Study Asserts Startling Numbers of Insider Trading Rogues

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That was the question a friend asked. Apparently, someone decided Microsoft's proposed acquisition of LinkedIn was just too good to miss and purchased a boatload of call options just before the deal was announced. How much is a "boatload"? The average volume of LinkedIn call options back until February looks to be about 6 contracts per day according to this chart. Do you think the SEC would notice if I bought more than contracts the day or two before the transaction is announced?!

If I could put in all caps I would have. It's just that ridiculous. Who ever this guy is, he is going to get caught. And you fully informed options trading prior to m&a announcements what?

He deserves to get caught. Just another example of someone's greed outpacing their common sense. June 14, in Insider Trading Permalink Comments 1. Since the financial crisis inthe DOJ has been teaching yet another generation of insider traders the important lesson that one shall not trade on confidential inside information. However, that campaign took a big - one might say devastating - hit when the Second Circuit overturned Judge Rakoff and threw out insider trading convictions in US v Newman.

In Newman, the court held:. Under Dirks, in order for an insider to generate 10b-5 liability, they have to breach their fiduciary duty by receiving some personal benefit. Until Newman, courts have generally construed the personal benefit requirement fairly broadly.

So, where friends share inside information until Newman courts have generally agreed with the government's position that that was sufficient for purposes of Dirks' personal benefit requirement. Newman narrowed that area of agreement significantly: This standard, although permissive, does not suggest that the Government may prove the receipt of a personal benefit by the mere fact of a friendship, particularly of a casual or social nature.

If that were true, and the Government was allowed to meet its burden by proving that two individuals were alumni of the same school or attended the same church, the personal benefit requirement would be a nullity. I suppose an explicit quid pro quo requirement is consistent with where the US Supreme Court has been going in recent years in its political corruption cases, so one shouldn't be too surprised that a circuit court also goes this way.

Judge Rakoff who heard the Newman case at the District Court level was obviously none to happy with being overruled.

Why do I say that? Well, because of a Ninth Circuit case handed down this past June. Salmanthe Ninth Circuit, in an opinion written by Judge Rakoff sitting by designation, declined to follow Newman:. Salman argues that because there is no evidence that Maher received any such tangible benefit in exchange for the inside information, or that Salman knew of any such benefit, the Government failed to carry its burden.

In our case, the Government presented direct evidence that the disclosure was intended as a gift of market-sensitive information. Specifically, Maher Kara testified that he disclosed fully informed options trading prior to m&a announcements material nonpublic information for the purpose of benefitting fully informed options trading prior to m&a announcements providing for his brother Michael.

If Salman's theory were accepted fully informed options trading prior to m&a announcements this evidence found to be insufficient, then a corporate insider or other person in possession of confidential and proprietary information would be free to disclose that information to her relatives, and they would be free to trade on it, provided only that she asked for no tangible compensation in return. Proof that the insider disclosed material nonpublic information with the intent to benefit a trading relative or friend is sufficient to establish the breach of fiduciary duty element of insider trading.

And just like that - a circuit split! No doubt, this is going to be the biggest and most consequential insider trading case before the Supreme Court in recent years if the court decides to grant cert.

July 30, in Insider Trading Permalink Comments 0. In China, a merger between two large state-owned railroad companies may be heading for trouble. Apparently 20 executives in both companies AND their families were engaged in insider trading in the 6 months leading up to the announcement of the deal. According to the China Daily: Last October's merger plan actually disclosed the stock holdings of the executives and their relatives.

It claimed that the executives were unaware of the plan when they engaged in the stock trading, and their various investment decisions were made solely based on the value and prospect of the companies.

But the company did not disclose how many shares Cui owned before April. They bought and sold nearly 2 million shares in CSR with total investment exceeding 10 million yuan prior to the trading suspension, according to the information.

So, the president of one of the two companies involved in this transaction claims not to have known that the deal was pending? Ken Ahern has posted a new paper, Information Networks: Evidence from Illegal Insider Trading Tips. This paper exploits a novel hand collected dataset to provide a comprehensive analysis of the demographics and social relationships behind illegal insider trading networks.

