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[dupe] Former Equifax Executive Charged with Insider Trading (sec.gov)
413 points by carbocation 11 months ago | hide | past | web | favorite | 147 comments



Discussed a couple weeks ago at https://news.ycombinator.com/item?id=16584980.


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-...

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-...

--

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.


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...


I'm surprised a C level exec can sell their shares like that. I thought they all had to announce ahead of time? I'm a lowly employee at a big tech company and I have blackout periods.


They typically not required to provide advance notice (by law, at least,) but they often do set up a sell schedule in advance to show that they're not selling in response to non-public information. Sort of like developing data retention policy to avoid obstruction/anticipatory obstruction charges.


In the SEC briefing, it is noted that there were two teams deployed: Project Sierra and Project Sparta. Only Sierra had knowledge that Equifax itself was breached and thus a blackout period was instituted. But not for Sparta where the CIO was assigned.


I'm an Equifax employee...I can confirm this. I heard about "Project Sparta" constantly, but didn't know until the day of the public announcement what it was. I had no idea it was Equifax that was breached until everyone else did. I never even heard about "Project Sierra" at my level.


It’s not as black and white as it seems: the CIO was not directly told that Equifax itself had suffered a breach, simply that one of their clients had been.

[1] https://www.bloomberg.com/view/articles/2018-03-15/is-inside...

[2] page 6 of https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...



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.


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.


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.


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


A greater number than are currently charged, sure, but a far smaller number in absolute terms causing a far larger amount of damage than the ordinary Americans for whom a criminal charge—which is made essentially entirely at the discretion of the DA—will remain on their records permanently, affecting their ability to travel and obtain jobs.


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.


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


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.


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.


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.


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.


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.


Not if they sold before, which is what this whole thing is about.


Yeah our civil court system fucking sucks.

Edit: I used to work in the legal industry nearly exclusively in civil court.


Can you elaborate? In what specific ways does it suck? Do you have any suggestions for improvement?


It's pretty easy to cover your tracks if you're not an idiot and know what you're doing, and I assume a lot of the people that make big insider trading plays are neither.

So hamstringing the SEC with an arbitrarily high standard just facilitates continued insider trading.

Agreed on the full burden of proof for penalties. But having your gains clawed back is a different fish entirely.


But having gains taken away is a penalty.


...


How does charging someone require "guilty beyond all reasonable doubt"? Sounds like a conflation between charging with a crime and convicting someone.

Aware he said "convict" but he probably meant "charge".


Imposition of any penalty is a conviction unless there is a voluntary plea. Charge is absolutely not what he meant, especially since that was a base he already explicitly covered.


How about we stop pretending that information asymmetry isn't a core aspect of the stock market?

Insider trading laws seem tailor made to make sure wall street, and only wall street, is playing with a stacked deck.

This has been looked at before, but the summary from this paper (by the Atlanta Fed) is a good (and as far as I know, unbiased) place to start: https://www.frbatlanta.org/-/media/documents/filelegacydocs/...


> It's always amazed me that the SEC standard is proving insider trading willfully took place. Which is a pretty high bar.

Systems fail, so you have to ask which way you want it to fail.

We go by Blackstone's formulation: "It is better that ten guilty persons escape than that one innocent suffer". The founding fathers often quoted this and it is an integral part of American law.

Yeah, it often sucks and many guilty people go free. I'm sure you can think of specific topics where it is particularly difficult. But we chose to fail this way because we value freedom so highly. So the prosecutor has the burden of proof. This is often why trials go for so long and it takes a long time to form a case.

tldr: It is purposefully a pretty high bar.


You forgot the addendum:

No member of congress, the administration or closely related shall ever be punished for anything. For instance, for taking legal action to protect the very company this is about:

https://techcrunch.com/2017/10/24/congress-votes-to-disallow...

And I'm sure there were zero financial interests behind that decision.

You might say : this is not insider trading. I agree, this is much worse: this is taking legal action to protect their own financial interests after they were legitimately punished by the market. That's far, far worse and explicitly not what the legislative authority should be used for.


