Google discloses the vulnerability to Intel in June. On October 26th, Intel files its quarterly numbers and makes no mention of Project Zero or the word "vulnerability" and fails, in Item 1A, to disclose any new risk factors [1]. On October 30th, Krzanich puts in trading instructions [2]. On November 29th, the trades occur; on December 1st, their confirmations are disclosed [2].
I'm not an expert on the sale of stock in public companies by insiders. But implementing sale instructions after finding a material risk factor and a filing that fails to reveal it looks shady.
(I continue to default to the assumption of sloppiness over bad intent, though even that is harshly punishable, albeit with fines versus jail time.)
How is it different from other sells Krzanich has done earlier? It seems that he has been selling/disposing off his shares on a regular basis after each option execution:
Because in addition to selling of his option shares he also told off all if the other shares he has been holding down to the minimum (250k shares) that he is required to hold as CEO based on the Intel governance documents.
In November he sold as much stock as he legally could in his position, not just the amount he optioned.
The holding requirements are contractual, not criminal - there's no law requiring him to hold stock.
The minimum he's required to hold is still more than $10M tied up in a single stock. Wanting to diversify one's assets past that level is understandable.
You missed the point, it implies criminal if he sold down differently this time. The contractual details are only important in so far as they dictate his behavior.
it shows the concerned trade is not a part of the regular trades, the portion sold in that batch was significantly different to the extent that he couldn't sell any more when also retaining is position in Intel. In short, he used inside information to minimise his exposure to the risks.
“Waiting until the next quarter” is exactly what Equifax did regarding patching.
Intel’s CEO is both guilty of corporate malpractice and willful blindness. The latter term is currently undergoing a renaissance in legal academia and will send many people to jail in the future.
> If the vulnerability was embargoed until 1/1/18, does Intel have the right to reference it in a quarterly financial document before then?
The embargoes are little more than gentleman agreements and I'm not aware of _anyone_ successfully suing for their violation. Google, for instance, technically violated the agreement by disclosing before 1/9/2018. Their lawyers would have advised on any legal risk doing so had.
In comparison, Intel management is required to disclose risk factors (such as a massive f'n vulnerability) that might materially affect the stock price or risk being gone after for insider trading if they sell within the window of them acquiring the knowledge and the public disclosure.
You don't get to refuse to disclose a major risk factor, announce a sale, and sell, then announce the problem once you have unloaded all your shares. That is basically the definition of insider trading.
Right? No. Duty? Yes. They need not descibe details but can say: "big secret problem, working on it. Mitigations will be ready before public disclosure. Stock at risk should we not be ready in time."
> The CEO, by virtue of being the CEO, can always be accused of insider trading
The proper way to do this involves: (a) timing instructions alongside public filings and (b) having a long gap--the longer the better--between instructions being submitted and trades being executed.
Disclaimer: I am not a lawyer. This is not legal nor any other kind of advice. Consult with a lawyer before selling or buying shares as an insider.
Given the news did not seriously affect the price of the stock (3-4% is a little more than typical volatility, but not much), it seems like his defense would be very simple. "I did not consider this to be material non-public information, and indeed, it has turned out as I expected." In fact, he'd have been better off to wait until after the disclosure to sell based on the current price (45.3) and the price when he sold (44.8).
I agree, this is very premature, we don't have all the information yet.
I purchased an i9 in december, because I cared about the performance, not the price, and had I known the little information we have now, I would have switched to AMD (I even hesitated to do so at the time).
I am still able to send back my i9 to amazon, until end of january, and as I am in europe, I also have a 2-year guarantee against faulty or non-conform goods. Not sure if it can apply, but as of today nobody can tell what kind of action we can take against this (I understand the intel claims this is not a bug, but others may beg to differ).
Also, besides any legalities, I am now an angry customer and would probably not buy intel anymore after this.
I don't the the impacts have really begun to be felt yet. We're already anticipating over 20% based upon our current AWS findings (as others have pointed out their dilemmas as well). If i'm a larger company looking at a sudden increase of 20-30% for operations, i'm going to have a pretty strong response. I would imagine it takes upwards of 1 quarter before the Tech impact becomes a Business cost impact.
based on AWS findings we should expect the stock to be up, not down: after software mitigation everyone will need more horsepower to run the same load, and guess where they would buy new chips? (given that updating infrastructure to use AMD, let alone ARM, would cost more time and money than just suck it up).
