Tag Archives: insider trading

>Teflon Stevie, forever?


>Just as the days of the teflon market are coming to an end, so slowly prosecutors are finally discovering all the grizly details of how one make billions of dollar year after year without fail. And when they put the full picture together, teflon Stevie is next.

>FT Alphaville » If algos can mis-value a book by $23.7m…


>

If algos can mis-value a book by $23.7m…


… how might they be mis-valuing equities?
So asks Themis Trading on Tuesday after discovering this curio of a story from CNN about algo-bots gone wild on Amazon.
The story relates to the listing of a book called “The Making of a Fly” by Peter Lawrence on Amazon.com on April 18 for no less than $23,698,655.93 (plus shipping) — seemingly the result of an algo price war.
The price anomaly itself was unearthed by Michael Eisen, an evolutionary biologist and blogger, who logically observed this couldn’t be a one off situation.
As he noted on his blog:

What’s fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral – all it took were two sellers adjusting their prices in response to each other by factors whose products were greater than 1. And while it might have been more difficult to deconstruct, one can easily see how even more bizarre things could happen when more than two sellers are in the game. And as soon as it was clear what was going on here, I and the people I talked to about this couldn’t help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit – especially when they were clearly not paying careful attention to what their algorithms were doing.

Cue in-depth analysis of third party vendors providing pricing algorithms for independent traders on Amazon and Ebay.
As CNN points out, individual booksellers on Amazon and other sites pay such companies for services which automatically update prices. Some work very well, “getting sellers up to 60 per cent more sales because they underbid the competition automatically and repeatedly”.
Some, as the case above illustrates, lose touch with reality altogether.
Now, as Themis Trading points out, all of this does bear an uncanny resemblance to what’s going on in financial markets thanks to the algo strategies deployed by high frequency traders.
These sorts of algos, after all, are equally prone to losing touch with the fair value of the equities they are pricing, as the notorious flash-crash of May 6 proves. Now, if you keep the parallel going, that means the example of the $23.7m fly book is nothing more than Amazon’s own equivalent of a market flash or dash.
As Themis’ Sal Arnuk observes:

So, now we have Flash Crashes and Flash Dashes outside the stock market! Is everything being priced in the universe today, not with forethought, but rather as some relation to another price, which in turn is set in relation to yet another price? All without human intervention? Is this wise? Is anyone doing the thinking? Is anyone doing “the work” in our stock markets, as well as on AMAZON? On the eve of the May 6th Flash Crash, perhaps it is wise to think about that question.

Of course, while most ‘flash crash day’ trades were cancelled in the end, we wonder how many Amazon buyers who realise they’ve been had via algo mispricing end up cancelling their trades. And how often it happens.
Secondly, does this make Amazon and Ebay the dark pools of the retail sector, with John “never knowingly undersold” Lewis the equivalent of a market exchange?
And last – is it time for a retail versus financial market structure comparison diagram? We think yes

FT Alphaville » If algos can mis-value a book by $23.7m…

>Text: Money to burn for insider trading suspects | Reuters


>

Gotta love these jokers…

Bauer: “…I am sitting with over $20 million in the bank…. I am not worried about me going broke… If you need to pay for more lawyers, use everything you have

Bauer: “You know what, you know what, if you feel better, burn the money and I’ll give it back to you.”
Co-conspirator: “Burn it?”
Bauer: “I would burn it in a fire….”
Bauer: “We have to get the fingerprints off that money.”

– ON DISCUSSING WHAT TO DO WITH $175,000 IN CASH THAT HAD BAUER’S FINGERPRINTS ON IT

Federal prosecutors said Matthew Kluger, a former lawyer at Wilson Sonsini Goodrich & Rosati, regularly stole information about anticipated deals. He is accused of passing the tips to an unnamed co-conspirator, who then supplied them to trader Garrett Bauer with instructions on how to trade, according to the criminal complaint.

 Money to burn for insider trading suspects

3:37pm EDT

(Reuters) – A lawyer and a trader were charged on Wednesday with conspiring to trade on corporate merger secrets in one of the largest insider trading cases in the United States. Prosecutors said they stole confidential merger information from three prominent law firms.