This is a horrifying proposition. Are you seriously suggesting suspending the presumption of innocence and substituting mob rule?


I feel there's a pretty firm distinction between "you get to keep a good thing" and "we're forcing a bad thing upon you."


I don’t think the line is clear and I don’t think it’s relevant either.

You’re still seemingly ignoring the presumption of innocence and burden of proof. You seem to place a higher value on punishment of perceived wrongs than on liberty.

That quite frankly terrifies me.


How is "I'm going to lock you in prison" remotely similar to "I'm going to take away your profits and leave you as you were before the trade"?

If you don't see a difference between the two... we have very different views of the world.


We’re talking past each other.

You have described two punishments. The only difference is severity. Further, your previous comment was far more vague than prison vs clawed back profits.

I value liberty above all else which means all punishment has a high burden of proof and all individuals are assumed innocent in the absence of this proof.

You seem to suggest setting a lower standard because it feels right to you.

That scares the hell out of me.


As you've expressed. And I feel you're being logically disingenuous by failing to gradate levels of punishment.

It's a straw man to say I'm suggesting there shouldn't be a high burden of proof for a severe punishment.

And whether a viewpoint terrified you or not is largely irrelevant.

Personally, I modulate my desire for individual liberty with what I consider a reasonable responsibility to nurture an environment where individuals are afforded opportunities to exercise that liberty.


I don't see how punishing (regardless of severity) someone who can't be proven to have broken a law "affords individuals opportunities to exercise liberty".

What you're advocating is mob rule and that's why it is scary.

Obviously there are different standards of proof but the presumption is always innocence and there is always a standard beyond how it "looks". This is preferable because it maximizes liberty.


Do you accept there are situations in which maximizing individual liberty lowers average liberty?


Mathematically I'm not sure how such a thing could occur.

If you are implying that liberty is zero sum then I disagree.

I'm also uninterested in average liberty. Individual liberty is of utmost importance. Individual rights extend as far as infringing on the rights of others. This is important only in the context of preserving further individual liberty.


Example:

(Case 1) A world in which individuals are completely free to do with their wealth as they will (so, no taxes, regulations, etc).

(Case 2) A world in which individuals are absolutely prohibited from wealth transfer. At the time of their death, all individual assets / privileges are seized, then redistributed evenly to the next generation.

Select a random individual from a new generation in each case.

Would you disagree that they have different effective individual liberty? That is, the options available to them to pursue in life?

Essentially, I see effective liberty as the product of rights and means to exercise those rights. And I believe the greatest individual liberty cannot be created without balancing both requirements.


Here's a simpler proposal: when an insider sells shares, they go into limbo for 180 days, then they get sold at the then-current price.


Simpler proposal: Existing sale of stock disclosure laws are all we need.


Or better yet, treat trading & holding market assets as a privilege and not a right. Maybe it’s not worth pursuing criminal charges for any multitude of reasons, but having a quick release valve to make sure bad actors only get 1 shot.


And who decides the members of this privileged class?

If I get a speeding ticket do I lose my ability to trade? What about a fealony? What if I am on a no-fly list without due process?


well the thought was that it would strictly be tied to actions dealing with the market. there’s a lot of other people’s money in the market, bad actors are capable of creating markedly more damage than personal benefit. this is more about making sure someone with capital can’t repeatedly do dodgy things.

but yeah, it’s a weird hypothetical and the SEC is going after a bad actor here, so maybe the system is working


Your "what-ifs" are just completely ludicrous, to the point where it does not appear that you are wanting to actually discuss the topic.


They are not ludicrous at all.

A few years ago it was suggested we use the no-fly list to prohibit gun purchases. And that's an explicitly granted constitutional right. Felons already lose rights such as voting. How "quick" would this release be?

If we treat participation in the stock market as a privilege I think it's entirely reasonable to ask who gets that privilege.


Just clarifying this in case it wasn't clear for others.

There is an Equifax global CIO above the Equifax US Info Systems business unit CIO. Global CIO knew, Info Sys CIO inferred.


