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Intel CEO’s Stock Sales May Warrant SEC Examination (bloomberg.com)
406 points by CPAhem on Jan 9, 2018 | hide | past | favorite | 184 comments

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.


> The news doesn't seem to have been that bad for Intel's stock

That's a red herring. Krzanich had no idea how badly the news would impact the stock. He may have well overestimated it in his mind and chose to sell. Just because he didn't make huge gains from the possible insider trading, doesn't preclude the possibility of insider trading occurring.

So the whole argument here is:

1) Krzanich couldn't be possibly stupid enough to do this.

2) He didn't make a ton of money so it's a stupid plan, he could't possibly be stupid enough to do this.


> Krzanich couldn't be possibly stupid enough to do this.

Seeing as he made to the the role of CEO of Intel Corp., I find that to be a very convincing argument.

I have to concede that there's precedent even for CEOs of huge corporations to be that stupid and/or criminal, most notably https://en.wikipedia.org/wiki/Dennis_Kozlowski.

The plea of stupidity in high profile insider trading cases is a smoke screen - that was my point.

Highly successful executives engage in insider trading quite frequently (see link). When they do, they take a calculated risk. You can be quite sure that none of them are stupid in any sense of the word. They take a measured risk and some succeed and some fail, depending on luck, skill, ambitions, and how big/rich they already are. From what little I know, doing it in a an open manner is actually the best best way to go about insider trading. If you attempt to skirt around it by doing anything shady like having friends/relatives execute the trades for you, the evidence is undeniable once discovered. If you go about it 'openly' and instead rely on blurry interpretation or your ability to plead ignorance or put the timeline into question, it's a lot harder to nail you.

There are many cases of brazen broad-daylight insider trading, such as Donald Trump right now. Only the ones that end in successful legal action go on to be considered stupid. Even when they do get caught, a lot of the time the penalties are relatively lax, like suspended or weekend sentences for first time offenders.

So no, just because he is successful as an executive at a major corporation doesn't at all make it 'stupid' for him to engage in insider trading. That line of reasoning is a diversion from the facts of the case.


How is that a convincing argument?

You honestly believe that Intel as a company kept all information about these serious vulnerabilities from the CEO for 5+ months? And nobody got fired for this?

Intel has a never ending parade of security related bugs that get fixed and nobody cares.

This isn't meaningfully likely to affect any of the contracts that Intel has with it's major customers, and it's not like competition is going to spring forth in a meaningful way because of this bug.

It's not like he sold his stock while the company was secretly on fire and about to collapse.

It's not just about security. These bugs are going to impact customers' performance by up to 30% or more and that can't be fixed. This is a huge deal for cloud providers' revenue.

The class action lawsuits are only just being filed within the past few days.

If you already know the outcome of these lawsuits, you should probably contact the lawyers and judges to let them know. /s

Well, since Google knew about this bug across the boundaries of a few quarterly reports so far, and hasn't signaled radical departures in their operational expenses, and has specifically said the impact on them was smaller than many expected [1]... I'd say we know the outcome already.

[1] https://www.theverge.com/2018/1/4/16851132/meltdown-spectre-...

Knowing about the bug != having all of their systems patched.

Also, I shouldn't have to point this out, but not everyone runs the same systems in the same fashion.

Lastly not only has everyone not patched their systems yet, but patches for many people don't even exist at this point:


I'm not trying to say it's going to be the worst case scenario, but I am saying it's extremely foolish to pretend that you can predict anything until people actually start patching their systems.

Time will tell, and it's best in every scenario to refrain from making gigantic blanket assumptions based on almost no data points.

Google said they've finished patching, and it was all done before the bug became public.

That means the people who have the best information about mitigating this issue have a fix that apparently has minimal performance impacts on their cloud workloads, and I suspect their cloud customer SLO's would be taking a shitkicking if that weren't actually true.

