
Former Equifax Executive Charged with Insider Trading - carbocation
https://www.sec.gov/news/press-release/2018-40
======
dang
Discussed a couple weeks ago at
[https://news.ycombinator.com/item?id=16584980](https://news.ycombinator.com/item?id=16584980).

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craigc
It is good that someone is being charged, but it would be nice if it was
someone more senior.

They always make the little guy take the fall. Avoiding $117,000 losses on $1
million is nothing compared to what some people get away with.

The CEO, meanwhile, walked away with up to $90 million:

[http://fortune.com/2017/09/26/equifax-ceo-richard-smith-
net-...](http://fortune.com/2017/09/26/equifax-ceo-richard-smith-net-worth/)

The other executives were “not aware” when they sold their shares:

> Equifax, the credit report company hacked over the summer exposing the
> personal information of 145 million Americans, said a special committee has
> determined that none of the four executives who sold shares at the time did
> anything wrong.

> The high-level executives sold shares worth a combined $1.8 million in the
> days immediately after the company discovered the breach.

That is a pretty remarkable coincidence if you ask me.

[https://www.mercurynews.com/2017/11/03/equifax-4-executives-...](https://www.mercurynews.com/2017/11/03/equifax-4-executives-
didnt-commit-insider-trading/)

\--

For reference, the CEO of Intel sold $25 million worth of stock after hearing
about the Meltdown and Spectre vulnerabilities before they were disclosed to
the public, and he will probably be fine.

~~~
slavik81
The SEC complaint linked at the bottom of that page[1] literally has a minute-
by-minute account of how the CIO of Equifax's US information systems business
unit was told there had been a major incident, started Googling about the
stock market's reaction to a previous breach at Experian in 2015, and then an
hour later sold all his shares for $950,000.

Maybe the CEO broke the law too, but the CIO left a clear trail of evidence.
He is neither a little guy nor a fall guy.

[1]: [https://www.sec.gov/litigation/complaints/2018/comp-
pr2018-4...](https://www.sec.gov/litigation/complaints/2018/comp-
pr2018-40.pdf)

~~~
ethbro
It's always amazed me that the SEC standard is _proving_ insider trading
willfully took place. Which is a pretty high bar. How about...

If we can prove you knew about it, we convict you.

If we can't prove you knew about it, but your transactions appear to be
insider trading to a jury, then you have to zero out the transactions (either
by repurchasing equivalent stock or some other method).

You don't get charged, but there's no "getting away with it" either.

~~~
busterarm
How about "guilty beyond all reasonable doubt" as a burden of proof for our
systems of judgment. As much as that sucks sometimes.

If the government can't prove its case, it probably shouldn't be getting to a
jury either.

~~~
curun1r
If the SEC pursues a civil case where the penalty is only fines and not
prison, the standard need only be a "preponderance of evidence." It's much
easier to prove that some of these executives probably knew about the news
when they sold their shares.

~~~
ISL
With a lower standard for guilt, a greater number of innocent people will be
fined by our government, for which we are ultimately responsible.

~~~
p49k
To zero out someone’s gains in this situation, as suggested by the parent
poster in cases where no proof exists, would simply be a regulation to hold
one financially responsible for his/her company’s actions. Guilt or innocence
doesn’t have to come into play in that scenario.

~~~
mulmen
Ostensibly the market already takes care of that in the form of stock price.

~~~
p49k
This entire thread is focused on the one situation where the stock price
_doesn 't_ take care of it: When an employee sells their stock before a major
price drop in a way that it's unclear if the employee knew about the reason
behind the drop or not.

~~~
mulmen
The article sates that he sold stock in anticipation of the price dropping and
by doing so saved himself $117,000.00. The SEC believes this to be an illegal
trade so now he is facing charges. If he had traded legally the market would
have punished him for the company's failings.

In this situation everything seems to have worked correctly.

If you think the stock price should be lower take it up with your elected
representatives and see what happens when regulations are put in place.

~~~
p49k
You're again missing the entire point of this conversation.

Yes, the evidence was clear in the case of the CIO, and everything worked as
it should in the case of that one person. But as craigc noted, three other
executives managed to sell shares before the price drop, so there's a question
of how likely those three were to have known about the situation but by chance
happened to have no clear evidence against them. That leads to the question of
what can be done to more effectively prevent executives from engaging in
insider trading in situations where they are aware that the evidence will be
too scant to prosecute. One solution proposed was to zero the transactions of
stock sales by executives that occurred shortly before an event like this.
Saying "the stock price will take care of it" makes no sense in this context.

~~~
mulmen
I don't think we can fix the lack of evidence by lowering the standard of
proof.

If you wanted to advocate stronger reporting requirements for what executives
knew and when then I'd be more comfortable.

~~~
p49k
But my point is that if we implement a policy to rollback but otherwise not
punish executives who sell stock right before an event like this
(notwithstanding any actual other crimes related to insider trading that could
be prosecuted separately; for example tipping someone off), the standard of
proof becomes irrelevant.

