "good at computers"
| meaning you are probably "smarter than this" does more to
| shield us from the truth of our own ignorance.
| [deleted]
| ashtonkem wrote:
| It seems to be a problem common among specialists, especially
| among highly valued specialists. I've heard the same
| complaints about lawyers and doctors, for example, so it
| doesn't seem to be specific to the "good with computers"
| crowd.
| rossdavidh wrote:
| My wife owns a small retail clothing store. It is her
| experience that the people who attempt to steal, are not
| generally lower income, they are often among the most well-to-
| do members of the population that goes through her store. Very
| different stakes, and very different age group (she mostly
| sells to teenagers and twentysomethings), but same psychology,
| I think. "I'm not the sort of person who gets arrested and sent
| to prison". Which is true until suddenly it isn't.
| ethbr0 wrote:
| I call this the "National Park effect".
|
| Being constantly coddled in some way dulls your ability to
| recognize when circumstances have changed, and those
| safeguards are no longer present.
|
| See: tourists who wander off in National Parks with no cell
| service, with no water or survival gear, and then think it's
| a good idea to pet a bison
|
| The concept of laying bleeding, miles from the nearest road,
| with broken bones, as night falls and the temperature drops
| is so foreign to their experience that it just isn't an
| imagined possibility.
| nebula8804 wrote:
| >Being constantly coddled in some way dulls your ability to
| recognize when circumstances have changed, and those
| safeguards are no longer present.
|
| It will be interesting to see this happen nationwide if the
| music were to stop(or slow down) in the US economy as some
| are predicting.
| ethbr0 wrote:
| That's what the 2008 crisis was at its root -- too many
| people, at all levels, who'd forgotten to be alert for
| danger and mistakenly assumed that the recent past served
| as fundamental bounds of future possibility.
| guidovranken wrote:
| > On several occasions between late March and early May 2020,
| before Twilio's public earnings announcement, Sure, Lagudu and
| Chotu Pulagam used internal chat channels to discuss in Telugu
| whether Twilio might exceed market expectations in its quarterly
| report of earnings, due in May 2020. They concluded that Twilio's
| stock price would "rise for sure" after the quarterly results
| were announced publicly.
|
| https://www.sec.gov/litigation/complaints/2022/comp-pr2022-5...
|
| I assume "internal chat channels" means the company Slack so this
| wasn't well planned at all. I wonder if they were even aware they
| were committing a felony at that stage.
| ffggvv wrote:
| probably or they wouldnt have used telugu. maybe assuming it
| would be harder to get caught
| stavros wrote:
| Why wouldn't they have used their native language in a secure
| channel?
| runako wrote:
| I'm sure the SEC has an array of tools with which to comb through
| the data, but I would bet that the vast majority of these cases
| against non-professional traders are flagged by identifying
| retail brokerage accounts where the notional value of options
| outstanding is
|
| 1) larger than some % of the the portfolio size (e.g. > 50%)
|
| 2) with exposure concentrated on 1-3 stocks
|
| 3) with no similarly-sized follow-up trades in other names (e.g.
| they didn't just figure out a new methodology and begin applying
| it across different companies)
|
| Due diligence follow-up to determine that one or more of the
| yokels works for the company in question, and LinkedIn will get
| you more of the perps.
|
| The only surprising thing to me is that the SEC likely hasn't had
| to tune this filter for decades.
| corentin88 wrote:
| It's more likely to me that they talked about it internally (to
| colleagues?) and someone reported it to HR, the police or SEC
| directly.
| tempsy wrote:
| uhm it's not even that difficult. they just see if you traded
| in your own account for a company you work for around earnings.
|
| i'm pretty sure you're not supposed to do it at all but maybe
| dependent on the situation.
| ethbr0 wrote:
| You're not supposed to do that at all. You could argue you
| didn't possess any material non-public information, but since
| essentially every internal document you access is non-public
| information, that's probably not an argument you want to deal
| with.
|
| Just trade your own company's shares in the windows _after_
| earnings releases. Or set up a pre-defined share sale plan in
| one of these windows, covering the future, and don 't touch
| it.
| mgfist wrote:
| Many companies, and (most?) tech companies have trading
| black out periods that are lifted for about a month a few
| days after earnings. It applies to your personal brokerage
| account too, even though they can't technically enforce it.
| sidewndr46 wrote:
| > Or set up a pre-defined share sale plan in one of these
| windows, covering the future, and don't touch it.
|
| The insider trading training I did at one company
| specifically mentioned this is against SEC rules and is
| insider trading. I am unsure if that is actually true, but
| that is what the company expected us to operate as.
| tempsy wrote:
| i follow the market pretty closely and executives and
| board members often have pre-defined sales plans that
| will sell shares right before earnings.
|
| not sure if it's open to employees. personally don't
| think it's fair but it seems to be legal as is.
| toast0 wrote:
| Setting up a 10b5-1 plan with your broker when you don't
| have material, non-public information, and your broker
| follows the plan is _the_ way to trade in employer stock
| with a solid footing if you regularly have material non-
| public information. (Such as, in this case, a major
| change in business metrics).
|
| Your company may not permit regular employees to setup a
| 10b5-1 plan, I think they need signof by corporate legal;
| and in that case, any trading that happens in your
| account could be considered insider trading based on your
| knowledge when the trade executes (or possibly when it's
| entered/while it's open... details are sort of fuzzy),
| regardless of if you or your agent made the trade, or
| even if the trade was automatic due to margin or
| something.
