
SEC Enforcement of Insider Trading Dropped to Lowest Point in Decades - everybodyknows
https://www.npr.org/2020/08/14/901862355/under-trump-sec-enforcement-of-insider-trading-dropped-to-lowest-point-in-decade
======
greatwave1
The recent Kodak situation (where a huge options bonus was given to their CEO
the day before announcing a major government loan) goes to show how little
some executives are worried about insider trading prosecution.

I've been working on a dashboard to track insider transactions at S&P 500
companies, you can check it out at
[https://www.quiverquant.com/sources/insidertrading](https://www.quiverquant.com/sources/insidertrading)

~~~
Lazare
There was a lot weird about that deal, but you've highlighted the one thing
that is pretty clearly _not_ insider trading.

Had the CEO _bought_ a bunch of shares, that would very possibly be insider
trading, because he is (presumably) trading on information that doesn't belong
to him, but belongs to the company, ie, the board. In the US, insider trading
is a crime about misappropriation of information.

But the _board_ can do whatever they want. They can grant the CEO a large cash
bonus, at any time, for any reason or no reason. And they can grant him a
chunk of valuable options. And they can certainly do so because of a soon-to-
be-announced deal, because again, they're the ones who "own" that information.

Now, why the board might have thought that was a good idea, and to what extent
the board was fulfilling their fiduciary duty to the stockholders is a
separate question. Giving employees who do a good job a bonus is pretty
routine, but on the other hand, just randomly giving the CEO an (effective)
giant sack of cash is very much _not_ routine, and there's a lot of practical
reasons why companies do not usually do that. "It might violate insider
trading laws" is, however, not one of them. :)

~~~
mc32
Also, it seems they are focused more on preventing shady companies from
scamming mom & pop investors (the old fly by night ops).

------
jb775
My guess is that insider trading practices are simply getting smarter. e.g.
receive a hot insider tip? In the old days they'd just buy up a bunch of that
stock. Nowadays, there are systems that can trigger diversified purchases
across multiple asset classes & markets that end up reaping just as much
profit (if not more), while obfuscating the financial ties.

~~~
godzillabrennus
Nominee manager for a Wyoming LLC to do your trading?

Pay the nominee manager in crypto currency and have them open a bank account
for the LLC?

America is awesome at money laundering.

~~~
DrAwdeOccarim
What I'm about to say will probably trigger a backlash, but...bitcoin is a
public, immutable ledger. Why would someone think that would be a good idea to
do crime in? Are bitcoin tumblers really good enough? You need to place a lot
of trust in actors whose desires may not always align with yours.

Better idea would be to just split the winnings with them.

~~~
Alekhine
Monero, a fungible, privacy-focused coin exists. It's near a hundred dollars
in value now.

~~~
DrAwdeOccarim
Yes, I agree.

------
roenxi
Insider trading is one of those crimes where it is a bit ambiguous as to what
the crime is (at least to me). Information travels with some speed and there
will always be people with access to better information making better
decisions.

We have much better technology these days. Rather than making trading some
sort of crime we should just have a "relevant persons" standard where CEOs and
anyone who has close contact with them have to register what they are about to
do a few days before they make any trades of shares in the company.

It is fundamentally a bit silly have a situation where it is illegal for
someone to make best decision given their knowledge. We can safely guess that
the professional traders are leveraging every possible edge, fair or not, SEC
regulation or not if they think they can get away with it.

~~~
solatic
> Insider trading is one of those crimes where it is a bit ambiguous as to
> what the crime is (at least to me). Information travels with some speed and
> there will always be people with access to better information making better
> decisions.

If you exploit information assymetry to make a profit, then your profit is
coming at the expense of whoever had less information than you and made the
transaction nonetheless. The argument goes, if you had perfect information
symmetry, then the transaction would not have occurred, as the person who was
willing to buy or sell the stock (for your profit, with information assymetry)
would rather keep the profit for themselves.

If insider trading occurs at a large enough scale, then market players begin
to assume that the only plays available to them are offered by people seeking
to exploit information assymetry, therefore all plays are losing plays. The
result is that nobody participates in the market, and the market as a whole
becomes worthless. Stop trying to think of insider trading as a crime that
victimizes whoever bought or sold the shares from the person with more
information, and try to see it as a crime that undermines the common
infrastructure that the economy relies upon.

~~~
notahacker
> The argument goes, if you had perfect information symmetry, then the
> transaction would not have occurred, as the person who was willing to buy or
> sell the stock (for your profit, with information assymetry) would rather
> keep the profit for themselves.

Additional relevant context: whilst most trades can be considered to have
winners and losers, in the case of insider trading the executives responsible
have created losers from the [former] shareholders _they 're being paid to
work for_.

