Andy Bechtolsheim charged with insider trading
theregister.com
theregister.com
He was absolutely thrilled to geek out on the speeds and feeds and we also gave the ZFS author Mike Shapiro a bunch of crap about ZFS merging the logically distinct layers of storage (volume and FS management) while also strongly suspecting that ZFS's model would end up replacing Veritas or whatever it was people used in those days.
This really weirded me out at first, but now feels so right.
ESXi and VSphere not having backups built in feels like classic "create the problem, sell the solution" to me.
Linux will try to grab and use every piece of hardware you have installed, so you have to whitelist/ignore things
I didn't find it too bad, but I haven't passed hardware to a VM in a number of years
I still don't like the idea of combinging volume management with filesystem, but it's clear that it's worked well for many people over the past 15 years
Context here: https://www.infoworld.com/article/2665260/sun-buys-server-co...
Really? Money, and the thought they wouldn't get caught.
That's beside the point. What's one thing almost all people with more money than they need, want? more.
No one wants to fight the federal government wether they are guilty or not.
"Forbes lists Bechtolsheim's net worth at somewhere north of $16 billion. The SEC fine is less than 0.006 percent of his holdings."
I'd settle immediately too. 900k fine or 400k illicit gains means nothing if you are worth 16B.
> [Andy] has also agreed to be barred from serving as an officer or director of a public company for five years
Do you think that means nothing?
It means nothing. He's 68 years old and worth 16B.
The book "Den Of Thieves" (also about insider trading) makes a good case for why you don't want to fight the federal government, even when you can.
Yes.
Even as other commenters have pointed out his age, let's be realistic at what $1B is (let alone 16!)
Suppose you have an interest rate of 5% over the year. That's a pretty safe level and I'm sure he gets more. That means you're getting $50m for doing nothing (passive income), or just under $137k/day (overly simplified calculation based on yearly return divided by 365. No compounding, so consider lower bound). Try spending that much money a day! Then consider trying to spend that much money AFTER you've already bought a few nice homes, cars, and hell throw in a private jet (cheap is a few million, most are 10-20, and Elon's is $78M[0]). (At 16B, you're closer to $800m/yr or $2.19m/day!!!! $900k in fines isn't even half a day's "sitting on his ass doing nothing" for him, let alone work. [1])
The thing that often baffles me is why these people still work. You can do almost anything you want with that kind of money. But I think this also says something about money, power, and how these people think. It also makes me wonder why people get mad at tech workers with our high salaries (definitely not complaining!).
Maybe I just don't understand business (I'm a researcher, not a MBA, so assume this is correct). But I just don't see how these salaries do anything for these people other than be a high score. The only way I can personally think of spending $10m in a year is by buying a house and I can't imagine wanting more than 2 (and even a $10m house is often too big! In most locations. Yes, I'm aware SF exists).
I just wonder, can't you undercut everyone by taking a lower salary? Which would increase the company value? Or stop pushing deadlines so fast so there's higher quality? Or many other things because there's a ton of C-suit execs getting these salaries. I just don't understand, why work? I have to imagine, a key part must be addiction. Which I can get, I like a fair amount of work, but would rather take money to work as I see fit (but I guess they get this. But you're not at the technical level and personally (thus, highly biased) I find it is far less fun managing people).
I think there's a real disconnect. In how we see billionaires, how they see us, and how they see themselves. That money is just an insane level. fwiw, I'm not even against billionaires. I just don't understand why once people have $100m they don't pull a Anderson or John Bogle. Because money isn't real anymore.
Edit:
let's add some nice numbers at this 5% rate. If you have $20m invested (earning that 5%) you're going to make $1m/yr for life. $100m gets you $5m/yr and $500m gets you $25m/yr. 10B gets you 500M, and $20B means you're a forever billionaire.
Looking at Forbe's list, we got Bernard Arnault, Bezos, Musk, Zuckerberg, and Ellison (in order). That's $11.3B/yr ($31m/day), $9.9B/yr ($27.1M/day), $9.9B/yr ($27.1M/day (nearly tied)), $8.6B/yr ($23.7M/day), and $7.75B/yr ($21.2M/day) respectively.