> That means the people who have the best information about mitigating this issue have a fix that apparently has minimal performance impacts on their cloud workloads

Could Google not just have found a mitigation with non-negligible performance impact, and made a behind the scenes change to the actual hardware resources assigned at each vCPU level to mask the average impact, eating the cost in the short term (while evening it out in the long term by delaying price decreases they would otherwise implement)?

More likely, Google made their own mitigations, that they're keeping for their own competitive advantage.

They've had a lot more time with the problem than anyone else has, and billions of dollars to gain by solving it better than anyone else.

If they had a 15-30% loss of performance in their 3+GW of infrastructure, it would almost certainly cause a significant dip in their quarterly results, and they would want to warn the markets about that well in advance to soften the blow.

Kozlowski is surely guilty of state sales tax evasion and seems to fit the pattern of did it "because 'Screw the state!' and I think I can get away with it".

Most of the rest of his story seems more like sour grapes than any criminal conduct to the detriment of Tyco investors.

Peter Chang is probably a better model for insider trading criminal CEO (as opposed to merely CEO criminal).

It could have a lot to do with CEO's doing all sorts of similar things while getting away scott-free.

Never underestimate anyone's ability to freak out and be a selfish dumbass.

Can’t you attribute criminal intent to any action if you’re willing to assume limitless ignorance?

Should all criminals be able get away with crimes by claiming unbelievable levels of ignorance?

only white collar ones and Attorneys General.


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.


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.

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


Another side of the same coin would be that since CEO "implicitly always has access to privileged information", it is up to trader to prove legality of specific trade. Of course this is against innocent unless proven otherwise dogma, but still perfectly valid different side of the coin.

Which I find amusing. This is just one of the many places where legality of an action greatly depends on consensus and established practices, which can change overnight. For example court ruling based on implicitness of access to privileged information would effectively eliminate high ranking officers from trading altogether.

Most corporations have special departments in place to “pre-clear” executive trades. He almost certainly has a pre-clearance opinion letter on file authorizing him to proceed.

If he sells shares the day they vest, year after year, the only question then is about volume. Did he sell a larger volume than usual?

That's a VERY different question to a binary "is it insider trading?"

Nope, that’s not necessarily true. The test is whether he, or any other actor, gave the order to sell while in possession of material information.

It’s possible to put an advance order in place to sell shares on a plan, which clears the issue because that decision is made in advance.

> The test is whether he, or any other actor, gave the order to sell while in possession of material information.

Wouldn't that reasonably make any sale, at any time, illegal?

Or, alternately, when would a CEO not possess (non-public) material information?

I posted this, but I have no idea how to interpret it: https://news.ycombinator.com/item?id=16104426 - the numbers make no sense to me.

>It’s possible to put an advance order in place to sell shares on a plan, which clears the issue because that decision is made in advance.

That's what he did, no?

He broke his pattern last year by changing the orders in october. At a time intel was already aware of Meltdown and with a puplication date for the vulnerability set in January. Wikipedia states that the issue had been shared with manufacturers in July, a month after he normally issues his orders mentioned by the article.

Edit: The date on the last part is wrong, which doesn't change the fact that he changed his orders in the time between internal and public disclosure of Meltdown. I misread the article, in 2017 he issued his orders in February not June (2015).

Only time, not number. The schedule allows for a sale on pre determined days, and on the day in question, after he had the news, he sold every share he legally could - way more than he usually did on the scheduled days.

Insiders are still allowed to trade, they’re just not allowed to trade on the insider knowledge.

It has to be material inside informtion in order to be considered insider trading. He can argue that the small dip in the stock price after the news was released is evidence that the information was not material.

I was originally defending this logic.. I've since changed my mind.

Two major points

(1) Intel was informed in June. His stock sale was planned in October and executed in November.

You'd have to believe that somehow the CEO was not informed about this vulnerability during this huge time period.

(2) This wasn't a normal executive stock sale. He dumped all of his shares other than the required minimum holdings. The vulnerabilities aside, this just looks bad in general.