Aside from undermining trust in their communication if they're intentionally
concealing information to profit from, the other problem is that it's easier
for executives to create insider trading opportunities by making unexpectedly
_bad_ decisions than unexpectedly positive announcements...

~~~
solatic
You're right, but to be fair, you can have such a conflict of interest within
privately held companies as well, where it would be well outside the scope of
the SEC and entirely at the risk of private investors. Also, in some very
notable examples of public companies where executives hold too large of a
share of equity (primary example: Mark Zuckerberg and Facebook), public
shareholders are unable to hold management accountable for decisions which
public shareholders consider to be against their interests.

So either one or both are true: such a scenario is better handled by corporate
boards, and/or the SEC needs more teeth to prevent the consolidation of
ownership / control of public companies.

------
rmrfstar
This is another example of the US backsliding on what it has historically
claimed as its competitive advantage: efficient markets, a lack of corruption,
and rule of law.

For the people out there claiming that this development is an exclusively
Republican project, I offer [1] as a counterexample. In the market right now
there are widespread practices that would have been prosecuted a decade ago.

“Alternative data” is a euphemism for “insider trading, but on a computer”.
It’s the alpha capture [2] of today.

[1]
[https://www.govtrack.us/congress/bills/116/hr2534](https://www.govtrack.us/congress/bills/116/hr2534)

[2] [https://www.cnbc.com/2014/01/09/blackrock-agrees-with-ny-
att...](https://www.cnbc.com/2014/01/09/blackrock-agrees-with-ny-attorney-
general-to-end-analyst-surveys.html)

------
joschmo
My first thought was that this couldn't possibly be hedge funds reaping the
gains of a Republican government because the hedge business is doing pretty
miserably. How could their funds be collapsing and still be insider traders?

But thinking about it further, there is still a category of hedge funds at the
absolute top like Lone Pine, Viking, and D1 that are doing exceptionally well.
D1 is newer but the others continue to defy the odds year after year while
their peers collapse.

And I could probably name 20 funds in total like that. So maybe fewer funds
are participating but they are doing it better?

~~~
itsoktocry
> _My first thought was that this couldn 't possibly be hedge funds reaping
> the gains of a Republican government because the hedge business is doing
> pretty miserably._

This isn't "hedge funds", it is quite clearly _executives_ at companies. The
SEC has deemed high-profile execs untouchable.

------
kjaftaedi
Brian Krzanich (former CEO of Intel) sold all of the stock he could as soon as
Google informed Intel about spectre and meltdown.

It's hard not to think that insider trading won't be punished when even the
most obvious cases fly by with hardly a mention.

------
082349872349872
Although Hanlon's Razor advises considering incompetence[1] before ascribing
malice[2], there's always this advice from 1944:

(p.29) 11.b.10: "To lower morale and with it, production, be pleasant to
inefficient workers; give them undeserved promotions. Discriminate against
efficient workers; complain unjustly about their work."

[1]
[https://news.ycombinator.com/item?id=23389921](https://news.ycombinator.com/item?id=23389921)

[2] [https://www.cia.gov/news-information/featured-story-
archive/...](https://www.cia.gov/news-information/featured-story-
archive/2012-featured-story-archive/CleanedUOSSSimpleSabotage_sm.pdf)

    
    
        We play croquet
        And go rollerblading
        Here's to homies on lock
        For insider trading

~~~
magicnubs
I'm not sure I understand. SEC employees are being secretly trained to destroy
it from within?

~~~
082349872349872
More that if Avakian and Peikin were explicitly following the OSS guidelines
for sabotage, they'd be promoting inefficient enforcement and discouraging
efficient enforcement.

Now, I don't believe those two are doing anything of the sort, but a look at
the current US ministers certainly reminds me of the soviet chief rabbi joke.
I once made fun of Boris Johnson because he videoconferenced with a bookshelf
in the background that appeared to have been bought by colour, but he's still
doing better than the US Secretary of Education, who didn't even have any
books on her background bookshelf...

(Of course, maybe I'm too cynical, and enforcement of insider trading has
dropped precipitously because they've found something more important to
enforce?)

------
anonu
My view on this is Insider trading is rampant. Trying to squash it, while a
good endeavor, is like trying to eradicate cockroaches. There's always more...
The most egregious cases will probably still get prosecuted and this still
serves as a deterrent, but there will be a few more people walking free.

------
m3at
Note that the enforcement of a lot of regulations and rights _in general_ have
been under-enforced under Trump. This Patriot Act episode is an entertaining
take on a topic that is very little comical[1].

[1] [https://youtu.be/uKXIvfQnYEY](https://youtu.be/uKXIvfQnYEY)

------
linuxlizard
I have some insider information I can offer. DM me.

Update: I should delete this because it doesn't offer anything useful to the
discussion.

~~~
linuxlizard
Seems like now is a perfect opportunity!

------
bosswipe
Capitalists and their politicians have been into "defund the police" long
before it was cool. Though only their police such as the SEC, IRS, FTC, EPA,
etc.

~~~
defterGoose
"Black Lines Matter"

But seriously, prosecution of white collar crime on a scale that actually
makes change seems to have gone the way of the dodo here.

~~~
dylan604
How many people from the 2008 crash went to jail? After that, I realized we
are no further from the robber barons on old.