| ethbr0 wrote:
| IANAL, but a 10b5-1 plan (thanks for reminding me of the
| naming!) is an affirmative defense, that removes insider
| trading liability if a trade satisfies all of its
| conditions.
|
| Effectively, (1) the plan is created when one does not
| have material nonpublic information, (2) that it...
|
| _" - Specified the amount of securities to be purchased
| or sold, price, and date;
|
| - Provided a written formula or algorithm, or computer
| program, for determining amounts, prices, and dates; or
|
| - Did not permit the person to exercise any subsequent
| influence over how, when, or whether to effect purchases
| or sales; provided, in addition, that any other person
| who exercised such influence was not aware of the
| material nonpublic information when doing so."_ [0]
|
| ... and (3) that the trade as executed did not attempt to
| subvert (2).
|
| So it's not really something you need to have your
| corporate legal agree to for it to be valid (although
| legal may require or encourage you to do so, to limit
| exposure of company officers botching it). You simply
| have to set up a plan that satisfies the test with your
| broker, then claim it as your defense if the SEC comes
| after you.
|
| A note on a napkin saying "Sell 5,000 shares 3 days
| before every earnings call, as long as the RSI is >50"
| would seem to suffice, provided you didn't subsequently
| meddle.
|
| [0] https://www.federalregister.gov/documents/2022/02/15/
| 2022-01...
| sidewndr46 wrote:
| The training I went through explicitly laid out this
| scenario and explicitly classified it as insider trading
| if material nonpublic information is found that would
| make those trades desirable to execute. I've never heard
| of the SEC prosecuting someone for losing money due to
| insider trading.
|
| Again, this probably isn't the case legally. But it was
| enough for an extremely powerful corporation to deem it
| as such.
| ethbr0 wrote:
| You'd have to look up recent case law, as with all SEC
| rules, which may be what your company is referring to.
|
| But that's the explicit design of 10b5-1: that it
| provides coverage if all its requirements are satisfied.
|
| The SEC can charge you for making favorable trades
| according to a predefined plan, but they're going to have
| an uphill battle convicting you, if you kept your broker
| at arms length and didn't alter your plan beyond what was
| initially communicated.
| joshuamorton wrote:
| I think the issue may be that a 10b5-1 is the only way to
| do this without avoiding liability. Just having your
| broker make trades for you, even if they're "scheduled",
| isn't enough.
| RC_ITR wrote:
| >The Securities and Exchange Commission today announced
| insider trading charges against three software engineers
| employed at Twilio, Inc., a San Francisco-based cloud
| computing communications company, and four family members and
| friends for allegedly generating more than $1 million in
| collective profits by insider trading ahead of the company's
| positive first quarter 2020 earnings announcement on May 6,
| 2020.
|
| This, along with the 'Tipper/Tippee' language implies that
| the named engineers did not in fact trade in their own
| accounts.
| tempsy wrote:
| i mean it's not clear it could have been all of them. not
| really the point i'm making..yes it could have been done
| exclusively using family that the government clearly knows
| you're linked to. maybe more difficult with friends.
| RC_ITR wrote:
| Please read the articles before commenting on them:
|
| >Sure, Lagudu and Chotu Pulagam knowingly tipped off, or
| used the brokerage accounts of, their family and close
| friends - Dileep Kamujula, Sai Nekkalapudi, Abhishek
| Dharmapurikar and Chetan Pulagam - to trade Twilio
| options and stock in advance of its May 6,
| usea wrote:
| > Please read the articles before commenting on them:
|
| You don't have to read an article before commenting.
| Trying to make up rules and hold other people to them is
| neither kind nor constructive.
|
| Your interpretation of their post is not charitable.
|
| It's explicitly against the guidelines to accuse someone
| of not reading the article.
|
| https://news.ycombinator.com/newsguidelines.html
| tempsy wrote:
| ok? what is the point? they tipped off family but sharing
| in the gains.
|
| sorry i said "their own personal account" and not "their
| family" which they lazily used to try to hide the trading
| activity?
| toomuchtodo wrote:
| > I'm sure the SEC has an array of tools with which to comb
| through the data
|
| They have a fairly robust analytics/data science team, and will
| also act on referrals from FINRA related to
| suspicious/anomalous trade activity.
| tempsy wrote:
| isn't this what they use Palantir for?
| throwoutway wrote:
| I don't think so, I saw a FINRA talk 5+ years ago where
| they described their home built data analytics that could
| process all daily trades looking for something similar to
| what the GP described
| nojito wrote:
| Nope.
|
| https://www.sec.gov/marketstructure/midas-system
| spamizbad wrote:
| Palantir doesn't have a product that actually does this,
| contrary to whatever sales presentation you might've heard.
|
| (I know someone whose gov org almost found this out the
| hard way after nearly flushing millions of taxpayer dollars
| down the toilet)
| sq_ wrote:
| I've barely touched anything Palantir, but the one gov
| project I worked on tangentially that used their products
| did seem suspiciously like a simple database that the gov
| employees/contractors were doing all the work to make
| useful.
|
| I'm not sure if that's what they were sold, but if they
| were sold on a full solution, that's definitely not what
| they got...
| paxys wrote:
| None of Palantir's products do anything really useful.
| They are instead used as glorified tech demos by their
| sales teams. Then their engineers go in and build custom
| solutions for whatever the client needs. The company
| doesn't do too much more than standard tech consulting.