I have to agree. He literally knew about the breach and then sold them. He's definitely got to go down, I'm sure he knew that what insider trading is.


These days Google hands out your info to LE like its a street candy; it wasn't like this back in a day when I was a Noogler at least they had whole team looking at every single LE request; these days, I bet its just a blanket [select all], [accept].

Just another reason to switch to DuckDuck go, whether you are doing something shady or not.


Are you sure the information about his search history came from Google, as opposed to IT network logs or forensic examination of his computer?

The complaint makes reference to "Ying’s internet browsing history" which sounds more likely to be one of the latter...


The complaint doesn't actually say what search engine he used. Sorry, I probably shouldn't have used "googling" interchangeably with "searching".


Or, and hear me out on this, maybe, just maybe, don't do shady things? This guy didn't get in trouble because he used Google. He got in trouble because he was breaking the law.


> They always make the little guy take the fall

Taking the fall means "to bear the blame or punishment for another person's failure or misdeed" [1]. Ying is being charged with his own crimes alone.

Furthermore, we have no evidence about whether (a) the other executives actually committed a violation, (b) Ying is the only one who left a prosecutable paper trail or (c) Ying will take a plea deal and co-operate against the others.

[1] https://en.wiktionary.org/wiki/take_the_fall


You are right. I am not stating a fact. It is my opinion that this guy is being used as a sacrificial lamb because I have seen things like this happen time and time again.

Also seems like a pretty big coincidence that the others sold off their shares immediately after hearing about the breach, but it was unrelated.


> but it was unrelated

That has not yet been concluded. This could be the first move in a series of charges.

That or Ying was uniquely stupid. He texted his direct report “on the phone with [global CIO]. Sounds bad. We may be the one breached. . . . Starting to put 2 and 2 together" [1] before exercising "all of his vested options to buy Equifax shares, and then immediately [selling] those Equifax shares for total proceeds of more than $950,000" (§ 49) an hour after searching for "(1) 'Experian breach'; (2) 'Experian stock price 9/15/2015'; and (3) 'Experian breach 2015'" on the Internet (§ 42).

[1] https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4... § 31


There is another way of looking at this. This executive is the only one being charged even though there were other executives with similar breaches. It appears that Equifax is allowing him to be charged to placate the public anger. Hence, the phrase "little guy takes the fall".


> It appears that Equifax is allowing him to be charged

Why would Equifax even have a say in that? It's not like he's a sacrificial lamb. There's evidence against him, it will be used. If evidence is discovered against other individuals, it will be used, regardless of the opinion of Equifax.


*Scape goat


> Scape goat*

"Scapegoating is the practice of singling out a person or group for unmerited blame" [1]. Ying's blame is merited. What happened here is multiple people may have violated securities law and one has been charged. We don't know yet if it's one period or one so far.

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


It really is NOT. From what I've read prosecutors care a lot about their "success rate".

I think the consensus here is Equifax hired this guy to take the blame pretty much. That's why we call him the fall guy.

Look at Wells Fargo. Or even HSBC. Apparently, even Toyota tried to cover up its sticky accelerator? Don't forget about VW.

I think when something like this happens the CEO and the board must go to prison even if there is no direct evidence. You must take responsibility for the actions of your reports. I can't see things improving any other way.


> I think the consensus here is Equifax hired this guy to take the blame pretty much.

What are you on about? Your theory is that Equifax execs presciently knew there would be a breach, and that they’d want to engage in insider trading, so they hired this guy and waited until the breach then told him to break the law too so he could ‘take he fall’?


And yet, nobody's going to jail for the breach itself, and Equifax is probably going to avoid any penalties whatsoever. I'd like to see someone held responsible for mishandling the personal financial information of millions of Americans.


Before people go to jail, you must make it a crime. Is it?


Criminal negligence is a thing. I would say that storing that much personal data about people, and not taking the efforts to secure it properly, should count.


Don’t most C-level execs typically trade on a preset schedule to avoid insider trading allegations? In fact, I’m pretty sure that’s why you never here about them insider trading their own stock.