Following are excerpts of telephone conversations quoted in the court complaint, secretly recorded after the FBI had searched the co-conspirator’s home and asked about suspicious trades:
BAUER AND CO-CONSPIRATOR DISCUSSING POSSIBLE ARRESTS:
Bauer: “Don’t worry about any money (name of co-conspirator). At some point in the future when this is cleared up, you will have whatever you need… I am sitting with over $20 million in the bank…. I am not worried about me going broke… If you need to pay for more lawyers, use everything you have.”
Co-conspirator: “OK, I will, I am glad you, I’m glad you mentioned that. And if I go to jail, would you … is there any chance you might help (co-conspirator’s spouse) out?”
Bauer: “Of course … You, your kids, everything, it will be set.”
DISCUSSING WHAT TO DO WITH $175,000 IN CASH THAT HAD
BAUER’S FINGERPRINTS ON IT:
Bauer: “You know what, you know what, if you feel better, burn the money and I’ll give it back to you.”
Co-conspirator: “Burn it?”
Bauer: “I would burn it in a fire….”
Co-conspirator: “You know something, that – that’s foolish.”
LATER CONVERSATION ABOUT THE $175,000:
Bauer: “We have to get the fingerprints off that money.”
Co-conspirator: “Yeah.”
Bauer: “Like you wearing gloves or something and wiping every bill down or something. But it has to be done. Or as, like, you giving it to me and me wiping every bill down or something.”
Co-conspirator: “You know something. Somebody did say, ‘Why don’t you just run it through a dish-, a washing machine?'”
Bauer: “Well, I, I don’t know. I mean, I’ve seen that in the movies but I don’t know.”
KLUGER ASKING WHAT CO-CONSPIRATOR’S ATTORNEY IS ADVISING:
Kluger: “So, what he’s telling you is that you should flip, right? That’s what, that’s what I mean all these guys do — that’s all they ever do.”
Co-conspirator: “Yeah, no.”
Kluger: “Unless you get one that used to work for the mob or something… That’s all these former prosecutors know.”
(Reporting by Dena Aubin; Editing by Tim Dobbyn)

© Thomson Reuters 2011

Text: Money to burn for insider trading suspects | Reuters

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>Munger "Recuses Himself" As Frontrunning Focus Shifts To His BYD Purchase


>It’s coming out like a can of worms…. It’s not just with 2 and 20 that fund managers make a killing…seems they’re all guilty of the same thing – Frontrunning

Charlie Munger may be just as guilty of a comparable attempt at frontrunning a Berkshire purchase through his previously undisclosed holdings of a 3% stake in BYD

see the story below from zero hedge

Munger “Recuses Himself” As Frontrunning Focus Shifts To His BYD Purchase
Author: Tyler Durden
April 6, 2011


A few days ago, we disclosed that based on David Sokol’s testimony to CNBC, Buffett’s right hand man, Charlie Munger, may be just as guilty of a comparable attempt at frontrunning a Berkshire purchase through his previously undisclosed holdings of a 3% stake in BYD. And despite the Octogenarian’s wishes that this story remain dead and buried, Bloomberg has decided to once again bring it up to popular attention. “Berkshire Hathaway Inc. Vice Chairman Charles Munger said his family was invested in BYD Co. “for years” before his company took a stake in the Chinese automaker and that he disclosed the financial interest to his business partner Warren Buffett. “I certainly suggested that Berkshire look at investing in something that the Mungers were already invested in, but we’d been in it for years,” he said today in a telephone interview.” Of course, since there is no way to check,the general public will be happy to just take Munger’s word. After all, he is just as old and cuddly as that other guy, who following the recent spate of negative publicity, and especially Mike Steinhardt’s scathing review today, will very soon need his own reality show to preserve his “reputation.” Either way, here is the validation fro Munger why the SEC should not be currently deposing him: “I had Dave look at it, because I knew I couldn’t talk Warren into buying into the damn thing by myself. It’s a new technology-type investment. But David went over there, and he made the deal for Berkshire. I recused myself. But there’s no question about it, that I caused Dave’s original interest.” Of course, we would love to take Munger’s word for it: after all he represents just the same level of “integrity” as Buffett. But in the meantime, we would love to know at  what price Munger made his purchase, and, well, when, because at last check in the “years” preceding 2008, the stock was trading pretty much in line with any price achieved in 2008, not to mention the surge once the Buffett investment was announced. And we are convinced that while his self-proclaimed recusal will placate everyone that Munger may have committed a crime, perhaps the SEC should ask a question or two. If nothing else, than at least to clear the Vice-Chairman’s now thoroughly besmirched reputation.
From Bloomberg:

