Insider Trading Remains a Fixture for Securities Enforcement

Insider Trading Remains a Fixture for Securities Enforcement

Also in December, the Federal District Court in Atlanta rejected an effort by Jun Ying, the former chief information officer at Equifax, to dismiss insider trading charges. Mr. Ying exercised all of his vested stock options and sold nearly $1 million in shares a little more than a week before the company disclosed the hack of its database in September 2017, according to the S.E.C. He argued that the government had not shown that he “used” confidential information about the hack when he sold the shares.

The question of how the government can show a defendant used inside information, even if it can prove the person knew it, can be difficult. In this case, prosecutors are relying on internet searches Mr. Ying conducted into the effect of hacks on other credit reporting companies, like Experian, and the timing of the trades to show that he must have based the trading decision on the inside information he gathered about the hacking at Equifax and not a more benign reason. By selling the shares when he did, the defendant gained $480,000. That’s something a jury is likely to view suspiciously. The stock dropped over 15 percent after news of the data breach was made public.

The government often portrays insider trading as motivated by greed, and the opportunity to make money can prove irresistible when the only real victim of the violation is the faceless securities market.

The lure of easy profits is apparent in civil charges filed by the S.E.C. against Rajeshwar R. Gannamaneni and his wife and father for trading ahead of 40 deals over four years. Mr. Gannamaneni was an information technology contractor for an investment bank in Singapore, and the three defendants are accused of making almost $600,000 from their trading.

Hiding insider trading can be difficult if a person makes outsize profits, which will quickly draw the attention of the stock and options exchanges. But if one can keep the trading profits small, there is a chance that it might fly under the radar, at least for a time. The problem with this approach is that making a little bit of money is not nearly as satisfying as making a lot, so greed starts to take over.

The charges against Mr. Gannamaneni and the other two defendants show that they started small, usually making a profit of less than $10,000, and once only $78. But by 2015 and 2016, their profit on trades was as high as $55,000. That is sure to draw the interest of the S.E.C.’s market surveillance office, which looks for patterns of successful trading.

The lesson from Mr. Gannamaneni’s case is that confidential information exerts a powerful pull to make more and more easy money, which means that one is much more likely to get caught. So if you think the government will not notice your well-timed trades, increasing your profit means there is a much higher chance that you will be discovered.

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TISH (The Information Superhighway)

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