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Comment by runako | Hacker News Reader

I'm sure the SEC has an array of tools with which to comb through the data, but I would bet that the vast majority of these cases against non-professional traders are flagged by identifying retail brokerage accounts where the notional value of options outstanding is

1) larger than some % of the the portfolio size (e.g. > 50%)

2) with exposure concentrated on 1-3 stocks

3) with no similarly-sized follow-up trades in other names (e.g. they didn't just figure out a new methodology and begin applying it across different companies)

Due diligence follow-up to determine that one or more of the yokels works for the company in question, and LinkedIn will get you more of the perps.

The only surprising thing to me is that the SEC likely hasn't had to tune this filter for decades.

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> I'm sure the SEC has an array of tools with which to comb through the data

They have a fairly robust analytics/data science team, and will also act on referrals from FINRA related to suspicious/anomalous trade activity.

isn’t this what they use Palantir for?

I don’t think so, I saw a FINRA talk 5+ years ago where they described their home built data analytics that could process all daily trades looking for something similar to what the GP described

Palantir doesn’t have a product that actually does this, contrary to whatever sales presentation you might’ve heard.

(I know someone whose gov org almost found this out the hard way after nearly flushing millions of taxpayer dollars down the toilet)

I've barely touched anything Palantir, but the one gov project I worked on tangentially that used their products did seem suspiciously like a simple database that the gov employees/contractors were doing all the work to make useful.

I'm not sure if that's what they were sold, but if they were sold on a full solution, that's definitely not what they got...

None of Palantir's products do anything really useful. They are instead used as glorified tech demos by their sales teams. Then their engineers go in and build custom solutions for whatever the client needs. The company doesn't do too much more than standard tech consulting.

Nope.

https://www.sec.gov/marketstructure/midas-system

Weird seeing MIDAS referenced on HN. Always seemed like a minor thing from the inside at Thesys.

Also, don’t forgot the notorious CAT project.

https://www.finra.org/rules-guidance/key-topics/consolidated...

It’s more likely to me that they talked about it internally (to colleagues?) and someone reported it to HR, the police or SEC directly.

It could also have been the case that they were just bragging to friends or people at bars/parties about it, but either way I agree that it's much more likely that someone heard about it and then tipped off the SEC.

Of course! It could be anyone, not just colleagues.

uhm it’s not even that difficult. they just see if you traded in your own account for a company you work for around earnings.

i’m pretty sure you’re not supposed to do it at all but maybe dependent on the situation.

You're not supposed to do that at all. You could argue you didn't possess any material non-public information, but since essentially every internal document you access is non-public information, that's probably not an argument you want to deal with.

Just trade your own company's shares in the windows after earnings releases. Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it.

Many companies, and (most?) tech companies have trading black out periods that are lifted for about a month a few days after earnings. It applies to your personal brokerage account too, even though they can't technically enforce it.

I worked at a bank. They 100% had access to my personal brokerage accounts. It was a condition of employment.

Yes, banks do that. Many even prohibit employees to have personal brokerage accounts at other banks (How does that work for a married couple that work for different banks? There are exceptions which require additional disclosures, like submitting you spouse's and/or minor child's monthly statements within some short time frame).

Banks are the exception. Very, very few not-a-bank companies do that.

> Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it.

The insider trading training I did at one company specifically mentioned this is against SEC rules and is insider trading. I am unsure if that is actually true, but that is what the company expected us to operate as.

i follow the market pretty closely and executives and board members often have pre-defined sales plans that will sell shares right before earnings.

not sure if it’s open to employees. personally don’t think it’s fair but it seems to be legal as is.

Setting up a 10b5-1 plan with your broker when you don't have material, non-public information, and your broker follows the plan is the way to trade in employer stock with a solid footing if you regularly have material non-public information. (Such as, in this case, a major change in business metrics).

Your company may not permit regular employees to setup a 10b5-1 plan, I think they need signof by corporate legal; and in that case, any trading that happens in your account could be considered insider trading based on your knowledge when the trade executes (or possibly when it's entered/while it's open... details are sort of fuzzy), regardless of if you or your agent made the trade, or even if the trade was automatic due to margin or something.

IANAL, but a 10b5-1 plan (thanks for reminding me of the naming!) is an affirmative defense, that removes insider trading liability if a trade satisfies all of its conditions.

Effectively, (1) the plan is created when one does not have material nonpublic information, (2) that it...

"- Specified the amount of securities to be purchased or sold, price, and date;

- Provided a written formula or algorithm, or computer program, for determining amounts, prices, and dates; or

- Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who exercised such influence was not aware of the material nonpublic information when doing so." [0]

... and (3) that the trade as executed did not attempt to subvert (2).

So it's not really something you need to have your corporate legal agree to for it to be valid (although legal may require or encourage you to do so, to limit exposure of company officers botching it). You simply have to set up a plan that satisfies the test with your broker, then claim it as your defense if the SEC comes after you.

A note on a napkin saying "Sell 5,000 shares 3 days before every earnings call, as long as the RSI is >50" would seem to suffice, provided you didn't subsequently meddle.

[0] https://www.federalregister.gov/documents/2022/02/15/2022-01...

The training I went through explicitly laid out this scenario and explicitly classified it as insider trading if material nonpublic information is found that would make those trades desirable to execute. I've never heard of the SEC prosecuting someone for losing money due to insider trading.

Again, this probably isn't the case legally. But it was enough for an extremely powerful corporation to deem it as such.

You'd have to look up recent case law, as with all SEC rules, which may be what your company is referring to.

But that's the explicit design of 10b5-1: that it provides coverage if all its requirements are satisfied.

The SEC can charge you for making favorable trades according to a predefined plan, but they're going to have an uphill battle convicting you, if you kept your broker at arms length and didn't alter your plan beyond what was initially communicated.

I think the issue may be that a 10b5-1 is the only way to do this without avoiding liability. Just having your broker make trades for you, even if they're "scheduled", isn't enough.

It’s pretty important that you can’t schedule a bunch of trades and then cancel the ones that end up looking bad with nonpublic info.

>The Securities and Exchange Commission today announced insider trading charges against three software engineers employed at Twilio, Inc., a San Francisco-based cloud computing communications company, and four family members and friends for allegedly generating more than $1 million in collective profits by insider trading ahead of the company’s positive first quarter 2020 earnings announcement on May 6, 2020.

This, along with the 'Tipper/Tippee' language implies that the named engineers did not in fact trade in their own accounts.

i mean it’s not clear it could have been all of them. not really the point i’m making..yes it could have been done exclusively using family that the government clearly knows you’re linked to. maybe more difficult with friends.

Please read the articles before commenting on them:

>Sure, Lagudu and Chotu Pulagam knowingly tipped off, or used the brokerage accounts of, their family and close friends – Dileep Kamujula, Sai Nekkalapudi, Abhishek Dharmapurikar and Chetan Pulagam – to trade Twilio options and stock in advance of its May 6,

> Please read the articles before commenting on them:

You don't have to read an article before commenting. Trying to make up rules and hold other people to them is neither kind nor constructive.

Your interpretation of their post is not charitable.

It's explicitly against the guidelines to accuse someone of not reading the article.

https://news.ycombinator.com/newsguidelines.html

ok? what is the point? they tipped off family but sharing in the gains.

sorry i said “their own personal account” and not “their family” which they lazily used to try to hide the trading activity?

The fact that they traded options (probably deep OTM) is the cherry on top. How incompetent did they think the SEC was?

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