I'll give you that this plan seems pretty unimpressive. I just have a very hard time buying the idea that Intel kept him in the dark all those months and that him dumping all of the stock he possibly could is some sort of coincidence.

It does not have to be related to this. INTC is at an 18 year high. They also crushed their Q3 earnings. Maybe this is a sign that there will be less crushing of their Q4 earnings.

Technically this was a normal executive sale. He is holding the required shares and is the second largest inside shareholder after Andy Bryant, the chairman. In general INTC executives own very little stock. I have been somewhat bearish on INTC for a variety of reasons and now I will add what appears to be the lack of insider ownership to that list.


Doesn't have to be related.. but do you honestly think that the employees at Intel would have kept such alarming information from reaching management for 5+ months?

To reach that scenario you'd have to have engineers lying to their bosses about what they're working on, or managers hiding information from executives.

It's possible, but I don't buy it.

Oh I am sure he knew. But just because he knew does not mean it will insider trading.

Maybe it's not stupidity, it's a calculated risk. That even with an SEC investigation he feels confident he will come out with more. There's also greed panic: "most of my wealth may quite possibly vanish when the story lands. I need to get it out and fight them from clawing it back."

I think stupid fits the definition of insider trading.

I don't always agree with Levine, but his daily emails are pretty good reads. Good mix of current events and cut-through-the-hype style.

I am not skeptical at all. Why? Because they always get away with it. It's not stupidity, just cheekiness and arrogance.

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.

> 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.

> 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.

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.

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

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

Damage as in malicious? No. Damage as in co's reporting higher instance usage on cloud services after patching? Yes. Don't discount companies being angry about higher hosting costs and taking it out on Intel via a financial damages suit.

> Damage as in malicious? No. Damage as in co's reporting higher instance usage on cloud services after patching? Yes.

Playing devil's advocate a bit here, but you could also think about it differently. This whole time, faster-but-more-insecure processors were providing everyone with cheaper prices than they would have had otherwise with more secure processors. I feel your notion of "damage" is far weaker than mine.

Ask Volkswagen how your argument worked for them.

There's no law against processor bugs. Especially ones you fix when you're informed about them.

No. No one would ever take the "sure we fucked up but be happy that you got a deal" argument seriously. Ask Intel's legal counsel if they're willing to go on record with that counterpoint.

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

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.

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!

It seems pretty simple when you look at the filing. Just quietly change the rules whenever you see fit.

> Explanation of Responses:

> 1. Transactions reported on this Form 4 were made pursuant to trading instructions adopted by the reporting person on October 30, 2017 that are intended to comply with Rule 10b5-1(c).



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.

So far they're not admitting that there's anything wrong with their chips. If they're flawed enough to pull them from the shelves they're flawed enough to warrant a recall and they really don't want to do a recall

One thing that is bafflingly absurd of the american legal system is that any admission of guilt makes you liable for any consequence. So stonewalling is the only choice.

Intel can be trapped as a company to find half-way solutions, because proposing any of them can force them to do full-way solutions. Result, this vulnerability will last forever.

Product recalls in the US are often structured in such a way to try and avoid culpability:




I understand that it's all-caps in the original, but if you would decapitalize it, our collective eyes would appreciate it :)

Here's an online form (I'm sure there are others) that'll do that for you: https://convertcase.net

Not the same effect that way :).

I know that statement by that shouting at me, have never bothered to actually read it.

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.

Can someone explain the disclosure procedures that were actually followed? It seems like everybody freaked out at the same time. AWS had apparently already protected all but a "small percentage" of their VMs. If there was some kind of responsible disclosure taking place, allowing vendors time to upgrade, it seems like it wouldn't have had so much impact.

I think the disclosure procedures were abandoned because people outside of the loop had figured it out from Linux kernel upgrades.

Also by AMD's e-mail that all-but-disclosed the mechanism of Meltdown.

AIUI disclosure wasn't supposed to happen until tomorrow. Google broke the embargo because, as you said, people were starting to figure it out.

