Trader Pleads Guilty To Illegal Purchase of Nearly $1B In Apple Stock 174
An anonymous reader writes "A trader who last year made an unauthorized purchase of nearly US$1 billion worth of Apple stock has pled guilty to wire fraud, securities fraud and conspiracy. On October 25, 2012 — the same day Apple posted its Q3 2012 earnings — David Miller of Rochdale Securities made a number of unauthorized purchases of Apple shares which ultimately led to the demise of the financial services firm he worked for. The aim of Miller's action was to make a lot of money very quickly by purchasing large quantities of Apple shares and selling them in a post-earnings surge."
what about the people who bought the stock? (Score:3, Informative)
oh wait
never mind
at least the Mac blogs i still read keep on pumping the stock
So this is the plan... (Score:3)
Re:So this is the plan... (Score:5, Insightful)
So in other words, just another day on the stock market...
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Of course, the economic collapse and recession are due to those *eeeeeevil federal regulators forcing banks to make bad loans and not freeing the market to correct itself...
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So in other words, just another day on the stock market...
Except for the go to jail part. I guess someone richer bribed enough politicians to get this guy prosecuted.
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He almost recreated the business model of every large bank. The missing step is that when you have a loss, you then ask for a bailout because it will hurt the economy if you fail.
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If it works you get your X% of the profits for doing the trades - if they don't notice (or don't care) that you broke the rules anyway.
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Buy $1bn worth of shares in the name of your company. If it works out and the shares go up by one percent, sell them for $1bn and $10 million, take the $10 million, and run. If it doesn't work out, your company goes broke and you go to jail.
Heh. I guess the pleasure his wife was giving him to encourage this behavior was too much - clouded his thought processes. Unprecedented lawsuit against her in 5....4....3...2..
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No, it's illegal because his job allowed him to buy $X worth of stock (well the rules are going to be more complicated than that) and he bought >$X worth of stock. Same situation as if you work at the corner store and the owner tells you to buy 100 loafs of bread for today and you instead buy 200 because you think there will be lots of customers wanting bread.
Financial markers are tightly regulated and so government enforcement tends to come into play in what in other fields would be a civil dispute.
Tim Cook's fault (Score:4, Funny)
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Somehow this is Tim Cook's fault. Steve Jobs would never have let it happen. Also it proves the inherent superiority of Android over the iPhone. I just haven't quite figured out how yet. I'm sure somebody will, though.
In short: he needs a jailbreak!
Would they arrest him if he had won money? (Score:5, Insightful)
Color me skeptical, but for some reason I doubt that a trader who recklessly threw a billion dollars on the stock market roulette table and *won* would be outed by his firm and sent to jail. Rather, he'd be the "ballsy financial genius" who'd be in charge of $10 billion next time. And of course, this type of perverse incentive system only encourages the next thrill-seeking gambling addict to try their own play. A few years in a minimum security white-collar slammer, versus the chance to take your cut of zillions in winnings gambling on others' money? Sounds like a gamble far too many "I earned my position by skill, not chance!" scamming scum would take.
Re: Would they arrest him if he had won money? (Score:2)
Re: Would they arrest him if he had won money? (Score:5, Insightful)
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That depends on his company. Some companies may be wary of a reckless attitude about financial regulations especially with what has happened in the last several years. He may have been fired anyway. Then again some other companies may have promoted him for bold initiative, but they would have had to cover him for his crimes if the SEC investigated.
*rubs hands* Yes... sometimes laundering works veeeery well. Mwahahaha!
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I mean sure, this guy was caught. But a lot of them have gotten away with a lot of things before they were caught. Simply because there is inadequate oversight.
Too much speculation is not a good thing. Legitimate investment in a company can be a good thing. But there is no fundamental difference between stock speculation and gambling, except that the stakes are usually higher.
I would remind people that the 2008 debacle was largely
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I would remind people that the 2008 debacle was largely caused by irresponsible speculation and corruption (falsely valued derivatives, etc). Complete with government collusion (the problems with Freddie and Fannie).