| paulpauper wrote:
| >>Three tech company employees along with family and friends
| charged in $1 million scheme
|
| They should have just made YouTube livestreams pretending to be
| VItalik Buterin, Elon Musk, or Michael Saylor instead. Those guys
| making million every month, no arrests, no SEC.
| sonicggg wrote:
| According to the article, they 'concluded in a joint chat that
| Twilio's stock price would "rise for sure."'
|
| I bet there are a lot of folks doing this out there, but they are
| more careful. So they had a non-encrypted chat room about it.
| It'd be funny if they found this in the company 's Slack
| workspace.
|
| On top of that, they involved a bunch of other family members.
| That's too much.
| mrjaeger wrote:
| From the Complaint
| (https://www.sec.gov/litigation/complaints/2022/comp-
| pr2022-5...): "Kamujula met with Sure on April 8, 2020 and later
| that night began purchasing out-of-the-money Twilio call
| options."
|
| Clearly not Money Stuff readers!
| [deleted]
| RspecMAuthortah wrote:
| Not a sympathizer of these idiots who clearly thought that would
| get away. But what really astonishes me is how SEC is
| consistently after these retail small players when members of
| congress and its different committees are brazenly involved in
| insider trading and no one bats an eye. Hell even the Fed itself
| and its members were involved in trades that could only be
| explained by insider knowledge.
|
| My sense is SEC wants to send the message it is OK if big players
| do it but small players beware.
| paulpauper wrote:
| Because it's not as obvious regarding congress. Person A gets
| tip, hands to B and makes trade, is a direct link and can be
| proven in court. Also, Congress has 532 people, so by
| statistical certainty we should expect some to beat the market.
| swyx wrote:
| well, for one, members of congress are legally allowed to
| insider trade.
|
| pretty convenient laws when you make the laws.
| CharlesW wrote:
| > _well, for one, members of congress are legally allowed to
| insider trade._
|
| Are they?
|
| Highlight link: https://en.wikipedia.org/wiki/STOCK_Act#:~:te
| xt=The%20law%20....
| udkl wrote:
| ribs wrote:
| No doubt there are lawbreakers in AP, just as they are in every
| other state, in every other place. That you've heard more or
| remembered more or paid more attention to those reports is of
| little to no material importance for grasping what is going on
| in the world or predicting what will happen next and who will
| do what.
| udkl wrote:
| Nah, I'm aware against the bias you mention, and that's not
| it. There genuinely are more fraudsters in tech from that
| state. People I know from that state disproportionately tend
| to be lazy and scammy. Case in point this scam. However, this
| does not mean everyone there is dishonest.
| paulpauper wrote:
| Yet again, supposedly smart, well-paid people taking huge risks
| for relatively small payouts.
| charcircuit wrote:
| All insider trading should be legal. Imagine the opposite case.
| You know your company is doing poorly but the government forces
| you to not sell your stock and take a loss.
| rossdavidh wrote:
| In those countries where insider trading is either explicitly
| allowed or laws against it are never enforced, nobody without
| inside information wants to play, because they know the game is
| rigged.
| vmception wrote:
| Yeah? Any analysis I can read on that? Its kind of low
| hanging since the US has such high trading volumes far beyond
| every other market, but I cant accept that as causation
| alone.
| decebalus1 wrote:
| As opposed to the game being always rigged but without
| everyone knowing... just the insiders.
| rossdavidh wrote:
| Truth.
| sp332 wrote:
| It's only illegal if you're using secret information. The
| company can't report info to some shareholders and not others.
| sneak wrote:
| No, it's only illegal if you are using secret information
| accessed with privileged insider access.
|
| If you do research and deduce nonpublic (secret) data and use
| that, that is fine. The classic example is inferring sales
| data from customer traffic by observing the parking lot
| utilization at regular intervals.
| kasey_junk wrote:
| This is an American interpretation of insider trading laws
| which are very much not about keeping markets fair rather
| they are about preventing shareholders (or those working on
| their behalf) from stealing from other shareholders.
|
| Other jurisdictions have different presumptions about what
| insider trading laws are for and may thus interpret them in
| different ways.
|
| This was a US jurisdiction filing so the former standard
| applies but on an international message board it's worth
| remembering people have different intuitions about this
| stuff for good reason.
| charcircuit wrote:
| In my example the company is not reporting to any
| shareholders. You are doing trades based off of information
| that you have collected yourself.
| sp332 wrote:
| -
| notch656a wrote:
| >If you're using information anyone could get with some
| research, then it's not illegal.
|
| If I am willing to give out information gained during
| employment of the company to anyone asking as part of
| their research, then by this definition it's not illegal,
| as anyone can get the information with some research.
| ethbr0 wrote:
| See fair disclosure requirements
|
| https://www.investor.gov/introduction-
| investing/investing-ba...
| notch656a wrote:
| At best that would only require you to disclose to
| everyone once asked by someone performing some research,
| or through the outlined regulation FD mechanisms. It
| still holds that using your own definition, all it takes
| is some research to gain what the employee who is willing
| to give up information knows, and that giving up the
| information can be done in a way that avoids violating
| regulation FD.
| ethbr0 wrote:
| If you want to play chicken with the SEC like they're a
| D&D DM you're rules lawyering, be my guest.
|
| Because while they may not prosecute often, I'd still
| rather stay off their radar.
