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JP Morgan's Insider Trading How-To On Wikileaks
An anonymous reader writes "In an internal JP Morgan document published recently, Wikileaks exposes JPM's efforts to circumvent insider trading regulations, enabling their wealthy clients to profit even when others are losing. The document reads like a how-to and explains how to take advantage of SEC Rule 10b5-1, which has long been considered ripe for abuse. Now this abuse is publicly documented and will be hard to ignore."
Wikileaks is on a roll!
It should be stressed that this leak is not, in fact, revealling illegal activity. I even doubt that Wikileaks made it public; I mean, they must have some kind of advertisment or at least a publicly available description of this service, no?
If it was already public, then it's interesting for the process of defining the role of Wikileaks: here, it's role would be to raise awareness rather than reveal, which means acting like a news site.
Personaly, I think that Wikileak should not stride from it's original goal: when you're run anonymously, you must keep close to your original description; it's the only kind of accountability you offer.
Don't take my posts literally; it's just code to control my botnet.
...but how, exactly, is this "news for nerds"?
Please don't fill space with bullshit articles that have nothing to do (except at a very tenuous level) with technology.
The 10b5-1 loophole itself apparently consist of making a "plan" to sell your action, and then, when you would have used your insider information, cancel or go with the plan.
It really sounds so obvious like this, that you wonder how the lawmakers could miss it. One hint for them: start compiling with "-Wall".
Don't take my posts literally; it's just code to control my botnet.
I love how seemingly every single thing that shows up on Wikileaks is reported in a story here on /.
It's almost as if /. is the RSS feed for Wikileaks or something. Seriously, I've seen half a dozen stories here about stories on Wikileaks. I doubt that half the stories on Wikileaks report that a story appeared on /.
Slashdot is about both "News for Nerds" and "Stuff that Matters", and the former is quite often explicitly something that doesn't matter in the grand scheme of things. If you want a link to technology, there's at least the mere fact it was on WikiLeaks, which is gaining quite a bit of traction as a place where people dish out the dirt.
Anyhow, I suspect this sort of document may become rather important to Slashdotters when they find that their retirement funds are wiped out by the stock market. In that sense, it's certainly "Stuff That Matters."
So please feel free to debate something else, like why the post subject keeps changing back to the default when you hit preview...
Say hello to my little sig.
There is a long tradition in the Jewish faith of following the letter of the "Law" and finding new and clever reinterpretations of the Law to fit the time and place. One very blatant example is the redefinition of the "eruv". The Jewish God declared that no work could be done on the Sabbath, except within the home. Finding God's Law to be a bit confining, the Jewish religious leaders redefined "the home" to encompass a much larger area through the creation of the eruv. Now, work may be done anywhere within an eruv since it is considered to be "the home", though it is hard for anyone with common sense to understand it as such.
So finding rules restricting isn't an uncommon thing. Insider trading is a very lucrative business and if you can schedule trades in anticipation of unexpected events, then you can get away with almost insider trading.
There is a time for every purpose under Heaven. A time to be born, a time to die. A time to grow rich, a time to grow richer.
On one hand I think this is good. Insider trading should not be illegal. To quote Milton Friedman:
"You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that."
The benefit of insider trading is information enters the markets quicker. That is good for me.
There are also tax lawyers who can help me create complex holding / offshore structures to make me pay less taxes, so from that point of view I fail to see the problem with help how to avoid insider trading regulations. No one would be surprised if these banks helped their clients to avoid paying specific corporate tax, for example. So what's so sacred about the insider trading regulations?
Anyhow, my problem I have with this is bad laws should be rewoked, not left in place to be circumvented with the right know-how.
Oh wait, I see it's a kdawson story. That explains it all.
It's times like these I'd rather read an unending rant by Jon Katz than punish my eyes by reading one of kdawson's postings.
Screw it being unethical; it is things like this which break the axioms that systems like markets are designed for.
.. so when it happens, it seems pretty obvious to me that you need to change the rules. If somebody is motivated and talented enough to earn wealth, they are the last people on earth who need an FAQ. Markets are intended to reward performance and promote capitalization, not provide and easier way for individuals to make money.
Ultimately, whats important is that if some people can circumvent the risk-reward aspect of an economic, political, judicial, or social system, they're basically saying they're above the protections that western civilization grants them.
I think ethics is a poor way to frame cases like this - the very people who say, "Well, its legal, so there you go" arn't interested in ethics, they're interested in gaming a system. That system would not exist if everyone was able to take advantage of the method of abusing it. Ultimately, they're acting in a way that would destroy the system were everyone able to do what they did. I think the idea of protecting the health of institutions is an easier sell to people than saying, "Hey, that's unethical." Lots of people do unethical things, every day - whats more important is pointing out where unethical behavior is rewarded by an institution rather than punished. These institutions are set up from the very start to attempt to mitigate unethical behavior
"Old man yells at systemd"
While I am an atheist, I like to think of "god" in references as an "abstract concept" rather than an actual entity. In doing so, many sayings, make some sense. This one for instance, always makes me laugh.