The fiasco in 2008 was due to the credit rating agencies over valuing the "safety" of the derivatives and other investments, claiming that they were rated as "AAA" or some other "safe" investment, when in fact they were more or less worthless (the term commonly used is "junk" status as in "junk bonds"). One of the reasons for this was because of an inappropriate relationship between the companies who were exploiting the inflated ratings on their debt instruments and the credit rating agencies, where the "i
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"The fiasco in 2008 was due to the credit rating agencies over valuing the "safety" of the derivatives and other investments, claiming that they were rated as "AAA" or some other "safe" investment, when in fact they were more or less worthless (the term commonly used is "junk" status as in "junk bonds"). One of the reasons for this was because of an inappropriate relationship between the companies who were exploiting the inflated ratings on their debt instruments and the credit rating agencies, where the "investors" who were using the information from the rating agencies weren't really the customers paying for the ratings."
That's called "corruption", which I believe I mentioned.
"Some of this can be blamed on the part of the investors involved, as they shouldn't be looking at "free" things given by brokers who are tweaking the numbers to extract more money from these investors."
Yes but. Yes they should have researched better, but they were being told by the "experts" that those were good investments. I don't think you can absolve the creators and raters of the derivatives from the vast majority of responsibility. After all, THEY did it on purpose. The others were victims.
"There is nothing wrong with speculation in and of itself, as long as the people involved in making those investments are well aware of the risks involved."
I should have worded more carefully. My point was that it is fundamentally no different from gambling. I don't think we are really disagreeing much here. Wha
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On the rare chance that Fannie Mae or Freddy Mac turn a profit, the profits disappear into the fiscal black hole known as the National Debt, so there is really no incentive at all to even be efficient or to consider the needs of their investors when making decisions. Such is the case for any government agency, so it isn't exclusive to just these two agencies.
Oh it is much better than that. When Freddy and Fannie were making (virtual) profits in the late 90's and early 00's, they were taking the money and blowing it on useless projects such as E-Closing and Web based appraisal projects. None of these every provided any benefit to anyone other than the contractors being overpaid to develop the software.
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Too much speculation is not a good thing. Legitimate investment in a company can be a good thing. But there is no fundamental difference between stock speculation and gambling, except that the stakes are usually higher.
Could you *PLEASE* take this on with the oil industry?
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"just with no attendant publicity," i.e. with no one getting arrested, and no troublesome SEC scrutiny. The perpetrator just gets a nice wad of shut-up money, and a glowing recommendation letter for a job at his boss' most hated competitor firm. Or, perhaps a new job as a congressional staffer advising on financial regulation.
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no, because any legit trade would also involve hedging in case of loss
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Well, you know what they say: any sufficiently advanced securities are indistinguishable from magic!
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The fool is the one who thinks the SEC is capable of uniformly and comprehensively enforcing their rules, while being crippled by massive political pressure against regulation and managed by revolving-door Wall Street industry insiders. The fool also thinks that the "political people voted in by the masses" ever make it onto the election ballot without solid approval from the 1% (even if the 1% is divided on whether the (R) or (D) faction of the Oligopoly Capitalist party should win), or that their un-elect
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All of these firms must submit to financial audits by outside firms like one of the big 4 as well as frequent SEC random audits, so even making money they would be caught.
(Snort) Right. Search for information about the SEC with keywords "revolving door" and "document shredding" added and you'll see how this really works. The big firms get busted by the SEC about as often as they are nailed for off-shore tax schemes--neither ever happen with enough impact to matter. The worst the SEC does is issue them a few million in fines, like the recent HSBC case, which are just lumped in as cost of doing business relative to the profits earned. This guy's problem is just that he was
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Re: from the original FBI press release: (Score:4, Insightful)
Miller convinced the broker-dealer to sell 500,000 shares of Apple stock, falsely claiming that he was trading for the account of a company, which he had no relationship with and for which he was not authorized to trade.
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Not quite big enough... (Score:2)
Unauthorized? (Score:5, Insightful)
Erm. How does one spend ONE BILLION dollars unauthorized? Wouldn't the firm be at fault? Someone singularly has the ability to decide to spend a billion dollars on something?