I find that the majority of inside traders are connected through family and friendship links and a minority are connected through professional relationships. Traders cluster by age, occupation, gender, and location. More broadly, this paper provides some of the first evidence on information networks using direct observations of person-to-person communication.

The paper is really interesting. There's a ton of data. Let's start with the most important for my purposes: There are people in the data set. Table IV presents summary statistics of the people. On of the most common occupation among inside traders is top executive with people. As a final set of summary statistics, I compare inside traders to their neighbors. Insiders are statistically different than their neighbors in many ways.

And then, there's this: Inside traders like to keep their tips within their ethnic group or as currency to buy their way into the dominant 'inside' group. Shocked that there is insider trading in advance of merger announcements! OK, so I'm not. But, what is surprising is just how much of that insider trading happens via equity options. I know you can make a lot of money in equity options, but you're also going to get caught.

I think that's a rhetorical question. For the target companies, we document pervasive directional options activity, consistent with strategies that would yield abnormal returns to investors with private information. These effects are stronger for out-of-the-money OTM call options and subsamples of cash offers for large target firrms, which typically have higher abnormal announcement returns.

The probability of option volume on a random day exceeding that of our strongly unusual trading SUT sample is trivial - about three in a trillion.

We further document a decrease in the slope of the term structure of implied volatility and an average rise in percentage bid-ask fully informed options trading prior to m&a announcements, prior to the announcements. For the acquirer, we provide evidence that there is also unusual activity in volatility strategies. Historically, the SEC has been more likely to investigate cases where the acquirer is headquartered outside the US, the target is relatively large, and the target has experienced substantial positive abnormal returns after the announcement.

Three in a trillion? Those are pretty long odds. You'd be better off buying a lottery ticket than replicating the results they find here in the absence of material inside information It's odd, because it's so dumb of the traders, but the authors find that in the run-up to an announcement of a merger, there is increased abnormal trading volume in single equity options of the target.

If it's not obvious, that means if you are in possession of material non-public information and you are trading in single equity options prior to a merger announcement, you fully informed options trading prior to m&a announcements as fully informed options trading prior to m&a announcements the SEC and tell them to arrest you.

The news over the weekend that Phil Mickelson is subject of an insider trading investigation is surprising and not surprising at the same time. Celebrities and high profile athletes will naturally attract a lot of investigator attention when their names show up on lists of suspect trades.

Imagine you are a FINRA staffer and your job involves scanning lists of hundreds of names of people involved in suspect trades. Frankly, it can be a boring job. Not all that different from doc review or a never ending diligence exercise. Of course, if a name that looks familiar pops up on a list, you are definitely going to stop and take a look. Prosecution of such cases doesn't only make a career, but it's also going to send a much bigger message to the trading public about insider trading than prosecuting an anonymous hedge fund trader.

So, there are real incentives for prosecutors to run down every lead when the name of a high profile individual pops up on a suspect trade list. Of course, having one's name on a suspect trade list is fully informed options trading prior to m&a announcements the same as actually engaging in insider trading. Don't get me wrong. If you are a deal lawyer, you never fully informed options trading prior to m&a announcements to see you father's name turn up on a suspect trade list of a deal that you've been working on.

That fully informed options trading prior to m&a announcements take you down a long, dark road to be sure. No, what I mean is that since the news of the Phil Mickelson investigation has leaked, precious little evidence beyond the fact that Mickelson may have traded in Clorox fully informed options trading prior to m&a announcements options in the week before Carl Icahn announced his intent to acquire Clorox in Given how thin the market for single stock options are, it's not good - really not good - that Mickelson happened to buy call options just before announcement of a potential acquisition.

That's going fully informed options trading prior to m&a announcements mean a huge legal bill for Mickelson as he explains himself to the SEC, but that, in and of itself, is not going to be enough to tag Mickelson with any liability. To get to liability - exam review for students who just took my exam - the SEC will first have to find someone with a fiduciary duty to the source of the information. Second, the SEC will have to prove that the person with the information about Icahn's bid actually tipped Mickelson let's make this sumple and not daisy-chain the information, yet.

