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Comment by extr | Hacker News Reader

What a lame way to insider trade. I thought that instance of the Capital One analysts using internal database queries to understand which retailers were having good quarters was far more interesting and insidious. Similarly you could imagine a lot more subtle ways to leverage insider Twilio information (count of verification texts sent by client?) to make far more obscure bets. The SEC definitely takes a look at anyone who goes from zero trading -> making improbably great trades worth millions though, so better have a good patsy lined up!

Edit: Context for the traders I was talking about. What they did was much cooler and honestly kind of impressive: https://www.bloomberg.com/view/articles/2015-01-23/capital-o...

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Add to that they apparently chatted about it in some tool that had an auditable history and one can surmise that these people weren't the most sophisticated bad actors.

"The stock will go up for sure."

Swiper, no swiping!

>count of verification texts sent by client

This is what I thought it would be based on the headline and was frankly disappointed that the truth was so quotidian. Certain Twilio engineers could very likely keep an index of major gig-economy/delivery services and track both user and driver sign-ups in a way that could be very valuable NMPI and have the advantage of being at a broad range of companies that are only tangentially related to their employer.

In fact, @SEC if you're reading this, you might be missing some bigger fish...

Yea, now just imagine how many smarter people are doing it and getting away with it

Not many? Describe the trade steps necessary to insider trade with high leverage that isn’t trivial for a data analytics program to flag with high confidence?

1. Find out using inside information that Twilio is having a good quarter due to macro conditions

2. Buy deep OTM call options in… a similar company that’s in the same business as Twilio

3. Never get in any trouble

But that's not insider trading. You don't have inside information on that other company. You have a guess that their business is doing similar. When perhaps Twilio is doing so well because they took business from that competitor or something else that makes them stand out.

https://www.sec.gov/news/press-release/2021-155

You absolutely can get charged for trading in a similar company.

This is another situation where I am literally dumbfounded at the actions of the indicted. How are you smart enough to know what options are and how to buy them but stupid enough to think that you won't get caught making such a blatant trade?

It's like these people think they're the first ones to ever come up with the idea of trading on privileged information so there's no way they'll get caught.

Interesting, hadn't heard of that one before. With some digging this appears to be the first case where they have ever charged someone for "shadow trading" like this. And it is still making its way through the courts. Definitely will be following that.

It’s literally a running gag on Matt Levite’s newsletter that all the SEC needs to do to keep their enforcement quota up is to search their database for any deep OTM option trades around earnings announcements.

If that’s the case couldn’t anyone just scan for suspicious trades like that and copy the position?

Yes if they have the SEC database of trades?

I don't find it hard to imagine.

1. Work for a company that provides signal-giving infrastructure for a variety of companies across disparate industries. Twilio is actually a perfect example.

2. Find someone to work with that already has or is willing to build a plausible history of so-so trades.

3. Occasionally tip this person off that company Y in industry X is about to have a good quarter. Never trade the same company twice. Parallel construct a plausible rationale for the trade based on public market signals if you want to sleep well at night.

4. Don't communicate over easily subpoenaed channels, obviously. The SEC isn't the NSA, basic OPSEC is fine.

5. Profit?

That's why I'm so disappointed by the OP! It's so easy to dream up a situation where they used their access in an effectively untraceable way.

That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information (company press release aggregation is a classic version) to get similar edge without entering a criminal conspiracy.

Notice I mention high leverage. There are 2 challenges (as I see it) to committing insider trading. The first is having information ahead of time that actually predicts how the market will move based on the information. It’s not enough to know a company will have a good quarter you need to know it will be better than expected.

Second you need to be able to make outsized returns on that information. You have to beat the market returns by themselves. This compounds with the other issue above. The less obviously market moving data you have the more leverage you need.

This narrows the search space pretty considerably for an analytics based approach. You look at insiders with lots of access or anyone making high leverage bets.

Finally, do a mental exercise on your step 2. What does that even look like? An insider randomly approaching hedge funds? A random encounter at a bar? A frat reunion where they share each other’s trading history like term papers?

I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled.

However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.

How do you get the profit into your hands?

Cash? Bitcoin?

Will this other person keep their mouth shut when the SEC comes knocking because some very successful traders seems to be handling a lot of cash or crypto? Or will they flip on you to stay out of prison?

Read up on Matt Levine's many, many examples of people getting busted for insider trading.

Not sure how a random user of /r/WSB who has been receiving anonymous insider tips in return for 50% of the gains, to be paid in untraceable crypto, is going to "flip" :D

Crypto is not untraceable.

Crypto is useless unless converted into cash which requires identifying yourself.

Said WSBer could just take your tips and keep all the money.

Very true. I find it to be a fun thought exercise though. Kind of like asking your friends around the dinner table how they would rob a bank.

sounds like they went back to China and got new jobs. https://www.crunchbase.com/person/bonan-huang

absolutely honest :)

"He used to work for United States JP Morgan Chase, Capital One, Jimu.com (as Strategy Analytics Director). Bonan mainly focusing on data mining, machine learning and programming large data quantification in analysing stock."

>I thought that instance of the Capital One analysts using internal database queries to understand which retailers were having good quarters was far more interesting and insidious.

How is this seriously different than what any one of a million other "AI analytics" companies are doing with customer data right now?

Because it was Capital One's internal data, which belongs to the shareholders. US insider trading laws are about theft, not about fairness (the markets require "unfairness" in this sense in order to perform price discovery).

The "AI analytics" companies are all communicating expressly their intent when they purchase the data at the outset. This makes it legal.

Full disclosure, I'm a privacy advocate and believe this sort of selling of customer data should not even be allowed. That said, what the companies you allude to do is totally legal by law, and significantly different in practice than taking data without informing anyone of your intent.

I guess the short answer to your question is that this is the United States. Everything is legal here, provided you do the paperwork first.

It's discussed in the link they added. The retailers shared the data with Capital One for specific business purposes, not for stock market analysis.

It was an internal database (from Capital One credit cards), they weren't allowed to use that data for analysis. This wasn't publicly accessible information.

See article: https://www.bloomberg.com/opinion/articles/2015-01-23/capita...

The difference is public vs. non-public information. Doing something like counting cars in retailers parking lots is something any investor could do (or pay someone else to do). Trading using trends from non-public credit card transaction data isn't something that any "general public" investor could do on their own.

Also note this is about buying and selling securities, not selling consumer data for marketing purposes.

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