Breaking the embargo at 5pm EST was also coordinated with everyone who had been disclosed early. It wasn't anarchy.

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.

Microcode is essentially a program that runs on the CPU below the level of the normal instruction set (machine code). It's firmware, and stored in some memory on the die (or in the EFI/BIOS, or loaded at or after boot time, depending on the system.) It allows for mapping a large set of complex instructions to short programs of fundamental microinstructions. A CPU without a hardware multiplier might still have an assembly (and machine code) multiply instruction, and simply implement a shift-and-add multiplication algorithm in the microcode.

I suggest Tanenbaum and Austin's "Structured Computer Organization" for a pretty good book about this (and other aspects of CPU design).

Back when people were mostly programming in assembly it was convenient for one instruction to do a lot of stuff, but it hardwiring a large instruction set poses design difficulties. So CISC chips have some special microcode memory that runs a program that converts the larger instruction set into the actual hardware instruction set. Intel's CPUs since the Pentium Pro allow writing to the microcode memory (with severe restrictions).

According to Wikipedia [1], CPUs have had microcode since the 1960s! However, this is mostly an artifact of CISC architectures. Since most programmers these mass-produce their instructions with a compiler rather than with artisinal, hand-crafted assembly code, CISC fell out of favor compared to RISC. Since the RISC instruction sets are simple (by design), there isn't much need for microcode. ARM chips typically don't have microcode (although they do break things into smaller instructions) [2]. But since Intel has to keep compatibility with 40 years of CISC instructions, they need microcode.

[1] https://en.wikipedia.org/wiki/Microcode

[2] https://superuser.com/questions/934752/do-arm-processors-lik...

Yes, except that processors are now incredibly complex beasts that have all sorts of optimizations and other features (hence....a lurking, unobvious bug).

So there is this layer of software that operates with this x86 interface on a hardware implementation of different instructions.

That was a very long time ago.

Microcode can be loaded by the BIOS.

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

Today I learned something.

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

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.

Can also be loaded at boot time by the kernel, etc.

Or even after boot time, I think -- you shut down one CPU at a time to load it.

See also discussion and hyperlinks at https://news.ycombinator.com/item?id=16086519 .

The problem is that there really is no other viable option for most use cases yet.

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.

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.

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.

"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.

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.

> 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.

It's not an argument of rationality, it's about fairness to the larger market and how easily insiders can abuse access to information. The price of a stock is supposed to reflect its value, if you act on insider information and sell at the apparent price when it would actually be lower if everybody had access to the same information then it's fraud. Those are the rules you agree to and you have to abide by them, even if it appears irrational. I agree actually that patch writers should have been notified first with specifics, but he should have held on to the stock (if he indeed did sell it based on insider info as accused).

Edit: to say it differently, it's only irrational if you consider his personal profit exclusively and not the harm to the greater market and shareholders. As con artists and scammers demonstrate, fraud can be very profitable personally. I think the disadvantages are self-evident, however.

Insider Trading is illegal. That’s what he’s being accused of here. He cannot trade on information that is material to the stock price before it is made public. A vulnerability of this magnitude is unquestionable material non-public information. If these trades were the result of his learning about the breach, this is a pretty easy case for the SEC. I really doubt that he executed these trades, as that would be the dumbest thing an executive has done in a while.

>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?

Is it rational to have laws that rationalize irrational artificially?

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.

Excellent point. If non-insider investors notice large suspicious insider trades, then they might want to sell based on that knoweldge.

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

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

Unless is a planned sale from a long back, then he could be ok


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.


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.

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.

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.

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.

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®

Insider trading is one of the few things that can still put rich people in jail, though.

Probably because of it’s potential for harming other rich people.

This won’t be Intel on the hook, or paying fines, and the SEC is the proverbial sleeping dragon. Do not pull the tail. They have a long arm, and high profile cases make careers.

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

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.

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

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.

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.

>That would be an enormously stupid attempt at insider trading.