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Usually it's because the trader has a set pot of money to trade with and certain risk limits he is supposed to adhere to but the actually trading system does not have business logic rules to enforce these limits because it would slow down trading too much. Basically the whole infrastructure of the big financial firms are setup to accommodate risky day trading instead of sound business investments like any other business would expect. Basically trader desks resemble video poker terminals more than they do th
wait, what? (Score:2)
Re: wait, what? (Score:4, Funny)
Trading Places (Score:4, Funny)
Impressive (Score:2)
You know you have screwed up on a truly grand scale when you not only end up in prison (which isn't particularly hard nowadays), but also manage to completely destroy the company you work for, all in the same step. (Impressive for a non-executive anyway, CEOs do this sort of thing on an almost daily basis)
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Is it worth throwing a minimum of 5-8 years of your life away for money?
Oh please, he's going to a white collar resort prison, not a federal pound-me-in-the-ass prison.
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how much money? If it mean never needing to work again after 5-8 years, then maybe.
Re:Worth it? (Score:5, Insightful)
Is it worth throwing a minimum of 5-8 years of your life away for money?
Most people trade ~40 hours per week of their life for money. That adds up to 5-8 years after a while.
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Thanks - my current workplace is not QUITE as bad as prison.
Yeah, they ream us, but not literally.
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Re:Worth it? (Score:5, Informative)
You have a very strange definition of "valuable to the economy".
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Is it worth throwing a minimum of 5-8 years of your life away for money?
Five years of my life in a cozy cell with three squares a day for $100 million? Where do I sign up?
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You're not discounting sleep. Lets assume you spend 8 hours unconscious a night. That may be generous, but you're also wasting time commuting, etc.
Assuming neither prison, or your current job, count as "quality time", and you spend 8 hours a day working. (8 * 5 = 40). And assume that if you commit a white-collar crime with an 8 year sentence, you'll have sufficient capital to retire on, in a style that you'd enjoy.
That leaves you with 8 hours quality time per day, which is really what you're giving up when
Re:Worth it? (Score:5, Insightful)
Is it worth throwing a minimum of 5-8 years of your life away for money?
Of course it is not worth it if you get caught.. But for most financial shenanigans, the chance of getting caught is pretty low. If enough other people are doing the same thing, there is safety in numbers, and instead of going to jail, you get a bailout. This guys problem was that he made a bet too big to go unnoticed, and he was very unlucky. He isn't being punished for making an illegal bet. He is only being punished for losing the bet.
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If AAPL had gone up, the guy would be a conquering hero raking in $millions in surprise bonuses. It's the same method Dr. House used to avoid punishment. Too bad this guy didn't realize that Apple is out of steam.
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I don't think this is true. It might be if his plan had been to let the company and/or the customer keep the profits - but his plan appears to have been to personally keep the profits, based on the article links. Given that, his company may well have been inclined to have him prosecuted even if the trades had resulted in profits.
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iTunes on the Steam store?
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Let's round up to 10 years, just to make it easy. I currently work for less than $100k, but my quality of life is better than it would be in prison. Let's consider Prison in terms of something like working in a deployed/remote/somewhat hostile or dangerous location for extreme pay.
If I could steal, say, $5M, successfully hide 2.5M, 'returning' the rest that I didn't 'gamble away' as a sign of regret, whatever, so I only get 10 years.
$2.5M is $250k per year in prison, and assuming a 'moderate' 4% return wh
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I have one like that right now...it's not so good with the money part though.
Re:Worth it? (Score:5, Insightful)
I would be surprised if the plea agreement that is allowing him to only serve 5-8 years will allow him to keep any commissions he made on his fraudulent sales. Even without the plea agreement, I doubt he would keep any of the money.
I assume he will have to declare bankruptcy after the firm goes after all of his money to pay back some of their losses.
Re:Worth it? (Score:4, Informative)
Bankruptcy wont save him from court ordered restitution nor from unsecured liability. The scope of bankruptcy is actually pretty narrow. The public always seems to think "Ah fuck it I'll just file bankruptcy and 7 years later have a clean slate!" when the reality is very different. Typically people still have to pay back what they owe. Occasionally what they owe will be negotiated down so that they aren't living in a card board box but they can go decades before they get back on their feet and all the while some judge will be telling them how much they can spend on cereal and what type of car they are allowed to drive. It's not pretty.