Yes and no.

>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. The SEC stated that, despite the fact that 10b5-1(c) requires trades to be irrevocable, there can be no liability for insider trading under Rule 10b-5 without an actual securities transaction, based on the U.S. Supreme Court's holding in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).[0]

Without knowing the 10b5-1 schedule you can't say if insider knowledge was used when executing the plan. The simplest and dumbest version of this would be unique individual sale plans for each share you own for every day of the year. You just cancel the ones you don't want to sell, until you do, and everything is legal.

[0] https://en.wikipedia.org/wiki/SEC_Rule_10b5-1#A_possible_loo...


Judges are not stupid. I doubt this would fly in an actual court.


Reality begs to differ.

https://www.casebriefs.com/blog/law/securities-regulation/se...

>Held. (Rehnquist, J.) No. We embrace the holding of the Second Circuit in the 1952 Birnbaum case, 193 F2.d 461 (2d Cir. 1952). That rule demands that a plaintiff must be either a seller or a buyer to seek a remedy under 10b-5 and we reinforce this rule both through contemplation of legislative history and by policy deliberations. The SEC had attempted to get Congress to amend 10b-5 to contain “any attempt to purchase or sell a security”, but Congress had declined to do this. Congress desired to restrict 10b-5 to cases of “actual damage”, and without Birnbaum, evidence of damage would be too theoretical. Regarding policy considerations,the Birnbaum rulemay incite the offerees, knowing that they would not be subject to summary judgment would sue to push the corporate defendant to settle out of court,would lead to “strike suits”. The evidence presented by an offeree at trial would be too subjective, seeing as no objective criteria could assistin measuring plaintiff’s dependence on the prospectus. In conclusion, Manor Drugs has no contractual right to a Birnbaum rule. Manor Drugs was a member of a limited class, but permitting them to utilize the rule would lead to a breakdown of the Birnbaum rule. Reversed.

And of course you can see Congress adding loopholes they can themselves use.

The no insider trading rules are a joke.


TBH, I'm not sure I follow all of that, but it sounds to me like they're saying a trade must be made for there to be insider trading. I'm not sure I like that, but okay. But upthread your suggestion was "cancel the ones you don't want, until you do" - at that point, a trade has been made, so it's at least a different question.


Breaking it down:

1). Set up a 10b5-1 plan selling all your shares each day.

2). Set up a 10b5-1 plan that buys as many shares as possible.

3). Get insider information on the company.

   a). If good for company cancel plan from step 1.

   b). If bad for company cancel plan from step 2.

   c). If neither cancel both plans.
4). Profit.


Yeah, I got that part. The problem is that after 3a) or 3b), you have made trades. So "no trades were made, it can't possibly be insider trading" doesn't apply. It may be that the SEC would nonetheless honor the "it's not an issue if you're just following your plan" thing, but since obviously you're not just following your plan I wouldn't bet on it. I'd be interested to know of examples in either direction if anyone has been bold enough to try this.


You're not choosing to make a trade, you're choosing to cancel a trade. Both are things the FCC has said it will not charge anyone other as long as congress does not change the rules.

Sorry to say but you're looking for a way to defend an indefensible system.

If you want to see it in action look at what the Intel CEO did.


> You're not choosing to make a trade, you're choosing to cancel a trade.

You're also choosing not to cancel a trade, which is the difference from the example you've cited. Choosing not to cancel a trade based on material, non-public information after establishing a pattern of regularly canceling your planned trades doesn't seem to be something that's been tested (at least in anything discussed here so far).

And note that I'm not saying no one pushes - or crosses - lines; nor am I saying that the system isn't exploitable near the margins. I am saying that if you were as flagrant in abusing it as you posted above, I wouldn't bet on your safety from the SEC.

> Sorry to say but you're looking for a way to defend an indefensible system.

No, I'm contesting a claim that seems inaccurate. I quite readily agree there are things that need fixing.

> If you want to see it in action look at what the Intel CEO did.