Third, that the when tipping Mickelson the source of the information received a "personal benefit" and therefore breached his or her fiduciuary duty to the source. And then finally, that when Mickelson traded on the information, he knew or should fully informed options trading prior to m&a announcements known that fully informed options trading prior to m&a announcements information he received was tainted because it was inside information received via a breach.

That's a lot of dots to connect. This time it's LinkedIn! It was late on a Tuesday in September last year when one of his young client service team handed him the daily transaction report and said: Years ago, connecting the dots for investigators was hard. It required lots of guys sitting around with index cards, cross-referencing names and schools and places of birth.

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SoftBank considers selling phone distributor Brightstar. It's part of a plan to pare the portfolio of lower-growth assets as the company explores ways to pay down debt and take its mobile phone unit public. The conglomerate has reportedly hired JPMorgan Chase to explore options for Brightstar, from an outright sale to simply selling a substantial stake or offloading units. Wynn denies sale talks - Bloomberg.

Coinbase in talks to buy Earn. According to the story , Coinbase Private: Axalta higher after sale of Akzo Nobel unit March China politics threaten Qualcomm's NXP deal. And Qualcomm needs the deal more now after fighting off Broadcom, yet China's likely got a heavy strategic interest in deals involving car silicon like NXP's.

Even if China does scuttle the deal, NXP's downside looks limited, the paper says, making it a safer bet on the prospect of easing trade tensions. Estee Lauder and e. ELF with Piper Jaffray suggesting that both company are looking at making strategic acquisitions. Shares of Estee Lauder are down 2. Avista, Hydro One get U. The companies continue to expect the deal to close in H2 Roche completes Flatiron Health buy. MGM said to have approached Wynn Resorts. While Wynn Resorts isn't on the block, sources indicate that the company would sell at the right price.

The lack of any board additions at Wynn is seen as a signal that a deal could be brewing. Shares of Wynn are up 2. The deal also includes a two-year manufacturing transition services agreement. The merger still needs approval from the D. Kindred shareholders back Human merger. Kindred Healthcare KND Activist investor Brigade Capital had urged investors to reject the transaction which it said undervalued the company.

The merger should close this summer. Activist investor Brigade urges Kindred shareholders to reject Humana deal March FTC clears Lumentum's deal for Oclaro. The transaction still needs approval by Oclaro stockholders as well as antitrust approval in China. It's expected to close in the second half. The company expects to ultimately sell the entities holding the licenses and operating assets to a third-party operator. Carlyle agrees to buy biggest Australian winemaker.

STZ , the beer, wine and spirits giant, which owns the remainder. CBS-Viacom merger talks could derail: VIAB , and the rancor could derail or at least delay the proposed recombination, according to people familiar with the matter, reports The Wall Street Journal. Both companies are now "digging in their heels in negotiations over deal price and leadership," says the WSJ, after CBS' lowball offer for Viacom earlier this week.

Shari Redstone, president of the companies' controlling shareholder, was also "caught by surprise" by CBS' offer. Meantime, Viacom is preparing a counteroffer to be unveiled Thursday, Reuters has reported. SJM says Ainsworth's Nutrish brand holds a leading position and is one of the fastest-growing brands in the premium dry dog food segment within the grocery and mass channels, a key growth driver for the overall category. The company also says it plans to explore options for its U. LivaNova completes TandemLife buy.

TandemLife develops advanced cardiopulmonary temporary support solutions. LIvaNova says the deal will be modestly accretive this year. BofI Holding adds trustee and fiduciary services business. The company has acquired the bankruptcy trustee and fiduciary services business of Epiq. Focus on Time Warner, binding arbitration offer. Providers have balked at that, though, saying they come into the arbitration blind , unaware of the weighting of different components in the decision.