"If you want to know what god thinks of money, just look at those to whom he has given it."
You want the Casino (or a favored player) to be able to know what the next cards are before other people at the table?
If there are other Casinos around, nobody will want to play at your "Milton Friedman approved" Casino.
Insider trading is insider trading. How does "making the public aware of that" relate to insider trading?
Insider trading relates to giving you an edge in a stock market on other investors. If you think press releases filled with euphemisms that the average small time investor can't decode, never mind probably doesn't read, constitutes making the public aware, I'm at a loss.
No one would be surprised if these banks helped their clients to avoid paying specific corporate tax, for example.
Does that make it right? I would have assumed that creative tax reporting was also a domain that people are generally interested in reducing since it seems to benefit those who can throw cash at a perceived problem just to make more cash.
"Old man yells at systemd"
He hints the nail on the head - insider trading works only when the insiders doing the trading can do so without others following their lead.
To make laws that man cannot, and will not obey, serves to bring all law into contempt.
--E.C. Stanton
For so long it's been clouded by question marks. This is the missing step #3.
Before:
1. Beg, borrow, or steal 1 million dollars
2. Take ill-gotten gains to JP Morgan
3. ??????
4. Profit!!!
Now:
1. Beg, borrow, or steal 1 million dollars
2. Take ill-gotten gains to JP Morgan
3. Follow rule 10b5-1
4. Profit!!!
This is exactly the kind of corruption Spitzer was known for attacking. It's really too bad the guy couldn't just stick to his wife because he really could have done some good.
Are you out of your mind? These insider trades, even when they "make the public aware", do so after the person (usually the one most responsible for screwing things up) gets their profits first. In what universe is this reasonable?
You can't entirely "withhold" the information. If the CEO of a company suddenly dumps stocks in his own company, that should be a signal that something is up. The whole point of a stock price is that it moves with the financial viability of the company. There are in fact legal ways for a CEO to go ahead and sell of his stock based upon insider information, but there are a pile of loops he has to jump through and the move needs to be made public. This isn't a bad thing. Simply by selling stock you cause the price to fall. If you are selling stock because you know the price will fall in the future, you are actually evening out the eventual drop and making it take place slowly over time rather than suddenly all at once.
All trading that isn't done with a coin flip is "insider trading" to some small extent. If you think you see a pattern in the markets and make a trade, your trade is only worth something if everyone else hasn't already spotted that same pattern. In a sense, you think you have information that other people don't and make a trade based upon that information. This is what Milton Friedman is talking about when he says that insider trading is good.
There are real issues with insider trading, but it isn't necessarily true that all insider trading is bad. It is one thing for a CEO to declare he is about to make a trade based upon information he has. It is another entirely to make a trade in secret and then make some sort of move with his company to capitalize upon that trade at the expense of the company.
You're missing the point. The act of trading inherently gives away information -- the information enters the market through the trade records.
The fact that this is so is easy to determine from careful analysis of stock markets. Whether that makes insider trading any more or less ethical is left as an exercise for the reader...
The fundamental problem is that the SEC made trading on insider information illegal, they didn't make "not trading" on insider information illegal, and that should never be made illegal.
Consider it an act of "hacking the SEC".
Hacking goes way beyond computers - hacking people's minds, the legal system and the financial industry, is the big game for the real big hackers who think beyond smashing stacks and simple pretexting social engineering.
Circumventing the system - it's what nerds do.
--- Grow a pair, liberals... stop letting the Republicans bully you!
maybe not news for nerd, but it does matter for some /.ers
I bet Martha Stewart wishes she was a JP Morgan client right now :)
The more I learn about our economy the more it sounds like really crappy computer code. It's got patches upon patches upon patches and is full of backdoors, rootkits and spyware.
You're doing it wrong.
Hell, they've got a server, all they need to do is multihome it and have the second webserver called wikinews, or something. Declare it a sister site for things that are major but not technically leaks.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
The only information that insider trading gives away, via the trade records, is that someone on the inside is selling a lot of stock - not their personal reasons why.
Insiders - people who typically have tons of stocks - will pump and dump, harming the company itself and leaving the small investors holding the bag.
After a few years of this going on, there won't be a single company out there, no matter how solid it is, that will survive this recurring, erratic cycle of binge & purge. Small investors, who constantly get burned time and time again, will lose faith in the system.
What happens next is fairly obvious.
--- Grow a pair, liberals... stop letting the Republicans bully you!