I don't think we have enough details about what the Intel CEO did to say much - more shares were sold, but it was plausible the formula was set in advance of discovery of the flaw and more shares were sold simply because the stock had gone up. If you have a source with more details, please share it.


Perhaps you should call the FTC and let them know their interpretation of the law is wrong.


Well, that's a garbage response.

It's a useless and snarky dismissal if I had been saying their interpretation was wrong...

But my entire point has been that we haven't observed their interpretation of the law as applied to the extreme circumstance you described.

At this point, I'm sufficiently skeptical that you're engaging in good faith that I probably won't be responding further.


Appellate and Supreme Court judges seem pretty eager to buy this kind of stuff, given many of the rulings over the past 15 years.


Wow! Sounds like a loop hole to me.


It's not a bug, it's a feature Congress refused to remove.


Yes, they do - the problem is when they schedule sales after being made aware of insider information but before it is released to the public.

Obviously a CEO will have knowledge of some things that won't me made public during a scheduled stock sale, like upcoming product roadmaps that may not be released yet, etc. It's impossible to completely avoid this, but scheduling a sale after a breach or major security vulnerability in your products is discovered and well before public disclosure is not okay.

I'm glad this Equifax exec got what he deserved, Krzanich should get the same treatment.


He’s being charged for the wrong thing, in my opinion.

Who cares about the insider trading, that’s mostly a victimless crime.

145 million people had personal identity MG information leaked.

Is anyone being charged for that? The CIO would seem like a relevant candidate.


I could be wrong but didn't the Intel CEO have his stock sold on a schedule?

The Intel debacle aside it did seem like a regular transaction that was not directly related to knowledge of the shit show that is spectre/meltdown


He sold more than the scheduled stock down to his bare minimum required to hold as the CEO.

I gather that the loophole to insider trading is that if you sell 0.1% of your shares per month, then decide to sell 99% of it in one month. It's ok, because you were scheduled to sell shares anyway.


It is the shareholders of Equifax who must take fall for the breach, for it is they who own and are responsible for the company.

Many of us own, through index funds, a small amount of Equifax.


While I have no love lost for the shareholders of an evil company like that, I think that's the wrong attitude to take. As you pointed out, most shareholders aren't in any kind of a position to actually exercise any control over the company.

I'd still put this on the executives. They're paid the big bucks to be responsible for the company. Yet, it seems that more and more, we're looking for ways to continue paying them the big bucks, but remove that responsibility. All carrot and no stick, as it were.


I totally agree with you. $117,000 is not even significant...



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.


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.


> 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


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.


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.


> 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.

See I think the issue here is that when he made the trade he didn't know that Equifax was the company involved, he just made an educated guess with no confirmation from anyone. The question will be whether the pieces of the puzzle he did have access to were "material non-public information" or was it only that he guessed correctly (if he was later shown to be correct but didn't know at the time). The reporting makes it seem like the project was well known to non-insiders so its questionable that just knowing about the project and then guessing can be insider trading.

A lot of stock analysts are worried about the implication of situations where reading a lot about a company, inferring that you expect something might happen, and trading on an educated guess becomes a crime if you're right.


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.


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?


I was wondering the same thing. Some of these cases seem so brazen, like Carl Icahn dumping $30M of his steel-related stocks before Trump announced tariffs on steel. To me it seems so obvious that he had insider information, but he's not an idiot and he wouldn't do it unless he was pretty confident he could get away with it. Am I missing some nuance of insider trading law, or is it just that easy to get away with it?

- http://knowledge.wharton.upenn.edu/article/why-insider-tradi...

- http://www.chicagobusiness.com/article/20141210/NEWS04/14121...

- https://thinkprogress.org/carl-icahn-insider-trading-2bbd956...


> Am I missing some nuance of insider trading law, or is it just that easy to get away with it?

I get the feeling that illegal insider trading is kind of like speeding: it happens all the time and people get caught and fine for it occasionally.


I'd rather compare it to doing hard drugs. Everybody knows a lot of high-profile people do it and rarely get prosecuted, though theoretically it's a felony.