With $7.3B you make the $1M/day, which makes you the 367th richest person in the world.
[0] https://www.scmp.com/magazines/style/celebrity/article/31983...
[1] (edit add) Let's say that's half a day's work for you and you're a L4 at Google. Using Levels.fyi data, you got a base salary around $178k/yr and so this is equivalent to you dropping $200 ($320 if you include equity) if compared to his passive income alone (which again, is probably >5%). Let that sink in. Technically it is even less than you should value that $200 because he doesn't need to save anything.
[2] If some billionaire wants to drop $50m on me, I'll go live my life reading math books, buy a B200 node (maybe even 2! Or a few more!), and research AGI for the rest of my life. I mean I'll also do that for a lot less too, but hey, that's 2 days of nothing for you Elon or Bezos. I'm sure it is worth more than that in publicity alone. ;)
Simple. They love the work. That’s what they want to do. To become a billionaire you usually have to put in an enormous effort. Not many people are willing to do that.
No doubt billionaires work hard to get there. And no doubt it is a hard task.
I guess part of it is why care about how much money you make anymore? If you care about "score" it seems odd to compare your assets when you can compare your companies' value. Because you can't actually do anything with that money in your bank, and the company's value is a more meaningful metric as to your "value." I think Jensen's rise says a lot more about his value than the $80B in assets or him being in the top 20 richest. (golden handcuffs aside) In that respect Jensen is doing much better than Musk or Bezos. Of course there's tons of metrics to consider but just using this to help ground a talking point.
They are good at making money so it’s fun for them.
On an aside I think Jensen is very good at looking folksy but in the end he is another super driven high achiever. He just expresses himself differently. You don’t get to that level if you aren’t a hard nosed business guy.
Wealth and power, it's all relative. And the competition only becomes fiercer as those measures increase (the top performers being the most competitive).
The person with $5B is not thinking in terms of "enough." Their sights are set on surpassing the $6B guy.
Let's use $800m/yr or $2.19m/day. If a FAANG-grade employee costs $1mm/yr all in (including benefits, HR, managerial overhead, real estate, etc; that's 800 people, or 66 teams of 12. how many random software projects can you think up, just within the realm of math books, B200 nodes, and AGI? Wouldn't you rather study that with other people than by yourself? And fund all the various possibilities you think will pan out?
Healthcare is another one. You have a sick niece suffering from a rare unknown disease. You could plow hundreds of millions of dollars into researching a cure for her disease.
General philanthropy is another easy way to burn money you don't need. take half that $800mm and donate it to all the charities in your immediate vicinity. every bit of pain in the world you can personally see, just give them a million dollars, no questions asked.
But yeah, if all you want to do is spend it on yourself, it's impossible to see how you'd spend it all, because you can't.
There's a limit though, right? Gates is spending it pretty fast except he isn't. It can be hard to spend millions in a day because it takes time to spend that money and your money makes money in that time. At a large enough wealth, you can't ignore the compounding factor because it plays a significant role. If it were even the 2 days standard transaction, then that 2 days generates you another $4m right? And that $4m generates you another $200k/yr (or ~$500/day).
I ran a simulation, because it helps for framing. Start with 16bn, 5% yearly interest, 0 employees, and let your employee cost $400k/yr (L5). Each weekday, take daily interest, and pay the employee's daily salary. There are 104 weekend days, so we'll pay a daily rate of ~$3.5k (I used exact). If it is a weekend don't pay the employee.
In a year you have 261 employees and have made $767 million dollars. That's a pretty profitable year! Oh, yeah, your employees probably made you money too.
If you're a billionaire and did this, you would have lost $1.6m over that year. With $2bn, you profit just shy of $50m.
> Wouldn't you rather study that with other people than by yourself? And fund all the various possibilities you think will pan out?
Definitely. I got 261 this year and we've made a nice profit without delivering a product. Next year we'll double in size and make the same.
> General philanthropy
The reason to do that simulation is to try to guesstimate these things. MacKenzie Scott is well known to be a huge philanthropist. She's richer now than when she divorced Bezos. Of course, Amazon has done much better than 5% per year. But at the same time, she is trying to throw money away as fast as possible. Also according to Forbes last year she gave away $2bn and so far has given $16.5bn away...