That is "for nerds" (such as four more bands releasing freely-downloadble albums, with one band intentionally uploading to the pirate bay) gets relatively little coverage.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
First, didn't the OP read the stinking memo? It's all about hedging against the risk that the price would fall -- it doesn't really say anything about canceling the 10b5-1 plan. This is just jumping on the "Corporate Executives are Bad" stereotype.
Secondly, 10b5-1 has not "long been considered ripe for abuse." There is a very narrow factual scenario where it could allow an insider to make money off inside information. But, it's difficult.
Here's the problem: insiders cannot trade stock if they possess non-public material information about a Company. When a corporate executive receives most of his compensation in stock, this is a problem for him, since they often have non-public material information.
So, to solve that, the SEC came up with rule 10b5-1: at a time when you don't have that sort of information, you can set up a future trading plan where you tell your broker "this is when you buy; this is when you sell," and that's the end of your input unless you cancel the plan. The existence of the plan is made public.
And, that's the narrow place where you can escape the insider trading rules: if your plan calls for you to sell some stock, but you know that the price is probably about to rise, you can just cancel the plan and hold on to those shares. Even though you didn't actually trade, the decision NOT to trade was based on inside information.
Now, the executive still has those shares, and so he needs to create another 10b5-1 plan, which (again) is made public. However, now the SEC questions whether either plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules. As a result, trades made under either plan can be called into question.
The end result is that by canceling a trade under a 10b5-1 plan, the executive makes it much more difficult to ever get rid of his stock.
I am sure, a lot of nerds work, or worked at some point at public companies, and had to trade their companies' stock because at large extent they were paid in stock options. Ironically those employees, who usually had a lot of insider information themselves, suffered most from insider trading -- while their options and stock were still blocked from trading, management and major investors were fearlessly driving the companies into the ground, shielded from all negative consequences by machinations like this.
Contrary to the popular belief, there indeed is no God.
SEC Rule 10b5-1, which has long been considered ripe for abuse. Now this abuse is publicly documented and will be hard to ignore^H^H^H^H^H^H^H understand.
Fixed that for you.
Shop as usual. And avoid panic buying.
I sure didnt know about this before so WikiLeaks must have some purpose. Now, I should also say that I didnt know about WikiLeaks either ...
They should be taking advantage of rule 34. Then everybody would profit.
Except that the CEO of said corporation could then manipulate this lemming mentality to his benefit, at the expense of the little guy (me).
Imagine CEO of XYZ company owns 1,000,000 shares of his company that is trading at $50 per share on Friday. He wants to build a new bungalow by the lake, but has all his capital tied up in his company. What does he do? Calls up his broker on Friday afternoon and sells 900,000 shares for $45,000,000. The media picks up on this, and it is all that is talked about all weekend. Widespread panick ensues. Monday morning opens with XYZ falling through the floor. By Tuesday afternoon, the CEO calls up his broker and buys back his 900,000 shares at $20 each for a total of $18,000,000. The CEO now has $27,000,000 to spend on his cabin. After a couple weeks, everyone realizes that there was nothing wrong with XYZ and share prices begin to climb back up.
But hey, what do I know? I don't own any stock, or have any money to play with, but I am drinking a really fine stout that makes me think I have savvy!
Thanks for the clarification.
People need to understand the following: our financial system is designed, *on purpose*, to transfer wealth from the stupid to the intelligent.
If you think the system is "rigged" or "unfair", don't whine. Just take the rigging into account when making your decisions.
"insider trading" has a very specific meaning as far as the SEC is concerned.
Here's what the SEC has to say about insider trading:
http://www.sec.gov/answers/insider.htm This is what Milton Friedman is talking about when he says that insider trading is good. No it isn't.
Milton Friedman is talking about exactly the same kind of insider trading the SEC is.
If Friedman had his way, there would be no SEC regulation of insider trading, because he believes that insider trading introduces information to the marketplace as soon as it becomes known to the insiders. OTOH, the SEC isn't so keen on allowing this to happen.
[Fuck Beta]
o0t!
I think his point is exactly that the stock market is not like a casino. Noticing someone dumping stock is an open indicator... and a good one. The trouble arises when someone makes a play and then damages the company to make earnings take a shit. THAT, I think everyone would agree, is the sort of "insider trading" that people are generally worried about.
http://www.youtube.com/watch?v=pWe7wTVbLUU
IN fact most issues with insider trading deals with use of insider information and compensation of workers at the expense of stockholder/owners of the company. I have seen this at places where I work. Trades increase, often mostly executives, in the days prior to big deal or a bad report. The workers who knew what was going to happen enrich themselves at the expense of the owners. This behavior is as inappropriate as taking a computer home for personal use. The second big issue with insider trades is that the insiders have the ability to back date the transaction to a time when the price was personally favorable. This also costs the owners money by inflating compensation beyond what was publicly agreed to during the board meeting.