| syshum wrote:
| if you are in the position of knowing secret data of a publicly
| traded company, and you are uncomfortable with the position of
| possibly losing money because you can not act on the secret
| data, I would suggest you not hold stock for companies you know
| secret data about
|
| No insider trading should not be legal
| derekp7 wrote:
| Something I was always curious about, but I lack the legal
| background to find the answer. What if public information
| showed that you should sell the stock, but you decide to hold
| it instead (i.e., not do anything at all) because you have
| insider information that the company will be doing much
| better than expected? The "not selling" part (assuming you
| bought stock prior to having insider knowledge) is a form of
| insider trading, but I can't see how that could be enforced
| (i.e., how would the SEC be able to prove that you would have
| sold if you didn't have that positive insider knowledge?)
| fatnoah wrote:
| AFAIK, that wouldn't be considered insider trading since
| there was no trade.
|
| However, there's an even more interesting wrinkle. In that
| case, you plan trades well in advance, and then cancel them
| based on insider information. In one case, that was rules
| to not be insider trading either.
|
| https://en.wikipedia.org/wiki/SEC_Rule_10b5-1
|
| "After Rule 10b5-1 was enacted, the SEC staff publicly took
| the position that canceling a planned trade made under the
| safe harbor does not constitute insider trading, even if
| the person was aware of the inside information when
| canceling the trade. The SEC stated that, despite the fact
| that 10b5-1(c) requires trades to be irrevocable, there can
| be no liability for insider trading under Rule 10b-5
| without an actual securities transaction, based on the U.S.
| Supreme Court's holding in Blue Chip Stamps v. Manor Drug
| Stores, 421 U.S. 723 (1975).[6]"
| metadat wrote:
| The game is most definitely rigged, it's not even a
| secret.
| smegma2 wrote:
| Not a lawyer but holding should always be fine. No trading
| is happening therefore it's not insider trading.
| usrusr wrote:
| Or more to the point: insider trading isn't quite as
| victimless as some people might like to believe.
|
| The only victim "insider holding" could have would be
| people betting against a trend caused by public
| information (who would win even more if the "insider
| holder" would sell with the herd), either out of pure
| gambling desire or because their trades are insider
| trades. Neither seems particularly worthy of protection.
| syshum wrote:
| not a lawyer, but inaction should never be criminalized.
| wasmitnetzen wrote:
| In a lot of Civil law systems, you have a Duty to
| rescue[1]. Which I wholeheartedly agree with.
|
| [1]: https://en.wikipedia.org/wiki/Duty_to_rescue
| notch656a wrote:
| Unfortunately it commonly is. One example is mandatory
| reporters. For some licensed professions, it is a thought
| crime to merely have the thought that you suspect a child
| meets some criteria of neglect/abuse, while not
| performing any action to relay the thought to
| authorities. This can lead to unwarranted and
| damaging/traumatic CPS investigations merely so a
| professional can cover their ass.
| vkou wrote:
| This can also lead to highly warranted investigations,
| given that _actual_ abuse is incredibly common.
| notch656a wrote:
| CPS investigators asking non-abused children traumatizing
| questions (sometimes after being independently detained)
| and the associated investigation into the family, only
| reported as CYA to stay in compliance with mandatory
| reporter laws, is child abuse performed by CPS. CPS
| themselves are often the child abusers in this fashion,
| and this law allows them to abuse more children.
|
| >This can also lead to highly warranted investigations,
| given that actual abuse is incredibly common.
|
| Or possibly not. It could drive anyone who suspects a
| professional may attribute (correctly or not) some
| circumstance as abuse, to merely completely avoid letting
| their family see any professionals. These laws degrade
| trust even further between professionals and those
| seeking them, reducing access to care. Instead of an aid,
| a therapist or doctor is seen as a threat so dangerous as
| to risk breaking apart your family at any time. Avoidance
| at seeking professional services may decrease warranted
| investigations rather than increase them.
|
| Anyone familiar with substance abuse patient care
| understands how mandatory reporting frequently endangers
| children: many drug-addicted women birth outside the
| hospital system so they can keep their children.
|
| But of course I don't doubt compelling people to say
| their thoughts out loud to authorities could lead to more
| 'warranted investigations' at a dystopic cost. As with
| many laws written so _someone will think of the
| children_, there is some factual basis that additional
| warranted investigations may be opened as a result of
| creating these thought crimes. I am of the opinion,
| though, that criminalizing these thoughts leads more
| towards "involuntarily report anything that may risk my
| license, at the cost of traumatizing innocent families"
| rather than "voluntarily report genuine abuse."
| [deleted]
| notch656a wrote:
| >I would suggest you not hold stock for companies you know
| secret data about
|
| I imagine the way this works out for non-idiot inside
| traders, is that their cousin or close friend holds the stock
| instead. Insider trading is really only discoverable when
| performed by the stupid or complacent.
| syshum wrote:
| while I agree, the cousin / close friend is pretty stupid
| as well unless you are making minor moves. That would be
| easily discovered as well
|
| However I agree with the principle that it easy to do if
| you have any level of intelligence (and no i am not giving
| way how I would do it ;) )
|
| I dont know the full solution, but it is clear by just
| looking at US Congress that more work needs to be done on
| solving insider trading
| epa wrote:
| Insider trading is no joke. If you have access to metrics you
| have access to inside information.
| truthwhisperer wrote:
| nova22033 wrote:
| Somebody should have subscribed to the Matt Levine newsletter.
| kieselguhr_kid wrote:
| I work in billing software for a publicly traded software company
| and this is a constant temptation. I'm never gonna do it because
| I'm not gonna blow up my career for a relative pittance, but I
| can't tell you how many times I've been annoyed that I couldn't
| act on private information and make ~$100k or so.
