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- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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NEWSLETTERS & ALERTS
Individuals Incredulously Still Believe They Can Get Away with Insider Trading
On Thursday, the SEC announced insider trading charges against a former employee of a semiconductor company and his friend for trading on nonpublic information that the company would be acquired. Tentative settlements were reached, in which the pair would pay $413K in disgorgement and prejudgment interest, along with unspecified civil penalties. The pair also face parallel criminal charges.
SEC FINDINGS. Lanny Brown, a resident of Queen Creek, AZ, and a former employee of International Rectifier (“IRC”), learned in early August 2014 that Infineon Technologies planned to acquire his then-employer. Though Brown was not among the IRC employees involved in the deal, he nevertheless learned about the pending acquisition in the course of his employment.
Shortly thereafter, Brown tipped Sean Fox, his friend, about the acquisition and, together they agreed to acquire IRC call options. In doing so, Brown and Fox devised a scheme to conceal Brown’s involvement in the trading.
- Brown and Fox combined approximately $12,000 of their funds into one of Fox’s brokerage accounts, and used these comingled funds to purchase call options just a week before the 8/20/14 announcement of the International Rectifier-Infineon deal.
► Fox purchased 380 IRC call option contracts for $11,400 (excluding commissions and fees). Fox purchased another 40 IRC call options for $1,200 for himself in a separate IRA brokerage account.
- When the deal was announced on 8/20/14, IRC’s stock price jumped over 47% - to $39.10 from $26.56. The next day, on 8/21/14, Brown and Fox closed out their options positions, collectively reaping $369,720 in profits from their illicit trading.
- To continue hiding Brown’s role in the trading, Fox funneled Brown’s share of the trading profits by paying several of Brown’s personal expenses or writing checks to Brown’s adult and minor children and minor stepchildren. Brown and his wife then endorsed these checks and used the funds.
► From September 2014 through at least June 2015, Fox (and in some cases his wife) wrote 19 checks totaling $148,000 to Brown’s minor stepchildren, minor and adult children, former son-in-law, contractors who were renovating Brown’s home, and to pay other entities for services provided to Brown.
[For further details, click here: SEC Complaint.]
FINANCIALISH TAKE AWAYS. The insider trading in this case took place in 2014. And in the past 3 years, I couldn't say whether the tendency among individuals to trade on material nonpublic information has increased or decreased. But this much I can say with much confidence: individuals will always possess the desire to make a quick (and easy) buck, and that means insider trading is here to stay.
Another reason I think that insider trading will hang round is the increased presence of online trading sites and applications. Somehow, some investors may believe that their actions are not transparent when they avoid human interaction. So much for naivety.
All this spells trouble for those who trade on insider information ahead of pending mergers or acquisitions. That's because over these same 3 years, the SEC's use of, and even its reliance on, data and technology to combat illegal trading has increased enormously.
Much of the Commission's advances have come from its Division of Economic and Risk Analysis (“DERA,” created in 2009) and aided, in large part, by Enforcement's Center for Risk and Quantitative Analytics (“CRQA,” creating in 2013).
- DERA integrates financial economics and rigorous data analytics into the core mission of the SEC. Among other things, DERA develops customized, analytic tools and analyses to proactively detect market risks indicative of possible violations of the Federal securities laws. Using data, DERA staff create analytic programs designed to detect patterns identifying risks, enabling SEC divisions and offices to deploy scarce resources targeting possible misconduct.
- CRQA supports and coordinates the Division's risk identification, risk assessment and data analytic activities by identifying risks and threats that could harm investors, and assists staff nationwide in conducting risk-based investigations and developing methods of monitoring for signs of possible wrongdoing. It works in close association with other SEC offices and divisions, especially DERA, and provides guidance to the Enforcement Division's leadership on how to allocate resources strategically in light of identified risks. As a central point of contact for risk-based initiatives nationwide, CRQA will serve as both an analytical hub and source of information about characteristics and patterns indicative of possible fraud or other illegality.
And, it should come as no surprise that some of the most straightforward technology applications for the SEC and other regulators involve detection of illegal or suspicious trading patterns pertaining to a merger or an acquisition. Let the machines compare market trading data against relevant dates along a deal's timeline and, "voila" - a perfect match for investigators to pursue.
Yes, isn't it incredible that individuals still believe they can get away with insider trading.