I have mentioned before that if a company voluntarily decides to go public, there are guidelines that go along with that choice. No company is forced to go public, so no company has to follow these guidelines. They can be private, then the employees are freee to engage in any fraudulent activity tolerated by the private owners. But, as has been mentioned so often in the media when defending the government bailouts of irresponsible companies, the stockholder is the companies are common people, retirees, single mothers, etc, and when an insider conducts a fraudulent trade, or a trade the he or she knows primarily is for personal enrichment at the expense of the owners, then such a insider is taking food away form the retiree, children, etc, and I think even the most staunch defender of corporate america will say that is the wrong thing to do. Investors deserve all the money that they should have legitimately earned.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
If the original sale is at a loss, then this is currently illegal (wash sale). Otherwise, deliberate market manipulation is the sort of thing that can cause an SEC investigation.
"We returned the General to El Salvador, or maybe Guatemala, it's difficult to tell from 10,000 feet"
The entire stock market is a "peasant bleeding" operation; always has been.
Just like a casino there's always a handful of outspoken 'Winners' but overall the average person is getting bilked while the rich game the system.
Unfortunately, thanks to inflation you can't just refuse to play the game because your money is always losing value. So you're pressured into playing a losing game.
Again, all thanks to the fiat money system no longer backed by gold... America is a plutocracy not a democracy!
There is a huge body of academic work on the economic effects of insider trading. There are reasonable and convincing papers written by reputable economists on both sides of the issue.
Well, it's entirely possible for an insider to dump the stock based on yet-to-be-disclosed information as part of shorting the company's stock... maybe the insider doesn't directly benefit, but his friends and colleagues might. Just ask Martha Stewart how much fun that was for her.
Yeah. My brain is not working.
:).
Anyway point is if players think the Casino isn't fair and there are too many players cheating they might go elsewhere.
Yes I know a stockmarket isn't like a casino. The top stockmarkets don't operate for 24 hours all year
The problem lies in where you say:
"The benefit of insider trading is information enters the markets quicker. That is good for me."
This, as one might immagine of such an overarching and glib statement, is not true. Here are a few examples of situations where you get information faster but lose:
You are at a poker table, and the man accross from you is allowed to peak to see what the next card delt will be. By observing whether or not he folds, the information of how good a card that was for him reaches you faster ! But you somehow leave the table poor.
A local government official knows in advance where a new highway exit will be placed, condeming some houses and increasing the values of others. By watching looking up his real estate purchases in the deed office, you know also ! But he already bought all the good investments.
You are sitting in the audience of a company wide meeting of Enron in August of 2001. Your company officers are asked by someone in the audience how much of a person's 401k plan should be in Enron stock, and the giggly blonde former secretary who married the CEO and somehow got promoted says "all of it" and her husband nods. Somewhere in the efficiency of the stock market the signal that the CEO was dumping his stock was there, but you still ended up carrying your belongings out of the building in a cardboard box on Dec 24th, 2001.
The problem, in allowing insider trading, is that the stock market needs more money than just insiders and Milton Friedman cultists to operate. What if ordinary savers and investors, not afflicted with Friedmanism, knew there was insider trading and thus decided not to by stocks ? Surely you don't expect the likes of Ken Lay and Ivan Boesky to use only their own money, do you ?
A ban on insider trading is necessary to get people of ordinary intelligence to lend money to companies, which is of such enormous general benefit in terms of an increased economy, that it cannot possibly be offset any information gleaned after the operations of a few insiders are jumbled in with the rest of the trades.
Of course, we know that in spite of the law, insider trading happens on a wide scale. The wikileaks documents from J.P. Morgan are only a small, institutionalized and organized corner of all the insider trading that happens. And the modern stock market is not particularly efficient at distributing that insider information -- supposedly there were insider trades on Bear Sterns stock last Wednesday, but by Monday morning any non-insider wakes up and finds that the stock has lost 98% of it's value.
I think your view of insider trading is just a small part of a general flaw in all of current economics: it does not distinquish between economic activity that is the result of force or fraud and activity which is not.
Let us suppose there is a community where everyone believes they have to give a tenth of their crops to the priest on the hill to make it rain. One day the priest dies and people see it still rains, so they store the 10 percent for bad times. Economists would say "holy shit 10 percent of the economy vanished" while even a Down's Syndrome kid, and many smart dogs, would say "wow our community just got much more productive".