|
| These guys are like the kids who saw the Tide Pod challenges and
| decided to actually eat the pods. I bet insider trading is not as
| fun when you're unemployed and bankrupt.
| [deleted]
| throwra620 wrote:
| paulpauper wrote:
| they were fooled by their smartness. They don't realize that
| the govt. plays for keeps.
| mynegation wrote:
| [Edited to remove harsh phrasing]. Consider this: there is no
| upside from this comment and quite a bit of potential (although
| likely low probability) downside.
| kieselguhr_kid wrote:
| I think this is a fair criticism, but in all honesty a
| determined attacker would probably have better vectors both
| in terms of companies to trade against and in terms of people
| with access to actionable information.
|
| Also worth noting there have been times I've thought the
| price should go up and it went down, and vice versa. While I
| have a good view into financials (and believe I would have
| made money insider trading, on the whole), it's not complete
| enough to warrant something like threats, blackmail, etc.
| Eiriksmal wrote:
| Being tempted and _acting_ on those temptations are two
| different things. There is nothing damning in this comment. I
| appreciate the author 's honesty.
| mynegation wrote:
| I have no reasons to imply that the commenter would be
| tempted or acted at all. But there are means of coercion
| other than money.
|
| I admit though, I watched too many spy movies and TV shows
| daenz wrote:
| I think you gave good advice. If someone has privileged
| access/info, they shouldn't advertise it to the world.
| It's just asking for trouble.
| scrose wrote:
| Wouldn't someone determined just look at LinkedIn?
| [deleted]
| rosndo wrote:
| > These guys are like the kids who saw the Tide Pod challenges
| and decided to actually eat the pods. I bet insider trading is
| not as fun when you're unemployed and bankrupt.
|
| Most insider traders are never caught, _everyone_ eating tide
| pods gets sick.
| mtrovo wrote:
| Not really a matter of most are never caught but a matter of
| people doing really stupid trades because they think there's
| no way SEC's paying someone to check they cleared all their
| open positions to buy deep out of the money call options just
| days before a big company announcement.
| kilroy123 wrote:
| My suspicions are many on Wall Street do it.
| ffggvv wrote:
| my guess is if they did everything via in person discussions
| and didnt leave a paper trail of messages, they likely
| wouldnt have been caught
| paulpauper wrote:
| they almost always get caught. The SEC is so good at
| detecting this stuff especially when people do it many
| times thinking they got away with it the first few times. .
| sonicggg wrote:
| Agree with that, it's a bad analogy. These guys that got
| caught are the tip of the iceberg. They probably did
| something reckless in the process.
| daenz wrote:
| >I bet insider trading is not as fun when you're unemployed and
| bankrupt.
|
| Not just unemployed, likely unemployable by any reputable
| company in the industry.
|
| Also, good on you for having integrity, but honestly what you
| say is too much for the average person to be tempted with. Does
| anyone have a solution for lowering that temptation and making
| these scenarios less likely?
| gcheong wrote:
| That's the point at which you launch your bid for congress.
| kieselguhr_kid wrote:
| I think it's a lot to be tempted with, but it's also
| relatively easy to stay in compliance: don't trade your
| company's stock during black out periods, don't talk about
| revenue with friends or family, and be vigilant about not
| publicly discussing your information. It's not a complicated
| code of ethics, fortunately.
| verdverm wrote:
| You can obfuscate CII (Company Identifying Information) as
| much as possible. Limit the reveal to those that need to
| know. Auditing, and making employees aware you can see what
| they do with data might reduce the temptation because the
| risk of being discovered is (perceived to be) greater.
| kieselguhr_kid wrote:
| Unfortunately I need to know, because if the numbers are
| off I need to help fix them. I do take my responsibility to
| keep revenue numbers within a small group of people very,
| very seriously, because who knows if someone else would be
| too tempted to act.
| [deleted]
| go_prodev wrote:
| There's no single solution, but I think it comes down to a
| combination of annual compliance training, decent
| remuneration, being aware of your team's personal situations,
| having auditing systems in place and monitoring employee
| engagement scores as a proxy for job satisfaction and
| trustworthiness.
| bidirectional wrote:
| Legalising insider trading is the simplest solution.
| hodgesrm wrote:
| It depends on your definition of the problem. The problem I
| would like to solve is ensuring that everyone perceives the
| market as fair, i.e., not tilted toward parties with access
| to privileged information.
| rosndo wrote:
| This implies a truly bizarre understanding of markets and
| fairness.
|
| Was it fair when Enron was valued at $70B? Would the
| situation have been less fair had insider traders with
| more information pushed the prices down earlier?
|
| Insider trading doesn't cost anybody anything, it simply
| allows for more accurate pricing which benefits
| everybody.
| MichaelBurge wrote:
| If insider trading is legal, you could actively destroy a
| company from the inside and profit from its downfall.
|
| Like you could buy put options to set up a leveraged
| short position, take all the company's money, set it on
| fire in public(or make a stupid acquisition so you can't
| easily be sued by other shareholders), watch the stock
| price drop in a predictable manner, and profit from the
| predictable decrease in equity.
|
| Sort of like how you can't buy life insurance and then
| immediately commit suicide and still get paid out.
| economist6373 wrote:
| > If insider trading is legal, you could actively destroy
| a company from the inside and profit from its downfall.
