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You want to use options for your next insider trading idea? Think again.<\/p>\nYou want to use options for your next insider trading idea? Think again.<\/p>\n
Somebody (or several people) traded $10 front month calls on GreenSky in the days before the stock gapped up to $12.<\/p>\n
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<\/p>\n
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A few facts:<\/p>\n
On the same day of the Goldman announcement, law firms were already advertising litigations<\/span> against the target company, notably<\/p>\n But we will have to see what arguments they will put forward, or if the cases are even related to the option trades.\u00a0We also have to look at all the facts – there’s notably a significant increase in earnings consensus<\/span> in the month before – but it is very possible that some of the buyers had some non-public information. It will probably not finish well for them<\/span>.<\/p>\n <\/p>\n Subsequent articles indicate that insider option trades have decreased<\/span> following the SEC’s subsequent aggressive enforcement<\/span>. This may not be the case in other countries though.<\/p>\n <\/p>\n <\/p>\n The SEC has little patience for insider trading, and the enforcement pressure will increase.<\/p>\n Here is the experienced view from Mark Strauss, a former investigative journalist and a successful anti-fraud attorney with more than twenty years of experience in complex civil litigation (more details at Mark Strauss Law<\/a>). Mark is a leading attorney in Securities, qui tam and whistleblower actions:<\/p>\n “It l<\/em>ooks like the SEC is going to get much more aggressive at policing insider trading under the new chair Gary Gensler. <\/em><\/p>\n Over the summer, Gensler signaled that they\u2019re taking a hard look at stock trading plans for c<\/em>orporate insiders\u2014so-called 10b5-1 plans\u2014to see if they\u2019re being abused to effectively disguise insider trading. And I think they\u2019re going to find that those plans frequently are abused through, for example, ad hoc changes and modifications . <\/em><\/p>\n The SEC also launched an enforcement action, the Panuwat case, testing a new legal theory\u2014namely, liability for \u201cshadow trading\u201d which is when a corporate insider uses their access to material non-public information about their own company to trade the stock of a totally different company. In the Panuwat case, an insider at a company called Medivation bought call options on the stock of a competitor after learning the fact, which was non-public, that his own company was being acquired. He bet that the competitor\u2019s stock price would go up too because the market would view it as a potential acquisition target as well, and he was right. The SEC, however, has taken the somewhat aggressive position that the employee committed an insider trading violation by using Medivation\u2019s confidential information for personal gain.<\/em>“<\/p>\n <\/p>\n <\/p>\n <\/p>\n\n
Is it that rare?<\/h3>\n
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Insider trading is still pretty frequent<\/span>. A 2014 academic study<\/a> of 1,859 unexpected takeovers between 1996 and 2012 indicated that:<\/p>\n\n
The regulatory consequences<\/h3>\n
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Insider trading is seriously punished in the US, with both civil and criminal penalties. They include<\/p>\n\n
The regulatory direction<\/h3>\n
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<\/p>\nReferences<\/h4>\n
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