Let us suppose there is a community in a "state of nature" where theft and robbery is common. One member of the community gets a coin, and he only keeps it until he meets the first person who is bigger than he is. Eventually the biggest person gets all the stuff, but each night while he is sleeping the quietest ones take it. One day a smart guy (i.e., has never talked to Milton Friedman) says "listen up pig fuckers, from now on you only get to keep what you earn, and only I can steal (tax)." He has family members who are strong and have weapons and are loyal to him without regards to economics. People begin to plant and save up more, because these "aristocrats" don't steal everything, unlike their neighbors. An economist would say "this is horrible, the volicity
In itself, the services being offered by JP Morgan are perfectly legal and ethical; they are essentially a "collar", but with different instruments. They're a way of creating a position in which you're mostly immune to changes in the stock price. Wikileaks mentions this briefly by saying The techniques outlined in the 31-page document
So what I'm saying is that there isn't anything wrong with JP Morgan offering these services, period. There is a very practical and ethical reason to enter this sort of contract, and there are a number of safeguards to prevent insiders from large short-selling before things go bad. Nowhere does it even imply in the pdf that JP Morgan "wants to help you inside-trade and beat the market by 6%!"
Unfortunately, the 10b5 rules are not strict enough to prevent inside-traders from also using the services. It's still better than allowing insiders to trading around "blackout" dates.
Anyway, read the businessweek article; it will explain things better than I can. As for this story, it seems to me more of a case of someone offering legitimate services which are being abused by some bad apples.
I'm not an economist or anything, and my natural reaction would be to think that insider trading should be legal because in all cases you need some amount of information to make a good decision about stock transactions, so why not take it all the way to allowing any amount of insider trading ?
Here's why it's a bad idea :
Did you notice how the value for Yahoo stock spiked when there was this announcement about Microsoft making an offer to acquire them ? In some sense, it just had to spike upward because MS was offering more than the shares were worth at the time so shares had to go up if this was a serious offer. However, if you knew of this beforehand, you could make very clever stock transactions and have a truly "unfair" advantage.
It's not like the stock analysts or anyone not related to the companies could have predicted that one. No amount of good judgment will allow you to guess the companies secret short-term plans and how it will affect stock. If what I just described was legal, anyone in charge of a large company could pull this one-time trick of
1) buying options to buy stock from company Lousy Inc.
2) do a press release about how you're making a crazy offer to acquire Lousy Inc.
3) Lousy Inc. stock goes up
4) use your options to buy Lousy Inc at low prices, sell high -> pure profits
5) retract your offer to acquire Lousy Inc
6) get the hell out
Something like that.
Not an expert but, in my understanding... A wash sale isn't illegal in and of itself. You just can't claim the interim loss as a tax deduction.
Market manipulation is another issue entirely but that gets murkier.
If you bothered read the linked article you would find that:
1. JP Morgan established a whole service specifically designed to abuse this rule.
2. Service was offered to people who would profit from such abuse without any announcement to the public or regulators.
3. The article shows a specific example of service being offered to a particular person, Barry Diller, and subsequent drop in stock value that the person was supposed to be shielded from (I assume, it is not known if the service was actually used in that situation).
Now you, and two morons that were so eager to praise you in responses, can take your sorry attempt of rebuttal, and tattoo it on your foreheads in 12pt Helvetica font.
Contrary to the popular belief, there indeed is no God.
The side with more information can manipulate the situation to their advantage. Duh.
If you mother brought you up right you would recognize this as cheating. Clearly, neither your mother or Milton Friedman's mother did a very good job.
by the time the insider has done his trade, it's too late for everyone else you idiot.
oh and if tax lawyers could allow you to pay less tax, why the fuck aren't you doing it? i'll tell you why, because it's a greatly over exaggerated myth that rich people do this and save heaps of tax. sure they can BREAK the law and pay less tax, but shockingly revenue services know all the loopholes since they wrote the laws.
If you mod me down, I will become more powerful than you can imagine....
That is only good for you if you're an insider. This "information" you speak of is entering the market in the form of a price change, which means someone with inside information has just managed to buy shares from some poor sap who was not in possession of the information. The real upside would be that you wouldn't have to pay anyone to run companies because they would make far more money insider trading than by doing anything else. Whether they would run the company well is another story, but they would make themselves tons of money. Let's look at a recent example-everyone at Bear Stearns who knew of the deal could have sold their shares before they went bust. Sure the selling would have depressed the price and people might have realized something bad was going on, but i don't know if they would have realized that the firm was about to be sold for 2 dollars a share. Because of our wonderful anti-insider trading laws, this gigantic loss was not foisted on an unsuspecting public. That to me is better than having information enter the market faster.
Openly legalizing insider trading using some obscure loophole may look cynical, but that's only another example of big money at work. This law gets fixed, they find another way.
If, as you assert, there are legal ways(more than one!) for a CEO to trade on his stock based on inside information, I would like to name one.
There is another part of the picture.
