
Intel CEO’s Stock Sales May Warrant SEC Examination - CPAhem
https://www.bloomberg.com/news/articles/2018-01-08/intel-ceo-krzanich-s-stock-sales-seen-warranting-sec-examination
======
mbesto
Good analysis as always from Matt Levine:

 _I am always skeptical that stories like this are actually about insider
trading, just because it would be too dumb and obvious for Krzanich to dump
his stock just before announcing bad news. Also: The news doesn 't seem to
have been that bad for Intel's stock, and in fact Krzanich's sales last year
were mostly at prices below yesterday's close. As a diabolical plan it seems
pretty unimpressive._

[https://www.bloomberg.com/view/articles/2018-01-05/citi-
forg...](https://www.bloomberg.com/view/articles/2018-01-05/citi-forgot-to-
fix-its-money-laundering-systems)

~~~
volgo
The law doesn't care how stupid your plan was. You could plan a theft in the
middle of the day stealing $5 and still be a crime

Insider trading is trading with the knowledge of privileged information not
available to public investors. If he did it, it's a crime. Doesn't matter if
he made $50 million or $5.

~~~
meritt
[https://www.sec.gov/cgi-bin/browse-
edgar?action=getcompany&C...](https://www.sec.gov/cgi-bin/browse-
edgar?action=getcompany&CIK=0001538580)

Their CEO has a well-documented six-year history of acquiring and disposing
INTC stock. As the CEO, he implicitly _always_ has access to privileged
information. How exactly does the SEC determine the legality of a _specific_
trade?

I'm not trying to be flip here, I don't really have an opinion on the matter.
It just seems that when the CEO is allowed to apparently buy/sell as they
please, and not on a predetermined announced-in-advance plan, you could argue
that every single trade was illegal insider trading.

~~~
crdoconnor
When it was the Qwest CEO the legality appears to have been determined by his
lack of cooperation with the NSA:

[http://www.businessinsider.com/the-story-of-joseph-
nacchio-a...](http://www.businessinsider.com/the-story-of-joseph-nacchio-and-
the-nsa-2013-6?IR=T)

------
JumpCrisscross
First Equifax, now Intel. Let's assume no bad faith. That means committees and
control functions are failing to (a) appreciate the damage a security
vulnerability (or exploit) can cause _and /or_ (b) receive timely notice of
said occurrences. We might need a new disclosure rule. Prompt disclosure
whenever a material security vulnerability or hack is discovered.

~~~
mehrdadn
> Let's assume no bad faith.

Sounds good. Let's also assume data-driven decision-making.

> failing to (a) appreciate the damage a security vulnerability (or exploit)
> can cause

As far as I'm aware, neither of these is known to have resulted in damage yet,
so as far as I'm know there is nothing to fail to appreciate.

> failing to (b) receive timely notice of said occurrences

This is a problem if and only if the above damages actually do occur more
quickly than the people in charge have time to act. So it loops back to the
above. _______________________________________

EDIT: It seems everyone is misunderstanding my point. I'm _not_ looking at
this from the standpoint of either of the parties. Yes, they can sue for
damages, and perhaps they even _should_. That's perfectly fine! That has
nothing to do with what I was trying to say.

Rather, I'm looking at the problem from an 'outer' standpoint -- the same
perspective I would assume a lawmaker would have (or at least should have),
which is the perspective of: _" Is the system able to handle its problems?"_
If the legal system can already handle this "exception" and sort out the
problems and hand out appropriate penalties for everyone involved, then the
system is working as designed, i.e. we _fail_ to have grounds for e.g.
requiring early disclosure. On the other hand, if people who are _not_ parties
to the case _are_ getting hacked and/or having their identities stolen, then
_that_ is a failure of the legal system that needs to be addressed, e.g. by
requiring timely disclosure.