Re:Worth it? (Score:5, Informative)
Typically people still have to pay back what they owe. Occasionally what they owe will be negotiated down so that they aren't living in a card board box but they can go decades before they get back on their feet and all the while some judge will be telling them how much they can spend on cereal and what type of car they are allowed to drive. It's not pretty.
No, typically people don't pay back anything (or at least close to nothing). I know two people who have declared bankruptcy, and both of them discharged every penny of debt and kept every single possession (except one of them lost one of their cars). One kept a big screen TV and a living room set that they collectively owed over $3k for because it wasn't worth Best Buy's time to repossess items of such little value. I had read quite a bit about bankruptcy because he was asking advice before talking to a lawyer, and I was still surprised at just how easy the whole process was for him in the end.
One was even able to run up an extra few thousand on his credit cards to stock up on non-perishable food and other household items (and do needed maintenance on the car he planned on keeping), and made sure not to contact a lawyer until a few months after doing it so he could claim to not know the bankruptcy court usually does not look further back than 6 months to detect such fraud (he never paid back a penny of it). I learned a lot about bankruptcy law while helping him prepare, and his lawyer did little more than back up what he and I had already learned online. The lawyer told him that the vast majority of bankruptcies are just as easy as his was (although that is just an anecdotal claim by his lawyer).
Re:Worth it? (Score:5, Informative)
The lawyer told him that the vast majority of bankruptcies are just as easy as his was (although that is just an anecdotal claim by his lawyer).
No offense but you're entire post was anecdotal. I've dealt with dozens of people looking to do the same thing and its never worked out for them. Perhaps your state is more prone to this type of abuse, mine however is not. I can speak anecdotally also. I once looked into it myself during the dot com bubble crash. After speaking with several lawyers, I was informed by each and every one of them that I was fucked. I'm guessing that your friends situation was specific to your state.
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The problem with these perversities, is that when it IS so easy for someone to get away with shit in bankruptcy, this triggers financial problems for their creditors; who had to eat that shit. It causes a chain reaction. So - while I am not really happy with the 2005 re-write of the bankruptcy code, in general - I think that there are plenty of cases where it didn't go far enough.
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Which is why you often find them doing black market work or other illegal activity, if it isn't official income just money in your pocket it's very hard for a judge to reach. Say you get hit with a Jammie Thomas verdict of 1.5 million dollars, even at a moderate 2% interest that's $30k before you even start making down payments and it'd take you 30 years to pay down at $50k/year and you're not going to have $80k in free post-tax income. People just give up permanently and make whatever they can on the side,
Re:Worth it? (Score:5, Insightful)
"I doubt he would keep any of the money."
Keep WHAT money? He LOST on the stock market. He didn't make any money.
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Some people still think AAPL stock is a magical money making machine. I remember one guy on TV saying that now was the time to buy, when it was at $700. I wonder how that worked out for his followers.
He probably bought at $690 - that's why he was saying it was a buy at $700.
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Keep WHAT money? He LOST on the stock market. He didn't make any money.
The parent post claimed that he would make a lot of money off of his commissions regardless of the profitability of the trades. I don't know if that is accurate, but even if it is I was merely stating that he wouldn't get to keep any of those commissions.
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When you are working as a trader for some "investment" firm the firm keeps the profits (and the losses) but most of your income is in the form of commissions or bonuses.
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If he made $1m on commissions (easily)...
Would you go to jail for 5 years and walk out making $200k/year with $0 expenses?
you forgot a minor point: he doesn't get to keep the money, he just gets the jail time.
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You really think his trading firm would out him and send him to jail if he *made* money, instead of giving him a raise and a promotion?
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Yes. Unauthorized large transactions = jail time. Win or lose.