When insiders were expected to pre-announce their trades, large amount of announced sales could be used by investors as a sign that insiders have low confidence in company's long-term profitability, and act accordingly. With this scheme being known and believed to be widespread, this communication channel is lost -- everyone can announce that he is selling everything then cancel at the last moment, and helpful brokerages will make sure that no one (except for the general public and employees with options and stock purchase plans) will be late to the musical chairs.
Contrary to the popular belief, there indeed is no God.
Slashdot seems shocked that wealthy individuals are able to outsmart and outflank government bureaucrats. But the rich do outsmart socialists, every time. And then? The socialists get angry and attack the next best thing - the middle class. Those sheep don't have access to JPM. Mwahahahaha.
While Friedman might be right in that it is good to give incentives to make the public aware insider trading does the opposite. If excecutives (and others) with inside information can trade on the information it gives them absolutely no incentive to tell others.
Visit http://www.crunzh.com/ for free software. Mac/Lin/Win
As opposed to a press release containing the same information?
Slashdot social media options: AIM, ICQ, Yahoo, Jabber and Mobile Text. Why no MySpace?
You can't entirely "withhold" the information. If the CEO of a company suddenly dumps stocks in his own company, that should be a signal that something is up.
You won't see the CEO dumping his shares if insider trading is allowed until long after the market has reacted to the trade about to happen.
The brokers, market makers etc, will use their inside information that the CEO is about to dump shares and front run.
Tim.
God said, "div D = rho, div B = 0, curl E = -@B/@t, curl H = J + @D/@t," and there was light.
All they are doing here is providing a vehicle for insiders to have a "stop loss" order without the required advance notice of sale.
Where is the mainstream media coverage? Why is this not on CNN, Bloomberg, etc?
Seriously, enough with wikileaks crap... If I want to know what content they're releasing on a daily or few days basis, i'd actually visit the actual site... Or will we rename slashdot to wikileaks-news soon?
Insider, outsider. It's all a big game. But the thing is, the business's operations are not. There's a much more important moral distinction going on here, and I think we passed an inflection point about 10 years ago. We're about to see the consequences as long-term capital investments have been consumed in the pursuit of steady, short-term profits.
When the CEO's and C*O's and Boards of these companies can redirect some of their attention from manipulating and/or exploiting the company's stock price, and actually put some thought and effort into the fucking day-to-day operations, I might buy back into stocks. Until then, the greater evil is the poor business decisions and lost attentions as so many bad to mediocre managers scramble to exercise their lucrative options. Tying a CEO's pay to performance should have little or nothing to do with the price of its stock in a secondary credit market.
The problem may actually boil down to something simple: Americans (and the whole world, for that matter) are over-invested in the stock market. Nearly everyone you take your money to advises you, without reservation, onto the stock markets. It gets so much attention in the news and in popular discourse, that it becomes self-amplifying. With so much money floating around, no amount of compensation offered by the company can compete with the rewards of well-exercised stock options. All the CEO has to do is make the company temporarily more (or less!!) popular with market participants. Not with his customers, or existing stockholders, or the board of directors, or employees, or even institutional creditors. He doesn't have to plan for the future. And too often, even when he is focused on pleasing the board, major owners, or institutional creditors, their payday comes from the market.
But, back to the main point. Insider trading regulations are the last stronghold against the utter abandonment of productive business in favor of market speculation. If insider trading were allowed, a good proportion of businesses would fail as the boards and upper management spent all their time attempting to manipulate the stock price instead of doing real work.
True science means that when you re-evaluate the evidence, you re-evaluate your faith.
The specific document was NOT public. The act that it describes is legal, the steps used to take that action are for the most part public knowledge (although, only a very slim portion of the society knew them), but the document that was posted was a private document to be viewed by only specific employees of JP Morgan, and select clients.
Just because it's legal, that does not mean that it is not a leak. Hell, they could get a document showing that some Senator is gay, being gay is not a crime, but releasing a private document with that information in it would still be a leak.
-Rick
"Most people in the U.S. wouldn't know they live in a tyrannical state if it walked up and grabbed their junk." - MyFirs
That's a stupid analogy. Anyway, the casino doesn't know what the cards are, they know what the odds and payouts are that day, so if you know the floor boss often plays on good days, you can decide to play based on whether he is playing or not.
Nerd rage is the funniest rage.
If I may...
You had the energy to read the pdf three times, and you sound pretty sure that you found a problem in the current version of the Wikileak page, based on factual and verifiable information... that's the perfect oportunity to edit that article!
If you're not sure, "be bold" (a wikipedia guideline: http://en.wikipedia.org/wiki/Wikipedia:Be_bold): edit it anyway, but add some explanations to the discussion thread (actually, your slashdot post would be perfect for that).
Remember, a wiki is that cool thing were a spotted mistake is a corrected one!