But Leon may be seeking a way to a resolution, and Charter's witness for one said the offer could be changed in an acceptable way. Also, HBO's chief revenue officer has been questioned about whether and how HBO coordinates with Turner as each goes through talks with distributors. The acquisition will add six locations throughout Queensland to our fifteen existing Australian Flooring Supplies stores throughout Victoria and New South Wales will create the largest distributor.

The terms of the transaction are confidential. Viacom preparing CBS counter-offer by Thursday. The ratio in the counter-offer expected by Thursday isn't fully decided, but is likely to be more than 0. The issue of who would be No.

VIA are down 4. CBS offer for Viacom immediately rejected. Sources told the network the offer was delivered orally on Friday. The company expects the transaction to enhance franchise revenue and EBITDA growth, as well as helping to improve franchise profit margins. The transaction is also seen as being immediately accretive to earnings and cash flow. The Knights Inn transaction is expected to close in Q2. Ltd to expand its global valves business. The terms of the acquisition were not disclosed "This acquisition represents an important strategic step for Metso's valves business.

It expands our offering for the current customer segments, especially outside North America, and increases our presence in attractive new industries and application areas," says John Quinlivan, President, Valves business area, Metso.

James Hardie completes acquisition of Fermacell. The transaction is expected to be completed in Q2. The companies are working together on a next-generation sequencing workflow for clinical use based on Lasergen's Lightning Terminators chemistry.

CBS submits below-market bid for Viacom. That request is the biggest roadblock, David Faber said earlier, with Moonves wanting to pick his own management team, and Viacom and Shari Redstone wanting Viacom chief Bob Bakish as Moonves' second. CBS finished the day up 4.

CBIZ acquires another advisory services shop. It attains about 1. Equinix expects the deal to be break-even in adjusted funds from operations terms in a year, with sizable AFFO upside from developing a land parcel adjacent to the building.

The acquisition will be financed with cash on hand and fully-committed financing from CIBC and ScotiaBank providing term loans. The acquisition to be immediately accretive to adjusted EPS and free cash flow per share before cost synergies. Bakish has a similar payout assurance but the amount is unknown.

Against yesterday's reports of a lowball offer from CBS, "there still seems to be an expectation to a certain extent you will get an at-market deal," Faber says. CBS gains, Viacom falls after report of tough price talk Apr. CBS gains, Viacom falls after report of tough price talk. CBS is up 2. That suggests CBS views its position in the sector as superior to Viacom's. While Shari Redstone has renewed the push to reunite the two companies, and the Redstones control both companies through the National Amusements holding company, father Sumner Redstone amid declining health won't have the last say on getting the band back together: Diminished prospects for fibroid med Esmya may be motivation for possible sale of Allergan's women's health business - Mizuho.

AGN may be advancing the sale of its women's health unit due to lower expectations for uterine fibroid med Esmya ulipristal acetate. The product was withdrawn from the European market on the heels of toxicity concerns and the FDA recently extended its review period for the company's U. Without Esmya, Mizuho says the business no longer meets the company's market leadership criteria so divestment makes sense.

BSX first invested in Securus in Its monitoring system was recently cleared for sale in the U. Commercial launch will begin in H1 Ryder acquires MXD Group. The deal includes MXD e-commerce fulfillment facilities across the U.

The acquisition also includes proprietary order management and visibility technology, which features real-time tracking and a customer service portal for rapid response and resolution. The company says that it is now the second largest last mile delivery provider of big and bulky goods.

We look forward to providing fulfillment services to three of the leading publishers in this space. This is the fourth unsolicited bid Harbour has made for Santos since August. Walmart looking to buy online pharmacy startup PillPack. PillPack's focus on making it easier for customers to order and fulfill medications is an attractive proposition for WMT and other e-commerce companies that are looking to enhance their health care offerings, according to the report, which also says Amazon NASDAQ: AMZN at one point held discussions with the company.

HUM , as both companies are looking for ways to serve vulnerable seniors with one or more medical conditions. CBS to lowball Viacom - Reuters.