Research or Insider Trading? A Guide
by ilene - November 29th, 2010 6:54 pm
Joshua M Brown provides a hilarious roadmap to help you distinguish between legitimate research and preparation for insider trading, in "Research or Insider Trading? A Guide." And no, it’s not meant as a "how to". - Ilene
Courtesy of Joshua M Brown, The Reformed Broker
What constitutes legitimate research? When is the insider trading line crossed?
Many of the financial blogosphere’s luminaries, like Felix Salmon, John Carney and Roger Ehrenberg, are carrying on this debate right now.
And since I’m in the solutions business, I’ve created the below guide that may help a bit…
Just my 2 cents.
Some of my other guides:
Venture, Angel or Private Placement? (TRB)
Decoding Mutual Fund Brochures (TRB)
*SAC = SAC Capital Advisors
Things To Do In Greenwich When You’re Dead
by ilene - November 23rd, 2010 12:57 am
Joshua M Brown explains Things To Do In Greenwich When You’re Dead and provides a linkfest of Insider Trading articles. – Ilene
I would be remiss in my duties as your favorite financial blogger if I didn’t supply you with a handy running linkfest of all the Insider Trading highlights.
A few firms in Connecticut were raided by the FBI today, two of them with ties to SAC. SAC has not been implicated in this story but the funds were spin-offs.
Here’s the Wall Street Journal’s breaking coverage of the raids: (WSJ)
Barry Ritholtz asks the question on everyone’s mind: Is it the Big Guy (Steve Cohen) who they’re actually after? (TBP)
Bess Levin at Dealbreaker is calling this story Insider Trading Festivus 2010. Obviously her coverage simply cannot be missed: (Dealbreaker)
I, of course, weighed in this weekend calling the whole "Expert Network" thing another Classic Wall Street Euphemism. (TRB)
Courtney Comstock with some background on Global Level and Diamondback, two of the raided firms. (Clusterstock)
As more hysterical headlines pop up on the story, I’ll simply add links below…
Doug Kass: "Based on my contacts, I believe that the soon-to-be-announced insider-trading indictments will be far-reaching and could even have the potential to be market-impactful, as the allegations will not only include some of the most prestigious hedge funds but will also allegations against some of the largest and most conservative mutual-fund companies, investment bankers and law firms." (TheStreet.com)
Originally published at The Reformed Broker, Things To Do In Greenwich When You’re Dead
Insider Trading Is Legal For Members Of Congress – And They Refuse To Pass A Law That Would Change That
by ilene - October 21st, 2010 3:21 am
Insider Trading Is Legal For Members Of Congress – And They Refuse To Pass A Law That Would Change That
Courtesy of Michael Snyder at The American Dream
Is insider trading wrong? Most Americans would say that it is. In fact, some very wealthy and very prominent Americans (including Martha Stewart) have gone to prison for it. It just is not right for those with inside information that is not generally available to the public to make huge profits in the stock market by making key trades based on that information.
But there is one group, members of the U.S. Congress, that can do all the insider trading they want and get away with it. That is because insider trading is perfectly legal for members of Congress. Yes, you read that correctly. So how would that work? Well, for example, a member of Congress may know that a law that is about to be proposed would have a very positive effect on a particular company and could buy up a ton of stock in that company a few days before that law is introduced. Isn’t that wrong? Of course. Is there any law against it? Not at all.
You would think that some of the more ethical members of Congress would want to close this glaring loophole, but it just isn’t happening. Legislation has been introduced from time to time that would end this practice, but it has gotten very, very little support. The Wall Street Journal recently published an article about this issue which described the current situation this way….
"A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006."
But even though insider trading is legal for members of…
Insider Trading Now Suggests a Cautious Stance
by Insider Scoop - October 18th, 2010 5:04 pm
Insider Trading Now Suggests a Cautious Stance
Courtesy of Dr. Paul Price at Beating Buffett
This indicator looks almost as bad now as it did near the top last April.