Basically, the fact is that we all _like_ timely disclosure (myself included)
and yet we are failing to explicitly show what problem exactly it would solve.
So far, it is not clear that earlier disclosure would have prevented any
problems that we are already seeing. If and when we get solid data to that
effect, _then_ we have grounds for blaming lawmakers and demanding change.

~~~
wtallis
> As far as I'm aware, neither of these is known to have resulted in damage
> yet,

How many sysadmins have been working overtime to investigate this, deploy out
of band patches, and test their impact on infrastructure that may now be
underprovisioned? Meltdown and Spectre are already inflicting serious costs
even before exploits are found in the wild.

~~~
singlow
But would that have been mitigated by earlier disclosure? We'd all be going
crazy trying to homebrew our own temporary fixes instead of installing patches
made by kernel devs.

~~~
mehrdadn
I was going to say this but then realized people could just claim to be
referring to (a) rather than (b) [1], so I didn't bother mentioning it.

[1]
[https://news.ycombinator.com/item?id=16103154](https://news.ycombinator.com/item?id=16103154)

------
alain94040
The facts:

 _In 2017, he set up pre-arranged sales of 28,000 shares_

And then in November he sold almost 900,000 shares.

 _on Nov. 29, Krzanich exercised and sold 644,135 options and sold an
additional 245,743 shares that he already owned_

~~~
ww520
That's pretty damning. It looks like they set up a pre-arranged schedule to
sell but the amount to sell is determined at a convenient time.

~~~
turc1656
It's actually worse than that. He completed the prearranged sale of 28,000
shares that he had declared for 2017 in October. Then he sold an additional
~845k shares in November!

------
j1vms
Anyone know whether there will be any repercussions for continuing to keep the
flawed chips on the market, and for that matter continuing to sell these as of
today.

I'm not talking about recalls of purchased product, just that Intel chose to
continue to keep chips with _major_ known issues on store shelves instead of
choosing some other option.

~~~
wmf
Intel did release a microcode update (which "couldn't" be released early due
to "responsible disclosure").

Taking all their processors off the shelves would be suicide.

~~~
Waterluvian
How does a microcode update work? My sparse understanding is that instructions
are physically encoded in the chips. That you could take a microscope and look
at the different instructions.

~~~
TomV1971
That was a very long time ago.

Microcode can be loaded by the BIOS.

~~~
xxs
Most of the microcode nowadays is loaded by the OS (not BIOS)

~~~
chopin
Today I learned something.

Doesn't that open a huge attack surface? This code would run super-privileged
isn't it?

~~~
0x0
CPUs will only accept uploads of microcode if they can verify the digital
signature, of which the private keys are only known to the CPU manufacturer
(i.e. Intel or AMD). Probably it will also only allow upgrades, not
downgrades, on a running system. So the only "attack" you can perform if
you've gained root is to patch CPU security vulnerabilities by upgrading to a
newer valid microcode, and then also only until the next reboot.

------
droopybuns
The number of security events that have significantly affected stock values is
very limited. Only equifax comes to mind.

If I recall correctly, Weev tried to short AT&T in advance of the iPad hack,
but only got a tiny intra-day dip. The stock that week ended higher every day.

It is risky to short based on security mistakes. I am willing to give this guy
the benefit of the doubt. I wish the financial markets valued security more.
There just isn’t a lot of evidence to support that hypothesis.

~~~
pmorici
How many security mistakes have translated into anything more than a minor one
time cost to the company involved? I can't think of any.

~~~
droopybuns
I would argue that part of the decline of HTC has been Because of their FTC
penalties.

Look at the last year of equifax’s stock price. One major dip related to one
major news story.

Their are a few anecdotes, but most of the time, there is no major financial
impact.

------
turc1656
_" People who are CEOs of companies like Intel don’t make mistakes like
this."_

Right. That's because this isn't a mistake, it's a criminal act with
forethought.

 _" That sale decreased his overall holdings by about 50 percent, bringing his
ownership level nearer to what he held at the end of 2013 and at the minimum
number of shares he must hold under Intel’s ownership requirements"_

That's pretty much all I need to read. The guy sold every share he could
possibly sell without violating any contractual agreements and company
policies that are/were in place.

Give him an orange jumpsuit and be done with it.

------
KKKKkkkk1
As we now know, insiders have been selling Intel shares long before the
vulnerabilities became public. The impact is already baked into the price,
whatever it was. So we'll never know whether Krzanich made money at the
expense of his shareholders, but I can't imagine he thought no one will ask
themselves that question.