That's someone who's twice as wealthy as the person we're talking about, has given away "one Andy Bechtolsheim" AND profited! This is since 2019 btw.
I really cannot stress how large these numbers are. And how different money is at these sizes, because if you do not consider compounding interest (a thing we can often ignore in our daily lives, even if we were multi-millionaires), you're not accounting for millions of dollars. I'm sure there's a way, but it is effectively impossible to spend $100bn. It takes a whole country to do that. Remember, at the start of the simulation you are paying out $1.5k/day, but at the end you're paying $400k/day. Your compounded rate of spending just can't catch up to your compounding rate of earning. The $2bn person doesn't start losing money until day 710.
There is some ambiguity about the definition of a "material benefit" - does that include friendship? Advice? Soft promises of future business arrangements? I assume the government didn't have a 100% solid angle on that element of the crime.
Trading based on non-public material information is what is meant by Insider Trading and it absolutely is illegal. [1]
1. https://www.investor.gov/introduction-investing/investing-ba...
> Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.
It seems the SEC is going after him with the latter clause. His long time business contact gave him sensitive non-public information, and he should have known better than to trade on it, because it was so sensitive and who it came from, a long time relationship of trust and confidence.
FTA:
> We allege that Bechtolsheim, while serving as the chairman of a publicly traded company, abused the trust of a longtime business contact who had shared highly sensitive information about an imminent corporate acquisition," said SEC market abuse unit chief Joseph G Sansone.
If you buy options on a company just before some kind of deal (particularly if you haven’t bought them before) your relationship with anyone that knew of the deal is likely to be investigated.
https://www.federalreserve.gov/publications/files/scf23.pdf
> [Bechtolsheim] net worth at $16.3 billion
https://en.wikipedia.org/wiki/Andy_Bechtolsheim
So then (923_740 / 16_300_000_000) * 192200 = ~$10.89
Just for comparison, the fine for jaywalking in Seattle is $68.
That is pretty much the text-book definition of misuse of material non-public information (ie that's 100% insider trading).
Whether or not you think it's the most heinous crime is up to you but there's no question it's illegal.
Say you find easily calculable mathematical solutions that break the security of crypto and you dump all your coins because you know they'll be worthless once you publish your research/algorithm.
Is that insider trading? Or would you be in the clear because you derived your algorithm from already public information that everyone else already had too?
Does the time scale matter? If you solve, dump, wait a few years, then publish, is it no longer insider trading?
This is assuming you don’t have ties to the organization that issues the token, if one exists.
> If you do a ton of work to launch satellites to fly over Walmart parking lots and then model the correlation of how full they are to what the company’s next earnings will be: that seems like you worked hard and earned an edge you can trade on without getting in trouble.
> [..] if you made it your business to ride the Acela every day between Greenwich and NYC, bought special hearing aides that let you better eavesdrop on conversations, and made significant profits trading on the information then you’d be more likely to be successfully prosecuted.
Aren't those both the same?
> Feels like anyone has a theoretically equal opportunity to do the same work you did and get the same trading edge.
Feels the same here too.
Just some musings while reading that old thread.
(all quoted comments @eastdakota)
If he had just bought shares, he might have some plausible deniability to say that "I really believed in the company and I wanted to invest in it". It might still alert the authorities, but I feel it's less likely and I don't think they'd necessarily have enough to charge him.
With options, it is decidedly not an investment, just a gamble. Gambling is way easier if you are able to cheat.
- Don't do it
- Don't do it by buying short-dated out-of-the-money call options on merger targets.
- Don't email or text about it.
- Don't do it in your [mother's] account.
The second one in particular just seems so obvious to me. Options are a case where you either "win or you lose everything", and even more you have to "win by a certain time". Options are kind of fun to gamble with, I've done it once, but the advantage of vanilla shares is that you can wait as long as you need to to "win". It doesn't provoke nearly as many red flags.
When I heard back then they stored every side of every trade without getting hacked, I figured the Fortune 500’s security concerns with moving data to the cloud were likely to melt away, for better or worse.