Well for one you would have to show that Carl knew that the tariffs were coming. Otherwise he started selling the stock within a couple of days of earnings when the stock had already experienced a pretty large price drop. Unless there was proof that he knew and used that to trade it would be a pretty hard case to bring. Mark Cuban was found not guilty of something similar.

https://www.thestreet.com/quote/MTW.html

https://www.reuters.com/article/us-usa-sec-cuban-verdict/bil...


"but he's not an idiot and he wouldn't do it unless he was pretty confident he could get away with it."

The SEC, and the Justice Dept in general, has been losing their teeth with regards to white collar crime for quite a while, really ever since Arthur Andersen and Enron.


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...


I know it's illegal. The first thing I thought when I heard about Equifax exec selling their stock is "they are playing with fire, this sure looks like illegal insider trading". And I am nobody, and haven't lived in US for that long. CIO of a major corporation surely knows these things better than me. So either he knows a loophole I don't know (completely possible), or he had some hopes that what is illegal for me won't be for him. I am curious as to why he thought that.

> I mean, he didn't know that you have to keep track of vulnerabilities in the JARs you package into Internet-facing web services

I won't actually blame him for that. I mean, it was his screwup, as a CIO, but one that could happen to everybody, given some bad luck and some routine mistakes everybody could make from time to time. So here I am not surprised how it happened, I may not know the details but I am pretty sure I understand the general gist of how they got there. The trading part is different - here it's an apparent blatant and willful illegal conduct that is in the open and will be caught. Why a smart and successful man does it? I am curious.


He was at a startup in the nineties, getting equity. He knows the SEC rules on insider trading.


Does it matter if he knew it was illegal or not?


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


Legally, no. But to understand his behavior - yes, it is interesting why a smart person would do knowingly illegal thing for such a measly (compared to the risk if he'd be caught) gain.


I'm pretty sure that's one of those things they tell you in the Executive Onboarding. As well with how to get around it.


> this guy knew it's insider trading

See, I don't know that he did at the time. I think he guessed, sold his stock before he knew whether his guess was right or not, and ended up being right. The question will be whether his guess was based on "material non-public information", but that is a much more difficult thing to determine for someone in the moment.


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...

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.


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

Seems like a pretty high risk for such low reward.


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



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.


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.


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?


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.


"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.


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...


> 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?


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


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.


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.


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


In all fairness...


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


Good job, SEC!

(I'm serious.)


It really is what you hope to see!


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


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


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


Insider trading is not a crime, per se


He was charged with illegal insider trading. It turns out that is in fact a crime.

> Defendant Jun Ying (“Ying”) committed securities fraud by engaging in illegal insider trading. After being entrusted with material, nonpublic information about a massive cyber-intrusion and data breach suffered by his employer, Equifax Inc. (“Equifax” or “the company”), Ying exercised all his vested Equifax stock options and sold the shares prior to the public announcement of the breach. By selling when he did, Ying avoided losses in excess of $117,000.


I just listened to a podcast today about insider trading... and apparently, there’s not actually a law against insider trading itself. Technically what you get prosecuted for is stealing information, or something like that. Obviously there is tons of case law to support the illegality of insider trading, but you can’t find an actual law that says “you will go to jail if you do insider trading”.


I'm pretty sure SEC Rule 10b-5[1] covers insider trading, along with various supplementary rules.

[1]: https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=3d58bfb5f1...


Technically, a Rule is not a Law.


There are anti-fraud provisions in securities law; insider trading is prosecuted as a form of fraud.


This methodology is not uncommon. Mail fraud and bribery of foreign officials are prosecuted as "depriving the public of honest services".


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.


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?


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?


i'd be very interested in knowing that as well. doesn't seem like it'd be material information


If he guessed based on being told to drop everything... then he still knew there was something seriously wrong before everyone else. That's insider trading.


But is it illegal insider trading?

This is an honest question.


Is there any other kind?


Yes, this is how employees are allowed to trade equity in companies they work for. They obviously have some form of inside information. This seems to be the purpose of trading windows. I just don’t know where the line is.




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