A stupid crime is still a crime. It could all be coincidence that his biggest selloff came just after he learned of the vulnerability but the circumstances merit investigation. And he might have thought the stock price would go down more (I sure did).

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

> 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

> Martha Stewart went to jail for avoiding $45,000 in losses [1].

Your link says exactly the opposite of that:

> On February 27, 2004, Judge Cederbaum threw out the charge of securities fraud which could have led to up to ten years in prison and a $1 million fine. The judge found that "no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her own company."

> On March 5, 2004, Stewart was found guilty by a jury of eight women and four men on all four remaining counts against her: conspiracy, obstruction of justice, and two counts of making false statements to a federal investigator.

Martha Stewart went to jail for having the temerity to be a target of a federal investigation, not for doing anything.

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.

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

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

Because it's makes it less likely but it's not an iron class defense or even a strong defense. Martha Stewart broke the law to save ~45k with her insider trading when she was worth hundreds of millions. People's greed can over take any sort of rationality

One counterargument is that he might have thought there was a chance he'd be asked to step down, and thus his days pulling that kind of money were limited. Just speculating, of course.

Never under estimate how stupid greed can make you [1].

[1] https://en.wikipedia.org/wiki/Tom_Coughlin_(Walmart_executiv...

I can't tell if you are concluding that he didn't do it intentionally, or if you are concluding that he was stupid in doing it.

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.

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

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

IIRC from https://news.ycombinator.com/item?id=16067322 this was a scheduled sale, so it was already approved.

Important quite from the above linked article:

"Intel says the sale was preplanned - but that plan was put in place months after it learned of the chip vulnerability"

But it is (somewhat) consistent with his previous sales:


I dunno how to read this, but it seems he sold off a chunk of his shares regularly, and that he traded almost a million down to 250K, but how did he have so many? Can someone who knows how to read that explain it to me?


Look at the link you posted. He goes from trading a few thousand shares here and there to trading almost a million in one go.

Not only that, but he sold the absolute maximum allowed for a C level employee.

The reason the column on the right (Shares Held) doesn't line up with how many he sold is that he executed his options to purchase a bunch of shares and then immediately sold them, which made up the bulk of the ones he sold in this transaction.

good this was reckless

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...

> why is it illegal?

Google disclosed the vulnerability to Intel in June. On October 26th, Intel filed its quarterly numbers and made no mention of Project Zero or the word "vulnerability." It failed, in Item 1A, to disclose any new risk factors [1]. On October 30th, Krzanich gave trading instructions [2]. On November 29th, the trades occurred; on December 1st, their confirmations were 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 failing to disclose it in a subsequent filing looks shady.

(I continue to default to the assumption of sloppiness over bad intent, though even that is 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

I agree this looks shady, but from a legality standpoint, does this take precedent over a pre-arranged stock trading plan that was adopted in 2015?

I don't think the issue is if or when he sold the stock, but how much he sold and why he changed it to be 9x the amount previously scheduled.

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

> 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?

Insider trading laws don't stop this from happening. People not considered "insiders" can impact the price of stock. For example, in 2007 Lululemon stocks took a temporary dive when their seaweed claim was challenged:

"Not so, says the New York Times, which commissioned its own test after a Lululemon investor, who is shorting its stock, supplied the paper with lab results."

That, of course, doesn't include market professionals:

"Market professionals gain disproportionately from bans on insider trading because they are in a position to act on information that insiders cannot use, and can do so more quickly than any other group, including shareholders" [1]

[1] https://books.google.com/books?id=l9PuCAAAQBAJ&pg=PA161&lpg=...

> 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.

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?

Because he has a fiduciary duty to the shareholders, and by selling his shares he is misappropriating company information for personal benefit.

> Because he has a fiduciary duty to the shareholders, and by selling his shares he is misappropriating company information for personal benefit.

This was a scheduled sale. It's not clear to me what the SEC is seeking to investigate. Breaking a scheduled sale to take a loss is also illegal insider trading.