Wily Wyly’s
by ilene - August 2nd, 2010 8:06 pm
Wily Wyly’s
Courtesy of Cassandra Does Tokyo
I used to smile sophmorically at the sight of a Dentist named Dr Fang, or a Plastic Surgery clinic named Dr Tuck, just as I have long-chuckled at the sight of the The Wyly Brothers moniker in print. Monday morning quarterbacking is always easy, but I can tell you that there was always something fishy about the way their stocks traded (both Sterling Software and Sterling Commerce) – and now, of course, we know why.
Wealthy self-made Texans (however grey their machinations), it seems, are inherently disdainful of regulation and authority, and a sucker for low-hanging fruit irrespective of prevailing law. But rather than being "men" about it (so to speak), and simply taking their operation private at an early stage, or checking out and becoming a citizen of Belize (like Tory Chair Michael Ashcroft or paper-cup scion Kenneth Dart) or creating their own island state with its own zero-tax and regulatory regime (like the Berkley Brothers), the Wyly’s chose to speaketh in forked tongues, milking the system for its benefits, while systematically gaming it in reasonably cynical fashion. Even sadder, they authored a now-dubious book about their formula success – one which undoubtedly excluded a few ignoble "trucs de chef". The Wyly’s, it would seem, expected nothing more than proverbially "having their cake whilst eating it too" versus paying more than their share of tax, forgoing illegal trading gains, or limiting their presence in their beloved fire-ant state to 180 days per calendar year.
There are lessons for the contrarian here, and ammunition for those trying to explain the price momentum phenomena: The Wyly brothers were not alone. I do not mean "alone" in the sense of being in the company of Mr Waksal or Mrs Stewart. Rather, I mean that their entourage, like the Remoras (or sucker fish) feeding upon their hosts errr umm crumbs, was omnipresent in riding the coat-tails of each abuse of material non-public information. Indeed, the daisy-chain is unlikely to have stopped there. Humans DO learn quickly where the fish are hiding, and all manner of observant executing trader, back-office clerk, and/or personal assistant, will surely have suspected the cause and effect of winning trades. Beyond that, information is power, and is often used to curry favor for those looking to reward or impress.
In short, it is a picture-postcard of inside information…
SEC Brings GIGANTIC Insider Trading Case Against The Famous Wyly Brothers Of Texas
by ilene - August 2nd, 2010 7:57 pm
This post from Business Insider sets the stage for the next post by Cassandra Does Tokyo which discusses insider trading in general. – Ilene
SEC Brings GIGANTIC Insider Trading Case Against The Famous Wyly Brothers Of Texas

Image: www.charlesandsamwyly.com
Courtesy of Joe Weisenthal at Business Insider/Clusterstock
This evening the SEC announced a massive fraud charge against Dallas-based investors The Wyly brothers.
As Paul Murphy at FT Alphaville notes, the charge — which pertains to activity taking place over 13 years, worth $550 million — makes Rajaratnam and Martha Stewart look like small potatoes.
The gist of the allegations: The brothers Wyly (Samuel and Charles J.) used their various board seats and a network of offshore accounts to trade and conceal their holdings.
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The Securities and Exchange Commission today charged brothers Samuel E. Wyly and Charles J. Wyly, Jr. of Dallas with violating federal securities laws governing ownership and trading of securities by corporate insiders. The Wyly brothers reaped more than $550 million in undisclosed gains while sitting on corporate boards by trading stock in those public companies through hidden entities located in foreign jurisdictions to conceal their ownership and trading of those securities.
The SEC alleges that the brothers created an elaborate sham system of trusts and subsidiary companies in the Isle of Man and the Cayman Islands to sell more than $750 million worth of stock in four public companies for which they were corporate directors. They also committed an insider trading violation in one of the companies for an unlawful gain of more than $31.7 million.