|
| What you are describing is an entirely different kind of
| misconduct than "insider trading".
| rcMgD2BwE72F wrote:
| Yes but it is one that insider trading incentivizes
| greatly.
| daenz wrote:
| That's an interesting perspective. So in a way, insider
| trading corrects the market because the difference
| between what is known and what is unknown should not
| result in a vast difference in valuation.
| rosndo wrote:
| Exactly. It is the perspective often repeated by
| economists.
|
| There exists little political will to legalize insider
| trading because it would be hard to sell to a public that
| doesn't even understand _why_ stock markets exist. To the
| average person on "insider trading" is just bad stuff
| evil rich people on wall street do.
|
| In reality the arguments in favor of banning insider
| trading are actually quite weak, usually relying on very
| vague ideas of fairness and public perception.
|
| But the idea of "fairness" in markets is an illusion
| anyway, even without insider trading there will always be
| those with more information. Someone could follow
| corporate executives to restaurants, eavesdrop on their
| conversations and trade on that basis. That wouldn't be
| illegal insider trading, would it be fair? I personally
| believe it would be just as fair as illegal insider
| trading.
| woodruffw wrote:
| > Insider trading doesn't cost anybody anything, it
| simply allows for more accurate pricing which benefits
| everybody.
|
| Insider trading has an institutional cost: it's corrosive
| to trust in the market. Retail investors are less likely
| to make optimal investment decisions if they think that
| insiders are lurking around every corner. That trust is
| further diminished if retail investors believe that
| insiders are not just _investing_ based on insider
| information, but _speculating_ on higher-order
| instruments.
|
| It's perfectly fair to note that our current regulations
| against insider trading aren't ideal, and that the SEC
| only catches a tiny fraction of all insider trading. But
| the threat of enforcement _does_ serve as an important
| root of trust in the market, and removing it is unlikely
| to serve individual investors well.
| rosndo wrote:
| > Retail investors are less likely to make optimal
| investment decisions if they think that insiders are
| lurking around every corner.
|
| But the reality is that there are insiders lurking around
| every corner. The argument is essentially that we should
| seek to actively mislead retail investors instead of
| simply acknowledging this fact.
|
| To me that feels dishonest.
| woodruffw wrote:
| I think it _would_ be dishonest to do so actively, which
| is why I try to acknowledge that the SEC 's current
| ability to enforce insider trading laws is relatively
| weak and ineffective.
|
| I think it's my civic duty to not only inform others of
| that fact, but _also_ to advocate for better enforcement.
| economist6373 wrote:
| Good enforcement is impossible. You can never
| meaningfully hinder insider trading, far too many people
| have access to insider information. They don't have to
| make the trades themselves either.
|
| > I think it would be dishonest to do so actively
|
| That is what the government is doing via legislation.
| deObfuscate wrote:
| So, if I were a trader at Enron who made good money
| trading electricity and gas then used that money to short
| the stock based on private information, I'd be doing
| everyone a service and fighting for fairness. Better yet,
| I could be one of their auditors at Arthur Andersen.
| daenz wrote:
| I think the point that they're making is that there
| wouldn't be a large opportunity to short Enron if people
| were insider trading from the very beginning. The price
| of the stock would be more accurate from the beginning,
| because people would trade at the first sign of an
| opportunity to benefit from insider information.
| willcipriano wrote:
| > not tilted toward parties with access to privileged
| information.
|
| With the exception of Congress of course.
|
| Reverse insider trading is also fine, you can announce
| buybacks right before a preplanned stock sale.
|
| It would be simpler to say if you aren't friends with
| someone invited to Epstein island you aren't allowed to
| insider trade but the plebs would get uppity.
| woodruffw wrote:
| > With the exception of Congress of course.
|
| Banning Congress from making stock trades has broad
| bipartisan support[1]. Absent any evidence that the
| person you're responding to _doesn 't_ support a
| Congressional ban, it's probably safe to assume that they
| do.
|
| [1]: https://thehill.com/homenews/news/588630-76-percent-
| of-voter...
| rosndo wrote:
| Indeed, insider trading benefits everybody by adding more
| information to the markets, leading to more accurate
| prices.
| mlazos wrote:
| Prices are a function of number of market participants
| and information of each participant. If insider trading
| is legal, fewer people will participate in the market
| because they will lose out due to information asymmetry
| and this will lead to pricing inefficiencies. What's
| interesting is that what others are willing to pay is key
| public information as well.
| daenz wrote:
| To people disagreeing with this, can you give a counter
| argument? On face value, what rosndo said seems to make
| sense.
| QuadmasterXLII wrote:
| One argument would be that the people who accumulate
| wealth through insider trading go on to be destructive.
| mchusma wrote:
| I actually agree it should be legal, but the argument is
| basically one of fairness. That in the market, retail
| investors compete against insiders.
|
| In practice. The world is unfair, and retail investors
| must compete against all kinds of people with unfair
| advantages.
|
| If insiders could legally trade, then the ability to
| profit off insider trading would go down.
| economist6373 wrote:
| It's important to understand that the usual argument
| against insider trading isn't actually about true
| fairness, but rather the _impression of fairness_. These
| are two different things.
|
| The argument that insider trading should be banned
| because it is somehow disproportionately unfair is quite
| weak, the argument that it creates an _impression of
| unfairness_ is a much stronger one.
|
| I personally don't believe it is a particularly good
| argument, but it is certainly the strongest version of
| the argument against insider trading.