Personally, I think the solution is to not allow executives to sell stock
without publishing a schedule in which the first sale is more than 9 months
from the date of the announced schedule.

------
taspeotis
Related reading: [https://www.bloomberg.com/view/articles/2018-03-15/is-
inside...](https://www.bloomberg.com/view/articles/2018-03-15/is-insider-
guessing-illegal)

~~~
jnordwick
Matt Levine, always interesting.

Not related, but required to fully underarms how different this case is.
Defendant wasnt given insider information, and prosecution accepts this as
true. He kept being told he was doing a project for another company, but he
slowly figured out that was fabricated story and correctly deduced it was for
his own, Equifax.

This is such a borderline and interesting case. I would definitely have
preferred a not guilty verdict since this decision unbound what can be
considered as insider information. It has the potential to make it very
difficult for employees to trade their stock even when not told insider info,
but then just being smart.

~~~
sokoloff
I don’t find it a particularly borderline case.

The bar for having insider information is not that it was handed to you or
spoken/emailed and noted as insider info, but rather that you merely have it
without regard to how much intelligence or effort you applied.

This is in contrast to an outsider who can use a wide variety of means to
synthesize material, non-public conclusions without falling afoul of insider
trading laws. (Traffic counts, parking lot surveillance, deducing order flow
from order IDs that a company might be leaking, etc. If a company insider
argues that they did it that way, they’re likely to lose.)

In this case, once Ying correctly deduces that Equifax is the company
involved, he needs to block himself from trading and, if he has a question
about his eligibility to trade, to seek personal counsel and/or the advise of
his compliance officer.

~~~
freddie_mercury
> The bar for having insider information is not that it was handed to you or
> spoken/emailed and noted as insider info, but rather that you merely have it
> without regard to how much intelligence or effort you applied.

That's not the bar; you just made that up.

[https://www.sec.gov/litigation/litreleases/2010/lr21678.htm](https://www.sec.gov/litigation/litreleases/2010/lr21678.htm)

~~~
adanto6840
To be fair, your linked summary neither confirms nor denies that it's the
proverbial bar -- though I'd love to see a citation on what the actual 'test'
is.

Without knowing all of the pertinent facts of the linked case, it's hard to
say how applicable it might or might not be. The summary does certainly
exhibit similarities though civil settlement was at least partially reached,
in addition to an acquittal, it seems.

~~~
sokoloff
Exactly. OJ Simpson was found not guilty criminally and still ordered to pay a
large civil settlement. I don't think that creates a notion that murder is OK.

------
spoonie
On the topic of insider trading, I’m not asking for legal advice but I’m
curious to hear other people’s opinions about whether or not something is
insider trading that you could expect to get charged for.

Consider, for example, that you work on the Bing team at a Microsoft and you
know that you’re about to release a new search engine feature that’s Really
Good (fast, accurate results, etc). You’re confident that it will do well in
the market. Obviously you can’t trade Microsoft stock using this knowledge.
But can you trade Google stock if you think it will affect Google’s stock
price?

On one hand I believe this is insider trading because I asked legal counsel at
a company I was working at once and they said that “any _material_ information
is insider information, regardless of whether you’re an insider at that
company or not”. Seems reasonable: it’s non-public information that you think
will materially affect the stock market.

On the other hand I don’t really think this is insider trading because this
sounds like it would disqualify just about everyone from participating in the
stock market of the industry they work in.

P.S. This is an academic discussion because I don’t pick stocks, I passively
invest with index funds.

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smsm42
One thing that I can't get here - this guy knew it's insider trading. Being
CIO, he must have known there's a law against it. Did he expect to get away
with it just because he's a CIO, like other Equifax high-levels did and like
politicians and Congressmen routinely do? Did he somehow miscalculate, or is
he kind of lightning rod so that nobody could say that there were no
prosecutions, and in the meantime he'll be compensated for whatever fate he
suffers?

~~~
dboreham
Are we sure he wasn't just clueless? I get that a Silicon Valley CIO would
know about SEC rules but perhaps a legacy industry CIO wouldn't? I mean, he
didn't know that you have to keep track of vulnerabilities in the JARs you
package into Internet-facing web services...

~~~
wu-ikkyu
Does it matter if he knew it was illegal or not?

~~~
sokoloff
Generally not, though there is case law in tax cases for exceptions based on a
lack of willfulness in a complex and potentially good faith belief that the
defendant was acting in accordance with the law.

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

------
lloydde
So there wasn’t enough evidence against the executives that made smaller,
relative to their total ownership, unplanned sales?

 _In the case of the Equifax executives, though, the filings reporting their
recent stock sales do not indicate the transactions were part of such plans._

[http://www.latimes.com/business/la-fi-equifax-insider-
tradin...](http://www.latimes.com/business/la-fi-equifax-insider-
trading-20170908-story.html)

Earlier in the article I linked:

 _Had they sold the same number of shares today, the executives would have
made about $275,000 less than they did last month. Gamble alone would be out
nearly $150,000._

------
jarcoal
> Ying avoided more than $117,000 in losses.