Don't take my posts literally; it's just code to control my botnet.
Executives are awarded stock with the idea that they will do what is in the best interest of the stock holders because it will also be in his best interest. But with such things as "collars" or this 10b5 loophole, the executive can distance himself from the downside.
I can also purchase "collars", and it would be called "speculation". When an officer of the company does it, it should be called "insider-trading.
Comment removed based on user account deletion
If you think about the analogy hard enough you'll realize why this doesn't really matter to an "average" joe investor with a 401k.
Whether the House knows what the next set of cards are or not is immaterial to a blue hair sitting at the table. So long as the House maintains the illusion of chance, you are just as well off playing at Friedman's House of Cards are you are the Phoenix across the street. If the odds of winning same amounts are equal at each casino, it's irrelevant whether you win because Mr. Friedman lets you to maintain his illusion or because pure stupid luck is on your side at the Phoenix.
Similarly, if you're trying to invest as a small-time schmuck in the suburbs, or trying to get your 401k moving in the right direction for retirement, insider trading is largely irrelevant. You're effectively playing a game of chance with your money anyway, you're just betting in a different game. It's either "I'm betting this company is going to do well in the upcoming quarter/year/decade" or "I'm betting this company's 'leadership' is least likely to dump stock and flee to a small South American grotto".
Scams are endemic in markets like this. Even if you stamp out illegal manipulation, there's still so much legal manipulation taking place that, unless you make it your job to know how everything works, and to know the people behind those machinations, you're just tossing your money on a card table.
Really, the only major difference, for anyone not wholly dedicated to the dark magic of "investing", between trying to retire by betting on high yield investments and trying to retire by betting on the horses is the speed at which you lose or gain your money.
401ks, Roth IRAs... biggest scam on the American public since snake oil salesman roamed the plains. You're not taking your retirement into your own hands so you can manage your own future, you're taking your retirement to the poker table so your company can give somebody who already owns three houses an even bigger dividend payout... from your payroll deduction. If workers were smart enough to actually manage their own retirements instead of just being stupid cash cows for rich people, they'd know the best way to do it is to live well within their means and simply set aside liquid assets in savings or CDs, and purchase a few less liquid investments like land they have full rights on. Set aside a grand each month plus bonuses and you could have a half million dollars guaranteed savings after thirty years. Most people could scrape together that grand by driving a more reasonable vehicle, not being stupid enough to pay PMI, and cutting back on credit card spending.
But, then, people aren't that smart.
Except that the CEO of said corporation could then manipulate this lemming mentality to his benefit, at the expense of the little guy (me).
:)
Welcome to capitalism, you must be new here
Overheard: "Apparently Insider Trading is a real problem here. I mean, we even have an entire department devoted to IT!"
If you can read this, I forgot to post anonymously.
Or, the CEO of XYZ could tell everyone he is building his cabin, and "forgetting" to mention that the FBI and IRS have been coming into the company with warrants last week, taking boxes away. So he gets to sell at $50, and when the public find out, its at $20.
What are we going to do tonight Brain?
Every shareholder should be up-to-date. For a public company it means that all the information must be public before any trading based on that information is done. If CEO dumps shares based on his inside knowledge, he benefits by stealing from other shareholders.
... nothing to see here, move along ...
This is hardly a "leak" and far from news. These structures have been in place formally since 2000. This isn't even a "loophole." This is a carefully designed program by the SEC to legally get people out of situations where they are over-committed to a stock. These "insiders" register their planned selling in advance and post that plan publicly for the world to see. Now you know when people are considering possibly selling some inside shares. So it's not a surprise. It is part of the efficient price discovery process that make capital markets function.
The difference is how quickly information is dispersed. Foreign exchange (FX) is the ultimate insiders game. Even the central banks participate. The thing is that although individuals participate too, it is frankly a mugs game if you wish to speculate rather than just hedge an exposure.
With shares and similar securities it is a little different as it isn't just the bankers messing around. The problem with Friedman's approach is that some people get the information and can act very quickly on it but others, i.e., retail investors usually cannot.
The situation was demonstrated by the relative late adoption in Germany of insider trading rules. Essentially private share ownership was seen to be a mugs game unless you were at the top tier (preferably with a seat on the board). Funnily enough banks in those days use to specialise in holding directorships in many public companies as a means of gathering and using information. Introduction of the new regulations did open the market up to much wider public participation.
See my journal, I write things there
If the 1 million shares represented a significant stake in the company(or even just a decent chunk of the float), it wouldn't take until Monday for the market to react, it would take about 4 seconds after the shares were put up for sale. 'Savvy' market participants that had good reason to believe that the sale was not based on substantial information(rather, they might think he was just-a-doin-it for a cottage) would take substantial risks in buying the stock as the price slipped below the market price from before the CEO initiated his sale, which would, in turn, prop up the price.