~~~
kortilla
Jail for what? Please be specific.

The problem with the 2008 crash was that it was a systemic flaw spread across
many parties (originators, bundlers, derivative underwriters, etc). There
wasn’t some cabal of evil laughing traders watching as their grand scheme
collapsed.

~~~
dylan604
How about the guys knowingly making loans to people that could not afford them
because they knew those loans would be sold so they would not be on the hook
for them. How about the guys that hid very shady/risky debt that spread like
cancer throughout the system. You can't honestly think that that whole crisis
was from a small number of bad actors? People knew to look the other way.

~~~
itsoktocry
> _How about the guys knowingly making loans to people that could not afford
> them because they knew those loans would be sold so they would not be on the
> hook for them._

How do you _force_ someone to take a loan? Does the recipient have _no
responsibility_ whatsoever, in your opinion?

> _How about the guys that hid very shady /risky debt that spread like cancer
> throughout the system._

What does this even mean? There is "risky debt" all over the entire financial
system, all the time. Again, if AIG doesn't know the risk of the financial
assets it is purchasing, that is their problem, and it is _accountable to its
customers_. What else are they being paid for?

------
TheButlerian
Good, the insider trading laws should be abolished.

~~~
jandrese
Because insider trading is a good thing or do you think they should be
replaced by something else?

------
seibelj
Insider trading is a victimless “crime” where I believe the penalties are
immoral. Simply not [https://reason.com/2014/06/17/insider-trading-is-really-
comm...](https://reason.com/2014/06/17/insider-trading-is-really-common-
awesome/)

~~~
skosch
As another commenter pointed out, the victim is the public's trust in the
financial market. With transactions between private entities, information
asymmetry is a normal part of life. But if you want to be able to sell your
shares on a public market, the public first needs to trust that you won't
screw them over. That trust is a public good worthy of government protection,
just like we have government agencies to protecting clean air and fair
elections.

~~~
seibelj
I simply disagree. The sale itself is all the information the market needs. I
don't care about insider trading and I don't need the government's protection
for it.

------
kolbe
Insider trading is more or less dead. The only people who do it are a very
small overlap of the Venn diagram of people who have access to material
nonpubluc information and don’t yet know it’s impossible to monetize it. Every
hedge fund knows where the line is and they never cross it. I know NPR wants
to imply this is because the GOP is soft on crimes like this, but it’s
probably more due to these crimes no longer happening.

~~~
gruez
>Insider trading is more or less dead

Is there any evidence supporting this claim?

>The only people who do it are a very small overlap of the Venn diagram of
people who have access to material nonpubluc information and don’t yet know
it’s impossible to monetize it

Which side is it? That there are less people people who have insider
information, or that it's harder to monetize insider information? Unless
there's big shift in US corporate culture leading to better information
controls across the board, I don't think it's the former. I can't think of
anything that'd change the latter, unless HFT/hedge funds found some sort of
crystal ball so they can front-run the insiders.

~~~
smabie
Hedge funds aren't run like they were in the early 2000s. It's not about
individual traders posting PnL, it's about entire teams working together. In
the past, individual traders would try and get inside information in order to
post good returns. It's not like everyone at the hedge fund worked together to
insider trade, that'd be too risky.

As a result of the individual book model dying, inside information isn't worth
much. You can't trade on your own, and you can't share it with others.

Moreover, with outflows from discretionary to quantitative strategies, there's
not that many hedge funds (by capital at least) that could even do anything
with inside information. It's not like if some guy at Bridgewater got a hot
merger tip he would even be able to do anything with it.

tl:dr: lots of things have changed, and the industry is no longer conducive to
exploiting insider information.

I'm sure it still happens, but at an individual or informal kind of level.
It's not an institutionalized accpeted thing like at SAC or Gallion, for
example.

~~~
strbean
> Hedge funds aren't run like they were in the early 2000s.

It appears that they changed how they were run the instant Trump was elected.
Funny how that works!

~~~
Nightshaxx
I saw you post this comment multiple times. Correlation does not equal
causation my friend.

~~~
strbean
Correlation more often is the result of causation than it is of "handy wavy
arguments about human nature".

~~~
Nightshaxx
"Correlation does not mean causation" has nothing to do with the amount that
correlation is the result of causation. It means that the former does not
directly imply the latter, you need to add more to your argument than just the
correlation argument. There could be other factors at play that were the
actual cause of the change. These factors could be the underlying causes for
both events, or the events may be completely separate.

The only thing you said was "because X and Y happened at the same time, they
seem to be connected". You did not make any other arguments about how X could
cause Y. Within the past hour, I went to the bathroom, and also at least one
person on earth died. As you can see, to say my bathroom trip caused that
persons death is illogical without any other facts or evidence to back it up.

This is a really funny site btw: [https://www.tylervigen.com/spurious-
correlations](https://www.tylervigen.com/spurious-correlations)