| deObfuscate wrote:
| Their obviously wasn't much thought put in to this.
| Anywhere that a conflict of interest occurs has potential
| for abuse. If the officer/employee/agent has the ability
| to influence the result and profit then their is a
| conflict of interest. The legal ramifications are
| lessened and the cost to benefit subsequently decreases.
|
| Auditors are a good example. They have privileged
| information and are responsible for the fairness of
| financial information / disclosure. Their incentives are
| already complicated by the compensation structure, i.e.
| the company they attest for pays their fee and ultimately
| decides whether they will work together in the future.
|
| In this instance, an abolishment to insider trading
| regulation would ultimately undermine trust in the
| financial reporting system. The auditors could
| potentially place bets on their engagements and negotiate
| results based on their interests. Impartiality would be
| compromised. Their are safeguards in place currently,
| penalties for insider trading are part of the remedy.
| jwsteigerwalt wrote:
| There is no solution better than the current ones. After a
| company I worked with was acquired by a public company, I was
| given a role that included accessing to sensitive information
| in financial dbs. Along with that was a welcome email from
| the chief counsel, then every quarter came emails listing
| blackout dates. I nave traded in the company's stock or
| options, but it would have been incredibly clear when I was
| prevented from doing so.
| gumby wrote:
| > but honestly what you say is too much for the average
| person to be tempted with.
|
| I think you underestimate the "average person". Most people
| basically want to be good. Everything works better when that
| is the case -- basic game theory.
|
| You see the punishment / pressure about unfairness start in
| early childhood. You see it in the infrastructure where this
| is overwhelmingly the case (e.g. shops with unguarded back
| entrance/exits) vs where not (armed guards outside the
| shops).
|
| And of course the news (cf the current HN conversation on
| _that_ topic) focuses on the exceptions to the rules because,
| on an evolutionary biology* basis we're always learning and
| reinforcing on the normal case so we are interested in the
| exceptions.
|
| * meant loosely...most EB is fanciful.
| kenrose wrote:
| > Does anyone have a solution for lowering that temptation
| and making these scenarios less likely?
|
| Isn't the status quo doing a sufficient job?
|
| The temptation may be there, but it's abated by the downside
| risk of fines, prison time, and unemployability.
| supramouse wrote:
| djbusby wrote:
| False.
|
| https://en.m.wikipedia.org/wiki/Consumption_of_Tide_Pods
|
| Do not eat!!
| swyx wrote:
| looks like the Netflix crew were at least better at it than the
| Twilio crew https://news.ycombinator.com/item?id=28227209
| purple_ferret wrote:
| Interestingly (based on their linkedin profiles), they were
| promoted after the event. Some of the friends listed even got
| jobs within Twilio. One even works at Google. Might not the first
| time they've made such moves; just perhaps the boldest.
| broknbottle wrote:
| When is the announcement happening for the members of congress
| that made investments in key areas after they were briefed on
| covid-19 and potential impact?
|
| > We are a free market economy. They should be able to
| participate in that
| mgraczyk wrote:
| All the specific allegations that I looked into were absolutely
| not insider trading. The heavily scrutinized Pelosi trades, for
| example, were pre-planned rolling of options that did not
| generate profits directly and would have been executed very
| differently if the trader had any foreknowledge of future price
| movements in the underlying. People often sell and buy options
| at different expiry dates to keep their position static, not to
| trade based on new information.
| Anon1096 wrote:
| Insider trading as the law currently is written is about theft
| of company secrets for private gain. Knowing what is going on
| in the world is not stealing information from any particular
| company.
| [deleted]
| vmception wrote:
| To clarify, "Insider Trading", the criminal charge, requires a
| contract with the company or fiduciary duty with the company
| not to trade on nonpublic information or disclose something
| nonpublic + the receiver trade on it, as a prerequisite to
| getting charged by the insider trading police (SEC + DOJ).
|
| Thats the reason for this line in indictment summary:
|
| > The SEC's complaint alleges that despite receiving a company
| policy that prohibited them from insider trading
|
| There would be no case without it (but NDAs or trade secret
| policies or a clause present in most employment contracts would
| cover it)
|
| In any case, When only receiving a tip, the obligations of the
| receiver is still unclear. Maybe they can trade, maybe they
| cant.
|
| (As there is no actual federal law on insider trading in the US
| and the SEC has made it up through court cases over time.)
|
| They use their general fraud statute, as well as prior
| remaining case law that slightly went in their favor, because
| they lose in court a lot.
| sneak wrote:
| Insider trading requires privileged access to inside
| information. Covid impacts to society are not inside/internal
| data to those companies, those briefings were happening when it
| was obvious we were having a global pandemic to anyone paying
| attention.
|
| The inputs to the deductive reasoning process were public
| information.
| syshum wrote:
| Congress is privy to inside information that impacts the
| market via several mechanism including private briefings for
| upcoming policy changes, or knowing about laws that will be
| passed before the actual votes
|
| Congress should be investigate more thoroughly for insider
| trading, or even barred from trading at all (which is my
| preferred solution)
| nawgz wrote:
| > Insider trading requires privileged access to inside
| information
|
| You think knowledge of the laws and regulations that Congress
| is going to enact before they're enacted or public is not
| "inside information"? Defend this stance.
| nickdothutton wrote:
| $1m in profits eh? SEC really going after the big fish.