Along with the Wylys, the SEC charged their attorney Michael C. French of Dallas and their stockbroker Louis J. Schaufele III of Dallas for their roles in the fraudulent scheme. French was on the board of directors at three of the companies.
"The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws," said Lorin L. Reisner, Deputy Director of the SEC’s Division of Enforcement. "They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders."
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, the public companies…
Do Hedge Funds Trade On Insider Information?
by ilene - July 9th, 2010 2:47 pm
Do Hedge Funds Trade On Insider Information?
Courtesy of Tyler Durden
A very interesting research paper currently in publication by a team from York University headed by Nadia Massoud asks "Do Hedge Funds Trade on Private Information? Evidence from Syndicated Lending and Short-Selling" and analyzes whether or not hedge funds actively trade in the public securities of companies that had approached said hedge funds with private, capital structure specific (in this case loan syndication and amendment) information. The paper focuses on the period between 2005 and 2007, when the first wave of second- and third-lien debt that had been issued by crappy companies to hedge funds, was starting to become impaired and led to wave after wave of covenant and other bank loan amendments, designed to allow the borrower some breathing room.
Massoud also tracks whether or not in the days preceding the public announcement of a covenant amendment, traditionally seen as a sign of weakness by any borrower company, there was a spike in short-selling activity by hedge funds, courtesy of an interval between January 2nd 2005 to July 6th 2007, when RegSHO had made public extensive detail on equity short-selling data (why this is no longer the case one has to ask the corrupt SEC, but that is a question for after the next 10,000 point Dow flash crash when the SEC’s headquarters will finally be surrounded by rioting former investors who have had enough). The paper finds conclusive evidence that companies that come to lenders in hopes of amending syndicated credit facilities do indeed see aggressive shorting of their stock into the days preceding the formal announcement, implying that there is obviously material non-public information abuse and frontrunning. Here, the authors of the paper however, make a blatantly wrong assumption that this frontrunning originates almost exclusively from within the hedge funds that had been approached with the material non-public disclosure of weakness. We are happy to demonstrate that not only is that not necessarily the case, but to explain why certain sections of FT holding company Pearson can charge over $100,000 a year for premium subscription to their content by rich hedge fund subscribers, thereby once again creating a very tiered information market. We speak of course of Pearson niche media subsidiary www.debtwire.com
First, a brief observation of the York paper’s conclusions. As the charts below summarize, there is almost no doubt…
SEC Settles with Great American Gary Aguirre, or Wall Street-Washington Incest Personified
by ilene - June 30th, 2010 3:24 pm
SEC Settles with Great American Gary Aguirre, or Wall Street-Washington Incest Personified
Courtesy of Larry Doyle at Sense on Cents
Thanks very much to a regular reader of Sense on Cents for sharing a fascinating story. The Government Accountability Project just released the following story regarding a significant settlement paid by the SEC to a former SEC attorney Gary Aguirre. This story highlights the Wall Street-Washington incest to the ‘nth’ degree. Will the media pick this story up and highlight it? They should.
With the details provided in this story, Gary Aguirre clearly shows himself to be a great American and as such earns immediate induction into the Sense on Cents Hall of Fame. The General Accountability Project reports SEC Settles with Aguirre:
In what may be the largest settlement of its kind, the Securities and Exchange Commission (SEC) has agreed to pay $755,000 to settle the wrongful termination claim of Gary J. Aguirre, the attorney who headed the SEC’s insider trading investigation of Pequot Capital Management until his firing in September 2005.
A judge with the Merit Systems Protection Board (MSPB), the federal agency with jurisdiction over Aguirre’s termination claim, issued an order today finalizing the settlement. The settlement sum equals Aguirre’s pay for four years and ten months (the elapsed period since his September 2005 discharge), plus his attorneys’ fees. Aguirre agreed to dismiss two related cases against the SEC.