-- SEC, FINRA Enforcement Section
http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p038276.pdf [finra.org]
Re:Worth it? (Score:5, Insightful)
That's the rule according to the SEC, but the SEC has largely been gutted of power to closely monitor and regulate what actually goes on. This guy is going to jail because his own investment firm outed him. If you're an investment firm boss, and one of your employees just lost you millions, you'll gladly blame the loss on a rogue employee (not standard firm operating procedures). But what if you just made millions? Is this when you announce to the world "no, we're not an especially clever investment firm, we just have dangerous loose cannons at our trading desks who got lucky this time."? Or, do you cover for your employee's actions; give him a nice bonus to keep quiet, and retire from the firm to a nice island mansion; and shuffle paperwork to keep the trading off the SEC's radar?
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Option 3: Tell the SEC yourself and turn him in so he takes all of the blame. Considering the SEC can't unwind trades, the firm keeps the profits and doesn't have to pay the trader's commission.
Maybe, MAYBE they get a fine, but considering the SEC would want to encourage the self-policing, I doubt it.
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Option 3: Tell the SEC yourself and turn him in so he takes all of the blame. Considering the SEC can't unwind trades, the firm keeps the profits and doesn't have to pay the trader's commission.
Maybe, MAYBE they get a fine, but considering the SEC would want to encourage the self-policing, I doubt it.
But the complete loss of the trading company's reputation evaporates; running them out of business anyhow.
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Tell that to all the people getting rung up for illegal trades recently.
http://www.sec.gov/spotlight/insidertrading/cases.shtml [sec.gov]
http://www.sec.gov/litigation/admin/34-43270.htm [sec.gov]
http://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal [wikipedia.org]
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So, lets see, in your examples, there's one big case (the UBS trader), another guy caught after *losing* giant chunks of money. The rest are "insider trading" cases, unrelated to the problem of policing crazy risky "unauthorized" trades within investment firms (and the associated types of fraud that the guy in the article got nailed for). Yes, the SEC can nail particularly stupid company insiders who tell their country club pals to buy right before the big corporate press release. However (and maybe I'm mis
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Maybe - I have seen this activity up close. What is the difference between an aggressive successful trader and a rouge trader? Traders tend to be type A personalities who are always testing the boundaries and some of those are subjective. Have I seen successful traders fired for doing such things? Yes - but only at select firms. Others take the profits and let it slide.
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. What is the difference between an aggressive successful trader and a rouge trader?
Oh, I know this one!! The rouge trader has a pinker face.
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HIs trading firm lost close to 6 million as a result of a trade that went bad for him that they did not authorize. They are probably the ones who reported him in the first place. All the other times he's done this, he's made money, but only for himself / accomplice.
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You really think his trading firm would out him and send him to jail if he *made* money, instead of giving him a raise and a promotion?
If it caused the company to go bankrupt in the process? Yes.
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Doubtful. It sounds like the guy was trading on his firms accounts. Such people tend to be principal traders - i.e. no commission. The general rule is that they get to take home, as a bonus, 50% of the money they make for the firm. Thus the reason my he took a huge gamble with the firm's money.
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And I kind of need to redact my statement - read up on this some more. Not a principal trader on his owns firm account. However, he was entitled to a cut of the profits, so probably was not motived by commissions - and more by wanting to hit one out of the ball park.
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Isn't that what commission means? If a sales person in a clothing store works on commission they get X% of their sales. If a trader works on commission he gets X% of the profits on his trades over some time frame.
Since he clearly lost a fortune his commission would be 0 of course.
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AC is right - Commissions means you get paid either on the retail price or the volume of transactions. You don't care if you client makes money or the store makes money- volume is key.
I don't know if trader got paid a commission or not - but he did get a slice of the profits. The idea is to align the broker's interest with the client's interest. Most brokers who operate under this principal get a very small part of their salary paid by commission and the majority of it paid by some kind of profit sharing.
If
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He's not a broker so how commission is calculated for a broker is irrelevant. Percentage of sales makes no sense for a trader, you aren't trying to motivate them to buy and sell their purchase limit in the same stock as many times as they can each day after all.
A broker can't lose money on a sale - having them buy a stock for you earns them money, having them sell a stock for you earns them money. Out of that money they'll pay the broker his cut if he works on commission. The brokerage firm happen to call t
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no because you have to return the money and pay additional fines on top of the jail sentence in cases like this
and you will never be able to work in finance jobs
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ME FIRST!