(Matt Levin's Laws of Insider Trading from Bloomberg's Money Stuff)
Dude gets off the phone after learning the information, and immediately calls the brokerage to write puts that expire 11 days later (strike 1).
He nails the strike price (keeping below 70; strike 2), and when the brokerage calls later he openly admits on the call that he traded on a nonpublic rumor (strike 3).
Absolutely zero subterfuge. He either has a blatant disregard for the law, or is an extremely high-functioning idiot, or both.
https://www.nytimes.com/interactive/2022/09/13/us/politics/c...
I did a reasonably good job at timing Nvidia stock. I bought three shares in February of last year, and it's more than tripled since then. Initially I was really happy to have bought when I did, but almost as quickly I started thinking "damn, if I had bought ten shares..." or "if I had bought an option contract instead..." as if me making two grand wasn't objectively a great thing.
It's not rational, but I think it must just be instinct to always want "more", no matter how silly it becomes. It seems like the first thing people want when they have a billion dollars is a second billion dollars.
I'm generally a pretty risk-averse person, I've bought two lottery tickets in my life (once when I turned 18, once again when the Powerball hit a billion in 2015). Unsurprisingly, I didn't win both those times. I would much prefer to keep my cash in some kind of government-secured savings account, but the interest rates in those rarely keep up with inflation, at least not long term. The closest I have found to that is treasury-bills, and I do use those, but I still put the bulk of my money into ETFs, AKA gambling.
How so?
If you compare this to an FDIC-insured bank account, or a treasury note, there's effectively zero risk, so I would say it's decidedly not gambling, but the problem is that generally speaking zero-risk things don't pay enough interest to beat inflation, meaning that your money is degrading a bit.
Obviously there's a difference between YOLOing everything in GME vs putting a bit of money every month into VOO, but the latter still does carry some risk, particularly in the short-term.
Gambling is when the rate of return (over time) is negative.
Investing is when the rate of return (over time) is positive.
Suppose I buy a share in a company specifically because I believe in their business and products.
I think that’s pretty clearly investing, but are you claiming it would cease to have been an investment if the company went bust?
Over time, you're going to lose money gambling. (That says nothing at all about what the next roll of the dice will be.) This is why casinos prosper.
Of course, if the US gets into nukular combat toe-to-toe with the Russkies, your stocks will likely vaporize to zero. But you'll be vaporized as well, so it's a risk not worth worrying about.
Less extreme, if the US goes hard into socialism, the stock market is not going to prosper. But your other investments won't prosper, either, so again that risk is not worth worrying about.
the reason im telling you is exactly the mentality you described: in Q1 I hit a major home run buying puts on a bunch of banks that went under. I experienced 28,300% ROI. From then on I was like an addict. Constantly loading up on insane amount of FDs until I lost all of what I earned.
Quite an experience and I think its best to just focus on building or growing a business. Had I bought stocks and held I think that would've been better.
Just realize the winners and pros are writing you the options in the long run. Punters like me, as I experienced, cannot last.
Also its a zero sum game. When I experienced financial ruin, I realized when I hit that 283x bagger, the person who wrote me those put options experienced financial ruin.
So now I'm jaded about options and financial markets in general. its a double edge sword. its a dangerous societal drug.
I'm just being pedantic, your broad points are absolutely true. I mostly just through cash into VTI.
now that i experienced the exact thing he experienced, im just done with trying to make a buck from the markets because the profits come from others loss. options trading is a zero sum game.
maybe you can say same about about stocks or futures who knows. options also offer an important tool for managing risks like insurance. so again here im trying to attach some judgement to numbers which are amoral. I guess I just don't want to be part of something that causes so much emotional and mental violence anymore. I want to build and help create ease for others.
I don't think stocks are zero-sum. If I buy a share of AAPL and hold onto it for a long time, Apple wants me to make a profit because that means that they're making money too. I have completely aligned my incentives, and Apple can, at least in theory, keep growing and creating value by producing products that people like and are willing to trade their time and labor to get. I guess if you want to be really pedantic, it's zero-sum in that there is technically a finite amount of labor being done per-unit-time on planet earth, so I suppose that's the ceiling, but I think it's not zero-sum until it reaches that ceiling.