> Breaking a scheduled sale to take a loss is also illegal insider trading.

Actually it might be legal. Which doesn't make sense, because trading or not trading based on insider info has the same effective impact on the market, but it may not be 'insider trading' if you decide not to trade.

'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.'

It doesn't seem like Krzanich falls under this though because he went through with the sale.


It was a scheduled sale of 30,000, and he ended up selling 600,000 shares.

He scheduled it after he knew about Meltdown.

1. It was scheduled in October from what I can tell

2. >Breaking a scheduled sale to take a loss is also illegal insider trading.

Source? I don't think this is correct - it is illegal to insider trade but not to refrain from trading. See e.g. https://www.statnews.com/2016/08/08/insider-trading-biotech/

The scheduling plan was adopted in 2015 according to Intel.

Regarding the second point, yes it's a grey area. Refraining to trade when the trade is part of a scheduled plan in order to avoid a loss is insider trading if you have privileged information. In principle refraining to trade in general is probably illegal, but I admit that's a murkier area.

If you find an article more convincing than random HN commenters linking to SEC filings, see https://arstechnica.com/information-technology/2018/01/intel....

Elsewhere in this thread there are links showing this specific plan was changed in October. Intel can say whatever they want but it doesn't change what they publicly reported to the SEC.

Do you have a source for your first claim that cancelling to avoid a loss is insider trading?

> Do you have a source for your first claim that cancelling to avoid a loss is insider trading?

Yes: https://www.sec.gov/rules/final/33-7881.htm.

The purpose of a prearranged stock plan is that it's autonomous and outside the control of insiders with privileged, confidential information. Making any decision with regards to the plan once it has been adopted, either to trade or not to trade, voids that autonomy.

>the purchase or sale of a security of any issuer

I don't see where they ban refraining from trading.

I believe that means it depends on whether the schedule was set before or after he learned of this information. Mind you, I honestly don't know whether the schedule was set before or after in this case.

But when was it scheduled? Intel has known of Meltdown/Spectre for some time (at least since June) and had planned an announcement for this week before the cat got out of the bag.

So is your point that insider trading isn't bad, or that this isn't insider trading?

Because the WaPo article linked to is about insider trading.

My point is that it's not insider trading. I also didn't link to any Washington Post article in my comment, so it's not clear to me if you responded to the right comment here.

My bad - the OP was arguing that insider trading is a good thing, and the response was a criticism of that argument.

I believe the contention is that the scheduling too place after Intel was aware of the vuln.

It was "scheduled" on October, 30th 2017.

The scheduling plan was adopted in 2015, according to Intel.

That is a bit of a red herring. He setup the automated trading schedule in 2015. In October 2017 he changed the rules of his automated trading schedule to dump his stock almost as if he was trading on insider information.


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

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

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.

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...

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?

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:



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.

He sold all but the bare minimum he is required to hold as CEO.

Whatever else, the optics are terrible. But he must have known they would be, so it's a little hard to see what his thinking was here.

And it's early days on the stock price - let's see where it is in 3-6 months.

Not by Meltdown, and the Meltdown specific patches are by far the most performance killing

Well, Meltdown is (almost) Intel only.

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.

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

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.

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

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.

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).

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.

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.

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.

> 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.

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.

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.

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.

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).

>It's not fraud, it's a victimless crime,

Wow, I've always considered american libertarianism a mental disease but this really takes the cake. So you have someone standing there saying "Hey, want to buy these stock? They're great!" knowing the value is about to dramically drop (and that the other party can't possibly know that!) and for you that still isn't doing anything wrong? Out of curiousity, are you also lobbying against punishing people for selling fake iPhones claiming they're real, etc.? Completely victimless crimes, right?

> So you have someone standing there saying "Hey, want to buy these stock? They're great!"

No, you have someone sending an order to sell stock to their broker. The other party had already sent a buy order and was already going to buy stock, so is not made worse off by this.

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