The Munger investment in BYD is different from Sokol’s in Lubrizol because of the longer amount of time that elapsed before Berkshire announced its intention to acquire shares, said James Cox, a professor of corporate and securities law at Duke University Law School in Durham, North Carolina.

“What really matters is the close time sequence that we all now know that Sokol made the investment,” he said.

We would respectfully, and completely, disagree. And while we will assume initially that Munger did not lie about how long he held BYD for (although we would not be all that shocked if our well-meaning naivete is proven wrong) a far greater issue is the cost basis which is the benchmark against which capital gains are calculated. But we certainly wouldn’t expect a corporate and securities law professor at Duke to know this. And what someone like Munger no doubt realizes is that once it becomes public that Berkshire is looking at a stock, regardless of whether Sokol, Munger, Buffett or the janitor is signing the actual wire transfer, the price would surge, making the cost basis that much more attractive… regardless if the holding period was 1 milliseconds or 10 years.

The Securities and Exchange Commission is probing whether Sokol, 54, bought shares in Lubrizol on inside information that Berkshire was considering buying the company, according to a person who declined to be identified because the investigation is secret. The SEC is seeking records from Sokol’s brokerage and examining trading data from the Financial Industry Regulatory Authority, the person said last week. Buffett said March 30 that he doesn’t think Sokol’s purchases were unlawful.

Munger’s account of the BYD investments doesn’t raise “any taint or question mark” for Berkshire, said John Coffee, a securities law professor at Columbia University.

“There’s always going to be some possibility that a director will have some interest in a company that your firm is looking at for a transaction and you disclose that and you recuse yourself,” Coffee said.

That’s great. But how about we get the SEC’s opinion on the matter. After all, it is not like US capital markets are suffering from an overabundance of investor faith these days.
It would truly be a public service to clear up any possible confusion vis-a-vis just how criminal, if at all, the Munger purchase may have been. And, alas, for that we would fall back to the opinion of one Mary Schapiro, as much as we enjoy John Coffee’s non-porn surfing opinion. And lastly, the biggest issue here is what Buffett knew, and what he disclosed publicly: considering the general public had to learn of Munger’s massive purchase, and potential conflict of interest, only by parsing the transcript of a former member of the tainted and conflicted Berkshire family, one wonders: just who is hiding what here?
h/t Lizzie363

Read more…

>David Sokol: How Much Money Did He Make?


>

David Sokol: How Much Money Did He Make?
March 31, 2011, 12:11 PM ET
WSJ

By Shira Ovide and Ronald Barusch

Some executives resign to “spend more time with their families.” David Sokol, the Berkshire Hathaway executive who resigned under a cloud, is decamping to make more money for his family. Which leads to the inevitable question: How much money does Sokol have, anyway?

Sokol said he wants to put together his own “mini-Berkshire,” he told CNBC today. He also expressed a wish to invest his money to create an “enterprise which will provide opportunity for my descendents and funding for my philanthropic interests,” according to Sokol’s resignation letter quoted by Warren Buffett.

In his decade-long role as a Berkshire official, and as the unofficial fix-it man for troubled Buffett businesses such as NetJets, Sokol has no doubt collected a tidy sum to funnel into philanthropic interests.

The scale of his compensation and wealth are not known. Berkshire does not disclose Sokol’s total annual compensation, nor his options or stock holdings in Berkshire Hathaway.

However, Sokol also serves as chairman of MidAmerican Energy Holdings Co., an energy company in which Berkshire owns an 89.8% stake. A piece of MidAmerican trades shares on an over-the-counter exchange, and the company discloses compensation information for Sokol as part of its SEC disclosures.