You can buy AAPL puts months before earnings as insurance....if you buy stocks and believe in the business fundamentals to help unlock more potential then that is a legit use.
i wish i had more positive experiences with the market. i feel like its a reflection of your inner world.
I've lost about half my investment there, which if I'm being honest does makes me a little sad, of course I would rather have more money than I put in, but at least I think I doing the intent of the stock market. I think that the initial goal of the market was to enable people to invest into companies that they actually believed in, not to buy and sell shares a million times a second, or to buy and sell speculations at the same rate.
What this does is provide liquidity, meaning one can buy and sell at any moment. Contrast this with investing in houses. It's not liquid at all - even in a smooth transaction, it can take a month to close. Houses can sit on the market for months or even years looking for a buyer.
The higher the liquidity, also means the more accurate the valuations.
(I don't actually feel like I did anything wrong, though. Just bought low and sold high, around oil macro events that anyone else could have seen)
A trade is neither an expression of justice or injustice. It's just fucking numbers that we attach so much emotion and judgement on. Amoral != immoral.
We're nothing more than pond scum on the surface of the Earth. The Earth is full of stuff.
I don't actually know that it makes sense to judge these particular actions (especially of small players) in the face of the incentives, but I think your dismissal is too cavalier to be effective. The fact that your impact on the world is mediated by numbers doesn't itself absolve you of anything.
I'm not going to sit there and try and correlate VTI's price to ensure it's some kind of inverse to Lockheed Martin's performance, and I doubt anyone else is either.
Options may be zero-sum, but investing in general is not zero sum. For example, if you invested in MSFT 10 years ago, it's up maybe 10x since, and that extra value was created, not transferred.
I was working in a niche area, and our company used to keep an eye on the competition. One quarter we realized that the competition was not doing well, so just before their earnings came out, I shorted the stock.
Well, lo and behold! The stock tanked and I made a nice bundle by covering after the crash.
2 years later, again I see the same signs of a company that's not going to meet expectations. So I short again. This time, the MFers couched their quarterly report in language that hid the trouble they were in. They painted a rosy picture when we on the inside knew it wasn't going to come true. But the market bought it, and the stock rose sharply! ETrade forced me to cover my positions, and I lost all the money I had made 2 years earlier. Womp womp womp...
Of course, a few days or something later, as analysts closely analysed their earnings report, they realized that there was a lot of smoke in there and the stock tanked. But it was too late for me. From that point onwards I have stayed away from such gambling on the market.
Then crypto kept going up. Whoops. Made money, but not all of the money. As a consolation prize, profiting any% on crypto probably puts me in the 1% of investors.
I will say I missed my best timing on Doge by literally sleeping on it another night. I was out at a bar with 2 of my brothers, and was joking that my Doge had hit +69%. Would have been up a few hundo if I'd sold then instead of day after.
But that's just not how my brain works. Instead of being extremely happy that I got extra cash for nearly-zero effort, I'm sad that I didn't get more cash for nearly-zero effort.
I try and fight that mentality and focus on the good, but sometimes that's easier said than done.
I'm either Accumulating, Holding, or Looking to Sell. For stocks, I generally stick to #1 and #2. Buy if numbers/velocity looks good, hold if I don't like how they were doing.
When doing my taxes for FY23, my Robinhood showed zero crypto sales. Having seen a few winters, I am willing to wait 6 to 8 months before considering getting back in. Musk might tweet about Doge on the shitter again, and spike its price by +69%, but I don't have the patience to follow such micro movements. Show me the 1yr graphs.
I was too lazy to buy Tesla Stock during the Roadster Days.
I was too lazy to get some Bitcoin when a friend could not stop talking about it in 2010.
On the other hand, I would have sold both after they doubled or tripled for the first time. I know myself...
Of course. One's perspective changes right along with one's net worth.
It's the same thing with power. The more power one has, the more power one wants.
Invest everything you have into a company that put batteries into a kit car.
There is a (small) possibility that he really didn't know (the second part of the complaint), but decided it's not worth a fight with the SEC cause it's such a small amount to him (and he has no interest in serving as an officer of a public company in the next few years anyway).