| extr wrote:
| What a lame way to insider trade. I thought that instance of the
| Capital One analysts using internal database queries to
| understand which retailers were having good quarters was far more
| interesting and insidious. Similarly you could imagine a lot more
| subtle ways to leverage insider Twilio information (count of
| verification texts sent by client?) to make far more obscure
| bets. The SEC definitely takes a look at anyone who goes from
| zero trading -> making improbably great trades worth millions
| though, so better have a good patsy lined up!
|
| Edit: Context for the traders I was talking about. What they did
| was much cooler and honestly kind of impressive:
| https://www.bloomberg.com/view/articles/2015-01-23/capital-o...
| RC_ITR wrote:
| >count of verification texts sent by client
|
| This is what I thought it would be based on the headline and
| was frankly disappointed that the truth was so quotidian.
| Certain Twilio engineers could very likely keep an index of
| major gig-economy/delivery services and track both user and
| driver sign-ups in a way that could be very valuable NMPI _and_
| have the advantage of being at a broad range of companies that
| are only tangentially related to their employer.
|
| In fact, @SEC if you're reading this, you might be missing some
| bigger fish...
| denimnerd42 wrote:
| sounds like they went back to China and got new jobs.
| https://www.crunchbase.com/person/bonan-huang
| ramesh31 wrote:
| >I thought that instance of the Capital One analysts using
| internal database queries to understand which retailers were
| having good quarters was far more interesting and insidious.
|
| How is this seriously different than what any one of a million
| other "AI analytics" companies are doing with customer data
| right now?
| tptacek wrote:
| Because it was Capital One's internal data, which belongs to
| the shareholders. US insider trading laws are about theft,
| not about fairness (the markets require "unfairness" in this
| sense in order to perform price discovery).
| bilbo0s wrote:
| The "AI analytics" companies are all communicating expressly
| their intent when they purchase the data at the outset. This
| makes it legal.
|
| Full disclosure, I'm a privacy advocate and believe this sort
| of selling of customer data should not even be allowed. That
| said, what the companies you allude to do is totally legal by
| law, and significantly different in practice than taking data
| without informing anyone of your intent.
|
| I guess the short answer to your question is that this is the
| United States. Everything is legal here, provided you do the
| paperwork first.
| maxerickson wrote:
| It's discussed in the link they added. The retailers shared
| the data with Capital One for specific business purposes, not
| for stock market analysis.
| jeromegv wrote:
| It was an internal database (from Capital One credit cards),
| they weren't allowed to use that data for analysis. This
| wasn't publicly accessible information.
|
| See article: https://www.bloomberg.com/opinion/articles/2015-
| 01-23/capita...
| jliptzin wrote:
| Yea, now just imagine how many smarter people are doing it and
| getting away with it
| kyleblarson wrote:
| Add to that they apparently chatted about it in some tool that
| had an auditable history and one can surmise that these people
| weren't the most sophisticated bad actors.
| MengerSponge wrote:
| "The stock will go up for sure."
|
| Swiper, no swiping!
| par wrote:
| Wow, not even enough money to retire. Their stock grants are
| probably worth more than whatever they made trading. Seems like a
| bad move.
| donatj wrote:
| > SEC's complaint alleges that despite receiving a company policy
| that prohibited them from insider trading [...] trade[d] Twilio
| options and stock in advance of its May 6, 2020 earnings
| announcement while in possession of the confidential information
|
| Isn't it illegal regardless of company policy? That's such weird
| phrasing.
| ceeplusplus wrote:
| Presumably this is so they can't claim ignorance and receive a
| lighter sentence.
| [deleted]
| xyst wrote:
| This is a proud win in the SEC handbook? $1 million dollars is
| fucking chump change. Whales do this on a 1000X scale every
| fucking day (yes billions). They even collaborate amongst other
| trading firms to pump and dump. Where's the prosecution related
| to the GME + Citadel Securities + Melvin Capital illegal naked
| short selling? Remember when this group was hemorrhaging billions
| of dollars and forced RH to remove the "Buy" button on GME?
|
| I ask again, where's the prosecution there?
| mgraczyk wrote:
| They are though
|
| https://www.thestreet.com/markets/regulation/doj-sec-probe-d...
| xyst wrote:
| investigations != prosecutions
|
| when sec posts the story, then I will believe it. I strongly
| suspect the "investigations" will lead to nowhere.
| filoleg wrote:
| The process takes time. Prosecution doesn't, and shouldn't,
| happen without an investigation.
|
| Whether this specific investigation will lead somewhere or
| not is yet to be determined. You cannot say they did
| nothing until the investigation is completed.
|
| If the investigation doesn't lead to a just conclusion,
| then we can talk. But as of now, your anger at SEC just
| sounds like being annoyed because they decided not to
| speedrun this. If you actually believe that a wrongdoing
| has happened here, then the investigation needs to be
| thorough and conclusive, to make sure there were no gaps
| through which the guilty party can escape. And that's
| assuming any wrongdoing actually happened, which is what
| the investigation will need to determine.
| throwaway5752 wrote:
| I searched for Raj Rajaratnam's case and found up with
| Malnik, Blakstad, and Martoma cases by accident. Those are
| very large prosecutions with prison time. Did you not see
| those?
| Workaccount2 wrote:
| Apes have an understanding of financial markets that's about on
| par with 9/11 truthers understanding of civil engineering.
|
| They get little bits right, but the whole picture wrong.
| decebalus1 wrote:
| Prosecuting whales is both super expensive and risky to the
| conviction rate. See
| https://www.npr.org/2017/07/30/535799735/corporate-bungling-...
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