~~~
qwerty456127
> As we now know, insiders have been selling Intel stock long before the
> vulnerabilities became public.

I understand this is just not legal, but otherwise why should they had not
(i.e. why exactly is it illegal)? What the rationally logical plan they should
have taken? Telling everyone about the vulnerability is irrational - it should
be told to those who are supposed to write patches first, keeping the shares
when you know they are going down is irrational too.

~~~
alien_at_work
>keeping the shares when you know they are going down is irrational too.

Which is why we have insider trading laws: to make it rational again.

"I know this insider information that means my shares will be worthless
tomorrow when everyone finds out. It's not rational to keep them."

"If you do that you'll go to prison."

Still irrational?

~~~
qwerty456127
Is it rational to have laws that rationalize irrational artificially?

~~~
alien_at_work
Yes of course. As this example demonstrates in fact: the rational behavior
would be to do something that hurts everyone for the sake of an individual who
has privledged information. The penalty makes the behaviour we need to
encourage become the rational course.

I'd say a large portion of rules of society function this way for this reason.

------
jlgaddis
I'm more curious if any of his family or close friends (who hold significant
amounts of $INTC) sold during the "pre-public" period.

------
m3kw9
Right, so he sold at a time where the cpu flaws was already discovered and
heat building up

~~~
QAPereo
Exactly.

I stick by my prediction from the thread when this came to light... he’s going
to prison or at least going to be ruined, and someone at the SEC is going to
make their career.

[https://news.ycombinator.com/item?id=16067322](https://news.ycombinator.com/item?id=16067322)

~~~
RachelF
I doubt it. The very rich seldom go to prison, especially if they are US
citizens at US companies.

Intel can afford very good and very many lawyers for him. Intel may pay a fine
to the SEC, after many years.

~~~
jjeaff
CNBC's American Greed is a good place to see how wealthy people are being
prosecuted and sent to jail on a regular basis.

Martha Stewart did some time for what appears to be much less than what the
Intel CEO has done. And as far as the general public is concerned, she is much
higher profile and was likely quite a bit wealthier than Brian Krzanich.

~~~
didgeoridoo
Not quite — Martha Stewart was convicted of conspiracy, obstruction of
justice, and lying to investigators.

You can get away with a lot of things if you’re rich, but annoying federal
prosecutors is rarely one of them.

~~~
bduerst
I'm not sure if Martha Stewart is on par with the Intel corporation, but she
is worth half a billion dollars, so I digress.

~~~
jjeaff
By "higher profile", I just mean as far as the general public is concerned.
I've worked in tech my whole life and I couldn't have told you who the CEO of
Intel is. But everyone knows Martha Stewart. It's a Good Thing®

------
ryanpcmcquen
Yeah! Just like Equifax really got nailed ... wait.

------
krisives
Most companies would recall a product if it was unsafe, just to avoid the
potential liability. However, the problem is that almost no guarantees are
made in any way when you buy a product from Intel and any guarantees you think
they made are immediately absolved of liability by legalese you "accepted"
when you opened the packaging, etc.

Also, technically, their caches / tables still work as designed we just didn't
understand that design very well.

------
matte_black
A proper examination is best so that he can clear his name once and for all.

------
bitL
Massive server slowdown requires more hardware to be used; AMD can't supply
many servers, so it's a big win for Intel sales as they will sell many more
servers than anticipated. IMO Krzanich is going to lose a lot on premature
stock sales.

------
matt4077
Brian Krzanich earns around $20 million p.a. at Intel. He sold 900,000 shares
for about as much, total.

Even if he expected the stock price to be cut in half, he'd save just half a
year's worth of his regular compensation. And Intel stock barely budged.

That would be an enormously stupid attempt at insider trading. Not only
doesn't it pay very well. A CEO of such a company is closely watched by
stockholder, the company's own lawyers, the media, competitors, and the SEC.
The SEC regularly nails mid-level executives of unknown companies giving tips
to their friends' dentists.