Government Accountability Project Legal Director Tom Devine stated “Unfortunately, this large settlement is the exception that proves the rule. Until Congress provides real protections for financial regulatory employees such as Aguirre, existing law will remain the best excuse for government regulators to turn a blind eye.”
The SEC’s settlement with Aguirre comes one month after the SEC filed insider trading charges against Pequot, its founder, Arthur Samberg, and David Zilkha, a former Pequot employee, based on facts uncovered by Aguirre. Pequot and Samberg paid the SEC $28 million to settle the charges against them. The case against Zilkha continues.
In August 2007, two Senate committees published a scathing 108-page report criticizing the SEC’s decision to fire Aguirre and close the Pequot investigation, which included Pequot’s suspected insider trading in securities of 20 publics companies.
The Senate report chronicles Aguirre’s promising career at the SEC, including management’s decision to give him a two-step pay raise at the end of his first year for “consistently [going] the extra mile, and
Disney Dope Gets Busted Trying to Sell Earnings
by ilene - May 27th, 2010 9:26 am
Here’s more on the Disney employee and friend’s failed crime spree. Courtesy of Jr. Deputy Accoutant.
Disney Dope Gets Busted Trying to Sell Earnings
Were Bonnie Jean Hoxie and her boyfriend stupid or just desperate?
Regardless of the motivation (we hear it’s shoes, no kidding), you have to hand it to the FBI for bidding them down before busting them. That’s got to hurt. And after all of this, the dynamic duo couldn’t even deliver Disney’s earnings, just some vague earnings per share crap. Now that’s just sad.
The SEC alleges that Bonnie Jean Hoxie and her paramour attempted to sell Disney’s second-quarter earnings ahead of their official release. The method: the two sent as many as 20 hedge funds a letter offering to provide the earnings release for a fee. The text of the letter, contained in the SEC complaint, begins:
“Hi, I have access to Disney (DIS) quarterly earnings report before its release on 5/03/10. I am willing to share this information for a fee that we can determine later….My email is XXX I count on your discretion as you can count on mine.”
One of the hedge funds notified authorities about the letter and a pair of FBI agents got in contact with Hoxie’s boyfriend, Yonni Sebbag.
At one point, Sebbag asked for a $20,000 fee. The FBI agents, who were posing as traders, bid him down.
“$15K sounds great. $30K even better as I hope you will make a killing form Q2 earnings,’’ Sebbag allegedly wrote in an email to the agents, according to the SEC complaint. They settled on $15,000.
So what about the other 19 hedge funds who failed to report this boneheaded move?
Insider Trading Busts are the Corporate World’s Darwin Awards
by ilene - May 26th, 2010 3:15 pm
Insider Trading Busts are the Corporate World’s Darwin Awards
Courtesy of Joshua M. Brown, The Reformed Broker
Insider trading busts are the Darwin Awards of the corporate world.
The Darwin Awards are based on people doing such stupid things to end up dead that the entire human race’s gene pool is better off for their demise. When you hear about corporate insiders emailing undercover FBI agents with insider information in this day and age, you can only shake your head and ponder the utterly pathetic intellects of the people involved.
From the Wall Street Journal:
A former Walt Disney Co. employee and a friend have been arrested for allegedly trying to sell early access to the company’s earnings, the Federal Bureau of Investigation said Wednesday.
Bonnie Hoxie, a former Disney employee, and her friend Yonni Sebbag were arrested by FBI agents in Los Angeles on Wednesday, the FBI said. They are expected to appear in federal court in Los Angeles later Wednesday.
Ms. Hoxie and her friend were allegedly trying to sell early access to the company’s second-quarter earnings report to hedge funds and investment companies, the FBI said. They have been charged with wire fraud, the FBI said.
As we hear more details about the investigation, I suspect there will be even more head-scratching over how it could be possible that these people haven’t learned better by now.
No shortcuts, Ms Hoxie. Enjoy your imprisonment.
Props to the FBI for taking this one down.
Source:
Former Disney Employee is Arrested (WSJ)