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How was the trade unauthorized? At the SEC/Federal level or the company level? If it is the company, then there should be no jail time. It is the company's fault for allowing one individual do such a trade and the company should be punished by the SEC if it broke a trading rule. Just like companies own the Intellectual Property of employees, they should be owning the crimes by employees committed filling their job role.
Re:Worth it? (Score:5, Insightful)
The trade was unauthorized because the information about the bonuses was "privileged" information. The SEC operates its rules for trading on the premise that all investors should at least in theory have access to the same information at the same time. In this case the broker had knowledge of the information in the quarterly reports prior to a general public dissemination of the information, therefore he had a fiduciary responsibility to refrain from trades until the information went public.
This is one reason why "insider trading" is such a major crime, and what ultimately nailed Martha Stewart (particularly as she sat as a governor on the board of trustees for the NYSE). People in "high places" have a standard of responsibility that they should be following and it is stricter than what "ordinary" investors typically operate in. That they get time to think about the impacts of this information and can anticipate market moves by having access to such information makes it important to be much more cautious when acting upon such information.
When a large number of corporate officers start to sell off stock in the company they work for (or start buying it for that matter), it is usually considered something important to consider when investing into that company. It is assumed that those officers are acting on public information or that there are external reasons for those actions (such as personal bankruptcy or a windfall of money coming their way), but it can be due to confidential information that either hasn't or won't be publicly released. The SEC is not happy if that information is unjustly exploited and costs ordinary shareholders potential profit, which is where the crime actually happens.
Re:Worth it? (Score:4, Informative)
Your a bit off base here. You are dead on the money about insider trading - but this is not about insider trading - this is about 3rd party trading - he was playing around with other's people money, hoping his gamble would pay off..
It is very common to give control of a account to a 3rd party either a broker or a outside advisor. They theory is that they are professionals and can trade better then you can. When this happens, certain rules are put in place by the owner of the account. Do a stop loss here, only so much in speculative trading, etc. And it looks like he broke all kinds of rules here. Some accounts he was not even authorized to trade in.
I am going to guess this is going to play out like Nick Leeson - another famous unauthorized trader.
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I saw nothing about insider trading in the article. I work for a financial institution and having my management monitoring my financial statements makes me all too knowledgeable on insider trading monitoring.
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"which ultimately led to the demise of the financial services firm he worked for."
The company went bankrupt, which is as much as a company can be punished. Something this negligent requires punishment on both the individual and the company -- there just aren't enough consequences a company can impose on their employees beyond firing them to prevent something like this.
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Locking people up longer, isn't a solution, in the US you've already got more inmates per citizen than Stalin did... (no joke)
This guy isn't dangerous, just give him 5 years of community service, and make sure that if he pays back in case he ever comes into sudden wealth.
(And ofcourse make sure he doesn't get employed
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Re:Pure Stupidity (Score:4, Insightful)
He is just lucky he didn't fileshare some tunes or a movie while doing it, then they could have locked him up and thrown away the key. Rip of a billion,well boys will be boys, but pirate a song FELON!!!
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If all good traders knew this, then it wouldn't happen --- there'd be a rush to sell/short the stock, driving the price down *before* the earnings report. "Reliable rule of thumb" investment ideas like "Apple shares go down after earnings reports" always look great in hindsight --- until they don't.
Re: apparently he wasn't that good of a trader (Score:3)
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The analysts try to use things like reported sales in trade journals and by 3rd parties like major retail chains (aka Wal-Mart, Target, Cosco, Best Buy, etc.) to try and anticipate independently what sales might be for a company like Apple. They might even conduct surveys of customers and ask customers if they've purchased electronic products recently, and if so what brands and items have they purchased. Much of this is even healthy in a market as it acts as an independent verification that the company is
Re: apparently he wasn't that good of a trader (Score:2)
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a PhD in science
Any in particular... or you are a "student of all sciences" like Doc Brown? :)
Personally, I would never invest in any actively managed funds.
I remember reading somewhere that the index funds almost always beat the active managed funds. This is because the index funds charge lower fees, and the managed funds do not make enough more than the index to cover their own fees.