~~~
knowaveragejoe
Why is this downvoted? This seems like a reasonable debunking of the insider
trading theory, unless someone has better information than this.

~~~
JumpCrisscross
> _This seems like a reasonable debunking of the insider trading theory_

Martha Stewart went to jail for avoiding $45,000 in losses [1]. People don't
always act rationally. More pointedly, you don't have to act in bad faith to
break securities law. The lack of any disclosure surrounding this material
issue, which Intel knew about for months prior to the CEO's sale and prior to
Intel's Q3 Form 10-Q, is jarring and could result in liability.

[1]
[https://en.wikipedia.org/wiki/ImClone_stock_trading_case](https://en.wikipedia.org/wiki/ImClone_stock_trading_case)

~~~
knowaveragejoe
What does that have to do with insider trading, though? I'm reading elsewhere
in this thread that this was a scheduled sale ahead of time. Supposing it was
indeed pre-planned well before they knew of the vulnerability, cancelling the
sale would _also_ be insider trading.

~~~
jjeaff
The scheduled sale was for less than 100k shares. He modified the schedule to
900k shared after finding out about meltdown.

~~~
knowaveragejoe
That sounds pretty damning then, do you have a link?

------
convery
Doesn't the board have to approve all such sales months ahead? Just seems
strange that people are acting as if he sold all he had and ran for the hills
when the bad news were released.

~~~
CardenB
The issue is that the sale was scheduled after intel was aware of the issue.

~~~
ringaroundthetx
My problem with this idea is that it assumes this is the ONLY issue that a
multinational corporation would be aware of.

There would be so many counterweighting forces at play at any time that it
would be EASY to rationalize why this one shouldn't affect the share sale's
view in the court of public opinion. Given that none of the other sales did
either.

Case in point, we are analyzing this timely disclosure a full quarter later. I
count at least five 8-k's since then, let alone form 4's

------
flylib
good this was reckless

------
latch
Setting aside what the law currently is, why is it illegal? This WaPo article
[1] always seemed spot on to me. For most of us, individual stocks are a David
and Goliath thing, and there should be no illusion of equality.

[1]
[https://www.washingtonpost.com/news/wonk/wp/2013/07/26/insid...](https://www.washingtonpost.com/news/wonk/wp/2013/07/26/insider-
trading-makes-us-richer-better-informed-and-could-prevent-corporate-scandals-
legalize-it/)

~~~
lovich
So you think that people who have the ability to affect the value of a
publicly traded good should be allowed to trade on actions that they can plan
and know about in advance? Especially when the way insider traders benefit the
most is by selling off stock before an announcement like Intel's, which by
definition hurts whoever they sell to as they are left holding the bag.

If you care that little about equality why not go all the way and just say
laws don't apply to the rich, not just in fact but by law.

The only point of having laws is prevent people with power from amassing ever
more power and hurting others. Without that there would be no reason for
anyone to not take whatever they can the moment they get an opportunity

~~~
rvern
> which by definition hurts whoever they sell to as they are left holding the
> bag

Of course. The Intel CEO sells stock to investors without telling them that
there is a vulnerability that makes the stock worth much less than they think,
thus hurting these investors. Sounds intuitive, right?

The investors he sells to had already sent an order to buy to their broker.
They were going to buy at the same or worse price anyway, so they aren't
harmed by this. Someone else is harmed, but that's the market professionals
who, months later, don't get an opportunity to profit off of the news before
everyone else. I'm sure economics not being intuitive has something to do with
why democracies end up with bad policies all the time.

~~~
lovich
A: if you are going to just slip in an insult there with the line about
economics being unintuitive, go fuck yourself. If you honestly didn't mean it
as an insult, then I apologize.

B: you've moved the goalposts. I said it hurt others when they sell based on
information they know as an employee, of the company whose stock they are
selling. You are arguing that its fine because those people would probably be
hurt anyway. If it was really fine then why didn't the CEO tell everyone about
the vulnerability before making the sale? Those investors would have just
bought it anyway, right?

------
dkaigorodov
Easy, easy; the guy just decided to buy some crypto-coins)

------
Kyragem
The 1% owns this country and can get away with murder while Joe Schmoe is left
holding the bag.

------
omarforgotpwd
Well, most every CPU was affected not just Intel’s. If I were Intel’s CEO my
primary motivation for selling would be NVIDIA and ARM, not this exploit.