Though, the version others have said is still more probable: Reach people wanna get more rich, no matter the method.
Well, at least it did.
However insider trade is crime regardless, and and a criminal investigation can be done by police. See:
https://www.justice.gov/usao-sdny/pr/former-coinbase-insider...
Seems like a relatively small amount of money for a billionaire to risk jail for.
Forbes lists Bechtolsheim's net worth at somewhere north of $16 billion. The SEC fine is less than 0.006 percent of his holdings."
Big question for me is why was he doing crimes for such low stakes. It's like seeing a faang engineer rob a 7-11.
If I had been an adult it undoubtedly would have been a tad harsher but unless the theft amounts to many thousands of dollars I don't think prison time is ever on the table. Even then I'd be surprised. We're not talking about grand theft auto, we're talking about shoplifting. So it's usually misdemeanour. If the merchandise is retrieved then it is returned to the store and the store can sue the guilty party recover to damages if it's worth it.
So I'm not really sure what kind of point you're trying to make. I think it's about inequality. I'm just not really sure how you get there by using shoplifting as your example.
If you shoplift anything of significance you might be looking at least a night in jail, but more importantly a criminal record. If you shoplift over the threshold of grand larceny you will absolutely be spending a bit of time in jail and will have a criminal record. These are virtually non-existent outcomes for insider trading, even though people "guilty" of insider trading are also thieves. Guilty in quotes because WTF knows, they are rarely criminally prosecuted.
So yeah, my point is generally about equality, but I was responding specifically to the casual "yeah that seems right" attitude about it.
And, in general, non-execs are not prohibited from unscheduled trading in their own company's stock (though company rules may prohibit trading in options) but lots of people have a pretty good sense of how the quarter is going.
I think it's pretty clear that the law works differently for a man with 16 billion dollars. I don't mean that in a positive way.
https://www.theguardian.com/world/2023/jun/06/finnish-busine...
The SEC is a civil authority discouraging behavior. A fine much larger than the upside is a perfectly fine way to handle that.
I suspect the SEC may now be taking a deeper look for other surprising trades that might be linked to him, and if it finds anything he did not disclose in the course of reaching the current agreement, it will not go down well.
I wonder what the ROI difference is between the two gambles. 100 $1 million dollar bets returns $120 million? 20 $100000 insider trades returns $5 million - $1 million fines?
A 20% return is pretty good. But if it takes 2-3 years per startup, it's not as good. And it ties up $100 million.
A $2 million investment that pays out $4 million within a year is much more spectacular.
Edit: I am not accusing anybody of having made 20 insider trades. I am just musing about potential business models.
Or maybe he did it for the thrill.
If one's wealth goes up quickly by orders of magnitude, I'd expect it takes time to reframe one's thinking to match.
It seems like it's more about the emotional connection to "winning", having more than others?
What's the risk/reward tradeoff look like here? It looks heavily skewed toward the risk side of the equation.
"I have $16 billion dollars, and I'm going to do something risky/illegal so I can have $16.0005 billion dollars"
Turns out only moneyed people are likely to have the combination, and we only see the ones that chose to act on it in the news, even if 99% wouldn't.
However, the people that need to be jailed are in congress and public policy makers using their positions to enrich themselves. Pelosi has an astounding ability to absolutely nail her really really deep options picks. https://www.reddit.com/r/unusual_whales/comments/l42l9w/nanc...
The effect isnt always that obvious, but it is there. It is also unfair to the person selling the option, if they are doing it with normal knowledge (not insider knowledge)
Is it possible he passed on information to these other individuals, and lent them the money to make the trades, but he wasn’t intending on profiting himself ? And he’s taking the rap because, yes he’s actually guilty of crimes.
I admit this is a generous and perhaps far fetched reading of the situation, but it’s bizarre that he’d risk the wrath of the SEC for a tiny gain in his individual fortunes.
To be clear the person who asked for advice was not tipping because they had a reasonable expectation that he would obey securities law and not trade based on the information. They were asking for actual business advice.
sadly, no deterrent effect here
the fine is adequate. but he should have a done a year at Club Fed and a lifetime ban on public boards.
That the DOJ didn't file charges makes it seem like the SEC's case is weak.