You are proposing a doomsday interpretation of what might happen if everybody but the CEO and his broker was a screaming moron, and conflating the issues surrounding regulating transparency with the issues surrounding insider trading. If insiders were legally required to disclose a reason for sales, and faced actual consequences for making false statements, the room that an insider would have to manipulate the market would be very small(because the market would not take several days to integrate the information, most trading would be done in full knowledge of the information, rather than under whatever false picture).
And there is a cost to limiting insider transactions, it prevents a CEO who absolutely knows that his company is worth X dollars a share from taking advantage of a dip in the market, an action that would *always* improve that market situation for that stock. So the regulation isn't purely beneficial and at least needs to stand up to some cost-benefit analysis(given the outsize risks most small investors tend to take, it is probably a net benefit to have rules that slow down insiders).
Nerd rage is the funniest rage.
The idea of having minimally policed markets, with insider trading being legal, is appealing. One can imagine that the amount of public confidence in the market would be lower, but even if it's 1/2 of what it is today, it's easy to assume that the market might be more resilient, and less prone system wide volatility, which should be a good thing for participants.
However, personally, given a choice, I would want to participate in a market that does its best to prevent insider trading, and most people would agree. So therefore, other markets will be created that provide that service. US markets aren't the only game in town, and people will move their money elsewhere if the perception of fraud is there.
JP Morgan benefits from this in two ways. One, they get insiders' banking business. Second, they pass along insiders' trading activity to their own traders (allegedly ;) so they can take advantage of the information themselves. The rich get richer...
If the tax payment saved is less than the cost of the specialist, the existence of the hole in the tax codes can not be fruitfully exploited. This means that only those people saving a lot of tax can benefit from paying a specialist to do so, and such people are the ones earning more (and thus being liable for more tax, thus having more to save).
People earning more are described as rich, especially if they're paying a lower proportion of their income in tax compared to the 'average'.
So why the fuck aren't some people doing it? Because it doesn't make economic sense for them to do so. It may also be a greatly over exaggerated myth that rich people do this and save heaps of tax, but frankly that doesn't mean it isn't true. Rich people do hire tax lawyers, and the cost of those lawyers is more than paid for through reduced tax liabilities.
Not that this has anything to do with insider trading.
1) The Feds bailing out Bear Sterns, using the services of JP Morgan, or
2) Bear Stearns being unable to meet short term cash flows, going backrupt, and completely destroying the economy of the United States and world?
Naturally, I'm all for seeing things steady and stable. It's the larger questions which need to be examined, though.
There is every indication that the various structures now crashing, including Bear Sterns, were planned in back rooms specifically by people hoping to reap benefit from the resulting situation. Bear Stearns was crippled a year back when changes were made to its operating system. I'm not going to get into the details right now, (I'm busy as heck tonight), but take a look at what has been happening over the last twelve months with regard to how Bear Stearns borrows and lends money and certain critical privileges which were revoked; its demise has been nervously expected for quite some time, and the results we are seeing are exactly the sort of thing which people like JP Morgan were able to plan for and almost certainly had a hand in engineering. JP Morgan basically just made a huge, huge power move on the world economic chess board; These are the institutions which make up the Fed, and dictate how the Western economy works, and JP Morgan's power as a central bank, if there still happens to be a world in the next few years, will determine the shape of the Western economy for decades to come.
This kind of stuff doesn't happen without some serious scheming. --And it's apropos to keep in mind that the Great Depression may have seemed like a terrible time of want, but that for those who became the power-brokers of the last ninety years, did so as a direct result of a few small and well-positioned groups setting things up so that they could legally scoop up nearly ALL the property and material wealth in America for themselves. --Before the big crash a century ago, everybody was mortgaged and levied and in debt up to their ears, on both the personal and corporate level, just as everybody is today, and when the market was tipped, those few people ended up owning everything which they were able to re-sell at enormous profit. This is king-making stuff, and we're seeing the same scam happening again, right now. This is history unfolding, and the little people like us are expendable chaff in the wind.
-FL
How?
There are also tax lawyers who can help me create complex holding / offshore structures to make me pay less taxes, so from that point of view I fail to see the problem with help how to avoid insider trading regulations. No one would be surprised if these banks helped their clients to avoid paying specific corporate tax, for example. So what's so sacred about the insider trading regulations?
There are two parties to every trade. One might benefit from inside information and the other might be you. Tax holding structures have nothing to do with that inequity.
Finally, somebody is explaining it (hopefully correctly) in understandable terms.
Here's a story, it is an example of how insider information was used to profit only those with the information. Sure, by leveraging the insider information it became public knowledge sooner than if it had not been used; however, it was not to the benefit of the market.
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20.
This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!