~~~
dna_polymerase
It doesn't matter if other architectures are vulnearble as well. It looks like
that the Intel CEO acted (sold stock) upon information which by its nature
should have been made available to all stockholders prior to this. The whole
matter is reported here [0]. It really looks shady from the outside.

[0]: [http://www.businessinsider.de/intel-ceo-krzanich-sold-
shares...](http://www.businessinsider.de/intel-ceo-krzanich-sold-shares-after-
company-was-informed-of-chip-flaw-2018-1?r=US&IR=T)

~~~
omarforgotpwd
It is fairly normal to sell a portion or all of shares received from
excercising stock options to cover tax liabilities. I don’t think it’s clear
that knowledge of the exploit changed his behavior. Furthermore the stock has
not taken a major hit on the news. It is still up compared to a month ago, 3
months ago etc. it is down a little over the last week. The idea that he sold
to avoid a stock crash doesn’t really hold if the stock didn’t crash, right?

~~~
lawrenceyan
Though it is true that Krzanich has consistently sold stock every 4th quarter,
for this recent transaction, he massively increased the amount he sold.
Krzanich sold so much in fact that if he had sold any more stock, he according
to Intel corporate mandate bylaws would no longer be allowed to continue as
CEO.

If you don't believe me, look for yourself:

[https://www.fool.com/investing/2017/12/19/intels-ceo-just-
so...](https://www.fool.com/investing/2017/12/19/intels-ceo-just-sold-a-lot-
of-stock.aspx)

[https://www.sec.gov/Archives/edgar/data/50863/00011276021703...](https://www.sec.gov/Archives/edgar/data/50863/000112760217033679/xslF345X03/form4.xml)

And 'coincidentally', this massive increase in selling just seemed to somehow
perfectly fit right in the middle of Intel being privately informed of
Meltdown in June but before any public disclosure kept locked away all the way
until now in January.

This is blatantly illegal insider trading. Don't let anyone tell you
otherwise.

------
jpdaigle
Where's the line for material non-public information, vs something not obvious
to most of the public, but discoverable through research?

Any engineer sufficiently motivated to do so could have examined a CPU at any
time in the last ten years, and, through skill, access to publicly available
information (the instruction set, cpu datasheets) and immense amounts of hard
work, uncovered the Meltdown flaw, without any access to Intel's internal
trade secrets.

~~~
kornish
All insider information is non-public, but not all non-public information is
insider.

------
qubex
The argument that his sales might’ve violated insider trading rules is
puerile, populist, and patently absurd. The whole point of having pre-arranged
stock sale plans is precisely this: so that execution of them does not leak
any information whatsoever into the market. Think about it: if he had a pre-
arranged plan and _didn’t_ sell because he feared running afoul of insider
trading rules ahead of a drop, it would have alerted other investors to the
fact that something that spooked him was going on, and they would have
preempted the unknown risk and rushed for the exit, crashing the stock.

In short, his is precisely why CEOs insist on these pre-arranged plans to make
their stock grants and stock options valuable without causing them to incur
the damoclean sword of being ’allowed’ to monetise only when they have
absolute certainty that none of the no doubt innumerable problems they are
aware of and paid to manage will leave negative impacts on stock valuations
(meaning: never, making their stock worthless).

There’s nothing to see here.

~~~
xxs
He did sell like 32 times more than the "pre-arranged" plan.

~~~
qubex
As I understand it, because he had more than he had ever had before, and had
just received the biggest payout ever. So again, yes... but probably not
unjustified.