Seems like a pretty high risk for such low reward.

~~~
lallysingh
You never know ahead of time how bad the stock will tank

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thinkcomp
Civil Docket: [https://www.plainsite.org/dockets/3a2ojfzjx/georgia-
northern...](https://www.plainsite.org/dockets/3a2ojfzjx/georgia-northern-
district-court/securities-and-exchange-commission-v-ying/)

Criminal Docket: [https://www.plainsite.org/dockets/3a2ok04e4/georgia-
northern...](https://www.plainsite.org/dockets/3a2ok04e4/georgia-northern-
district-court/usa-v-ying/)

------
ggg9990
Wow, he Googled it from a company computer. Proof that you don't need to be
very smart to become CIO at a public company.

~~~
mulmen
Alternately: smart people do dumb things sometimes.

Perhaps we could even take a lesson that under stress people make bad
decisions. It could be some kind of warning to us all.

------
cool-RR
I kinda wonder how confident we can be in allegations of insider trading. Say
there's a company like Equifax that was on the verge of disaster and a major
fall in its stock price. How many executives and middle managers satisfy the
two conditions of (1) having received stock in the company and (2) being
somewhat aware of the impending disaster? I imagine dozens if not hundreds. At
any given point, it's natural that some of these people are selling stocks for
reasons unrelated to the disaster.

I mean, imagine you're an employee who has stock in your company and want to
sell it to buy a house or something. Do you basically have to ensure there's
no impending disaster before you dare to sell your stock, otherwise you're a
criminal?

~~~
chillydawg
You'll be on an insiders list and will have to obey extra trading rules.
Basically, you'd know not to make the mistake. You also usually have to inform
the company secretary of your intent to trade. This is in the UK.

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broahmed
"Ying exercised all of his vested Equifax stock options and then sold the
shares, reaping proceeds of nearly $1 million. According to the complaint, by
selling before public disclosure of the data breach, Ying avoided more than
$117,000 in losses."

I'm sure in hindsight $117,000 would seem a fair amount to not have the SEC on
you.

I'm surprised the losses avoided were so little.

~~~
selectodude
Equifax should be bankrupt right now. The fact that they aren’t is an absolute
failure of government. Ying wasn’t selling to save 10 percent, he was selling
to save all of it. He just assumed that a catastrophe as bad as what Equifax
did would actually have been punished. So did i...

------
dalore
> Ying exercised all of his vested Equifax stock options and then sold the
> shares, reaping proceeds of nearly $1 million. According to the complaint,
> by selling before public disclosure of the data breach, Ying avoided more
> than $117,000 in losses

So he has a million dollars, but to avoid losing 10% he risks everything,
including jail time?

~~~
loeg
He did not know in advance the stock price would only fall ~12%.

~~~
dade_
Exactly, the company could have gone bankrupt and he sold before the market
knew the massive risk they were carrying. I am glad he has been charged.

~~~
loeg
Yeah. They probably should have gone bankrupt, and may still go bankrupt if
enough people take them to small claims court or a class-action suit is filed
(and won). But the news broke and their investors took it surprisingly well —
apparently most do not anticipate anything like bankrupcy.

~~~
dalore
And they are mostly right. People cared and know the next news bite is out and
they forget. Fickle creatures.

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katebrooks
Put it on executives and the seniors get away. Being involved in controversies
it should be closed down.

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bluetwo
Good job, SEC!

(I'm serious.)

~~~
arkis22
It really is what you hope to see!

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peppershaker
is it just me or does it always seem like some asian dude get busted

~~~
jessaustin
It's too bad that there are no diversity statistics kept for insider trading
prosecutions...

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kakarot
Cool, guess that means we can all stop talking about Equifax now and forget
any of this ever happened.

------
tantalor
Insider trading is not a crime, per se

~~~
unreal37
Apparently, though, he was not specifically told that Equifax had a data
breach. He guessed they did based on a project he was being asked to drop
everything and help out with.

It'll be an interesting case if he pleads not guilty.

~~~
oh_sigh
Yeah, I hope he fights the charges just so I can selfishly see how it plays
out. It seems there is a strong paper trail of execs intentionally keeping
ying out of the loop. If that's the case, and he figures out that everyone is
just acting weird, it doesn't seem so straight forward that he was trading
with material information.

If I work at Amazon as a lowly sde and see Jeff bezos fuming in a conference
room with the chief privacy and security officers, and I assume Amazon had a
data breach and sell my stock, did I insider trade?

~~~
unclebucknasty
It's an interesting question, as even with the insight that everyone is
"acting weird", he would have still been trading with more info than the
average investor.

OTOH, many execs would be privy to more info than the average investor as a
matter of course, and we certainly don't prohibit them from trading.

So, where is the line drawn?