Well, they may chose to spend more money on specialized chips they earlier have thought of as risky. But the whole risk considerations are now out of the window. You never got fired for buying from IBM and then Intel. Now Intel lost the magic touch and is just one among others. That will affect their pricing power big time - check out their pricing history over the past years and you notice some strong tendency for functional pricing which is an indication of near monopoly pricing power. Expect profits to dive.
> Well, they may chose to spend more money on specialized chips they earlier have thought of as risky. But the whole risk considerations are now out of the window. You never got fired for buying from IBM and then Intel. Now Intel lost the magic touch and is just one among others. That will affect their pricing power big time - check out their pricing history over the past years and you notice some strong tendency for functional pricing which is an indication of near monopoly pricing power. Expect profits to dive.
I expect a firesale in current and possibly next gen Intel processors. They have a healthy margin that should not exist. I want at least a 20% possibly 30% price cut across the board for all Intel processors.
Oh and I expect the CEO to go to prison for a long, long time. Anything that does not involve at least five years in prison sends a wrong message to board rooms everywhere.
There are many foreseeable effects. Some of them will actually happen and others won't. Some of them are in direct contradiction with others. Some of them will result in a greater or lesser financial impact than expected. Beyond that there are unforeseen and unforeseeable impacts. Discounting all that, yes, I believe the market is reasonably efficient.
My take is that Intel issues in the past have not affected profitability, so it's unlikely that this one will.
When investors see that there are operating system fixes for it, and that those fixes apply to AMD and ARM processors, it doesn't seem like a big deal. It doesn't look like there's going to be a massive recall of it, and there are no issues going forward.
So, while it's technically a BFD, as of now, investors are not seeing how this negatively impacts Intel's ability to make money. Plus, Intel's PR team did a good job at damage control.
If anything, it makes newer chips even more compelling.
Because most people don't know what any of this means. To nearly everyone else it sounds like Intel was hacked. But so what? Nearly every company has been hacked in the last three years, so it just doesn't seem like such a big deal.
Obviously this is completely wrong but it's how the general public and walstreet will interpret it.
Because it won't change Intel's future value if buying decisions don't change. I don't expect people to shift away from Intel because of this so wouldn't expect revenues or income to drop. Unless they get hit with lawsuits (unlikely for a bug), this shouldn't affect their business too much.
It's difficult for me to imagine they won't get sued over this, and in a big way. Imagine if you're Amazon or Microsoft looking at a 30% reduction in salable CPU resources.
Plus a huge class action suit from consumers based on false advertising or some related claim.
Bugs happen. Their verification process was probably subpar but I'd be surprise if lawsuits were successful in this case. I'm not sure if they buy processors from Intel with a performance promise (benchmark values). If not, no promise has been broken with this.
I expect this is more of a positive for AMD than a negative for Intel. Perversely, this incentivizes people to get newer chips more quickly. If trust in Intel is not lost completely, and Intel puts out new chips that do not have this vulnerability, Intel could actually get more sales out of it.
If the new chips were going to have a 30% performance boost, now it looks like they will have a 50% performance boost. Much more compelling.
Because for every two people who panic and sell there is one who is waiting for the price to drop and buy. The same kinda happened with Equifax - went down from $140 to $90 then started climbing back up. Now is at $120 which is also where it was last year in January. So basically nothing changed for them in a year. They didn't get crushed and bankrupted like many were saying they would.
I remember at least people in /r/investing gloating how they made a good amount of money waiting for Equifax to drop and then bought it and sold it as it went back up. The same people are waiting for everyone to panic sell their INTC so they can buy it.
This may be a proper way when being a CEO but also not a good stock trading advise. Try to make any money even without insider knowledge following such a process.
I'm not an expert on the sale of stock in public companies by insiders. But implementing sale instructions after finding a material risk factor and a filing that fails to reveal it looks shady.
(I continue to default to the assumption of sloppiness over bad intent, though even that is harshly punishable, albeit with fines versus jail time.)
[1] https://www.sec.gov/Archives/edgar/data/50863/00000508631700...
[2] https://www.sec.gov/Archives/edgar/data/50863/00011276021703... Explanation 1