~~~
brewdad
Also, after a couple of years of trading in a range in the low to mid-30s, in
September the stock began a surge up to $47+. That's a pretty good time to
sell off a large chunk of stock regardless or whether he knew anything about
this defect (he knew).

------
rvern
Laws against insider trading should be abolished. The statutory prohibitions
cause real economic harm by making markets less efficient, while there isn't
actually anything immoral about insider trading. It's not fraud, it's a
victimless crime, and markets getting non-public information faster is good
because it allows faster correction of the allocation of capital to companies
that are worth more or less than is publicly known. People who have knowledge
of the deficiencies of a company should have an incentive to make the public
aware of them and correct the price at the same time, and a trade does just
that.

~~~
conanbatt
I generally agree with Friedman that insider trading is not as bad as it is
portrayed for some of the reasons you mention. But there is also another side
of the coin, particularly with CEO's: he had the command to disclose there was
a high impact security issue, and chose not to and profited from it. In this
case, he was participant in creating the trade.

As such, he sold stock to people that didnt know about a piece of information
he was withholding. So im not so convinced there shouldnt be any insider
trader laws.

~~~
rvern
He did not profit from it at their expense, though. The people he sold stock
to were already going to buy stock at the same or worse price, just from
someone else. There may be a good case to be made that he should have been
required to disclose that there was an important vulnerability, but insider
trading laws don't solve this problem or make the people he sold to better
off.

The people he is profiting at the expense of are not the investors who buy the
stocks he sells or the investors who would have otherwise sold to the former
investors, but the investors who would, many months later, once the
vulnerability was public, sell or short the Intel stock. There isn't really
any reason _these_ people should profit from the information rather than
anyone else, and the CEO isn't interacting with them in any way.

~~~
conanbatt
> He did not profit from it at their expense, though. The people he sold stock
> to were already going to buy stock at the same or worse price, just from
> someone else

That's not really true, it is so in an individually imperceptible way but its
there. If he then after stock plummeted 10% went back and bought back shares
and kept the 10% as a profit, where did that money come from? It has to come
from someone elses pocket, it was created out of thin air. Its just impossible
to return that money to who it belongs to, because it belongs to everyone that
traded the stock in a certain interim.

This is all related to information disclosure, which sometimes is necessary
and sometimes isn't. A guy selling stock is a poor proxy to a disclosure of a
security issue like this. I think intel is more responsible for untimely
disclosure than the CEO for untimely selling.

~~~
rvern
It is really true. The money does come from somewhere, but instead of being
the people he's selling to it's the people who would have reacted to the news
of the vulnerability months later. These people are not being deceived or
defrauded by the CEO in any way so they are only victims in the sense that
they are not going to have this opportunity to make a profit months later
because the price will already have been corrected. Realistically, the people
who were hurt by this trade (assuming for the sake of argument that it was
insider trading) are investment bankers, hedge fund and portfolio managers,
and analysts.

~~~
amdavidson
All of whom are managing money for _other_ people including pensions, 401k,
and mutual funds.

If you chase it all the way down the chain, I hold funds that track the
S&P500, which includes Intel. A tiny portion of that money he makes by insider
trading comes out of my pocket.

~~~
rvern
Yes, to some extent. But why do you and other people who had nothing to do
with Intel, the CEO, or the vulnerability deserve to make money off of this
any more than the researchers who discovered the vulnerability or, if the
researchers decided not to make money off of it, the insiders who can correct
the price before the disclosure?

If this is just about wealth redistribution, there are much better ways to do
wealth redistribution. If this is about how Intel should have disclosed that
there was a vulnerability earlier, then laws against insider trading didn't
make Intel do that anyway. If this is about how people shouldn't be allowed to
trade with asymmetric information, the prohibition against insider trading
doesn't apply to the security researchers.

~~~
amdavidson
I don't deserve to make money off this vulnerability.

Indirectly, I deserve to lose some money because I am indirectly invested in a
company that made faulty products.

However, I also do not deserve to lose money to the CEO of Intel because he
was able to not only know about the faulty products before his sale, but to
conceal that information from me while executing the trade (not an argument
against responsible disclosure).