Here is a look at what Sokol has pulled down just from MidAmerican.

In the past three years, MidAmerican has disclosed total compensation for Sokol of $24.2 million. The figure include his salary, bonuses, the changing value of his pension, company contributions to his 401(k) and other items, according to MidAmerican’s recent annual report.

Sokol also has pension benefits that MidAmerican valued at $7.8 million as of Dec. 31, according to the annual filing.

Sokol’s employment contract with MidAmerican entitles him to an estimated cash payment of $1.7 million if he loses his job involuntary “without cause.” It’s unclear if Sokol’s resignation will entitle him to the payout. (He doesn’t collect the severance if his departure is considered a retirement.) In any case, Sokol can walk away with with a pension value of $8.1 million, MidAmerican disclosed in the annual report. (Read Sokol’s employment contract HERE.)

Sokol also made a paper and real gain of roughly $3 million on his now controversial purchases of stock in Lubrizol, the specialty-chemicals company Berkshire later agreed to buy for $9 billion.

We don’t know how fat Sokol’s brokerage account is, but over three days in early January – before Sokol began to talk to Buffett about acquiring Lubrizol – Sokol bought roughly $10 million of Lubrizol shares. On CNBC today, Sokol said the purchases were part of his normal investments.

Sokol said in the interview that he doesn’t trade a lot, pegging the number of annual investment decisions at around three or four. After Berkshire agreed earlier this month to buy Lubrizol for $135 a share, Sokol’s paper gain on the shares is roughly $3 million.

Sokol also owns more than 1.4 million shares – or 20.24% — of a small bank, Middleburg Financial Corp. The company’s price is shooting up more than 9% today, giving Sokol a paper gain of roughly $1.9 million from yesterday.

 David Sokol: How Much Money Did He Make?

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>Ex-Goldman programmer gets 8 years for code theft | Reuters


>

Ex-Goldman programmer gets 8 years for code theft

6:50pm EDT

By Grant McCool
NEW YORK (Reuters) – A former Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) computer programer was sentenced to eight years in prison on Friday for stealing secret code used in the Wall Street bank’s valuable high-frequency trading system.
Sergey Aleynikov, was arrested by the FBI and charged in July 2009 with copying and removing trading code from Goldman before taking a new job at Teza Technologies LLC, a high-frequency trading startup firm in Chicago.
A onetime collegiate-level competitive ballroom dancer, Aleynikov, 41, was convicted of trade secrets theft and transporting stolen property across state lines on December 10 after a two-week long jury trial in Manhattan federal court.
High-frequency, computer-driven trading has become an important and competitive business. The software codes that trade shares in milliseconds are closely guarded secrets.
“I very much regret the foolish thing of downloading information,” the Russian-born father of three said at his sentencing on Friday. “Part of this information was proprietary to Goldman. I never meant to cause Goldman any harm or harm anyone at the bank.”
Aleynikov’s words fell short of U.S. District Judge Denise Cote’s hopes for “an open and honest statement of responsibility” for his criminal conduct.
“You did not do that,” said Cote, imposing a sentence of 97 months that was within the eight to 10 years recommended by the government. Cote also fined him $12,500.
Aleynikov’s lawyer, Kevin Marino, had originally asked for a sentence of probation but in court on Friday he suggested two years was adequate for what he called Aleynikov’s “foolish, tragic, horrible, ridiculous mistake.”
Aleynikov has the right to appeal the sentence. His defense lawyers have argued that the matter belonged in civil, not criminal court.
U.S. prosecutor Joseph Facciponti said the stolen code was Aleynikov’s “golden ticket” to Teza and “he stood to make millions more” there than he did at the bank. Facciponti said Aleynikov spent several months planning his move, eventually transferring 500,000 lines of Goldman Sachs source code to an outside server.
Cote had revoked the bail of Aleynikov, a dual citizen of the United States and Russia, on the grounds that there was a risk of him fleeing before sentencing.
Throughout the trial and sentencing phase, many comparisons were made with a similar case in the same courthouse against a former Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) trader, Samarth Agrawal.
The citizen of India was found guilty by a jury last November of stealing high-frequency trading code from the French bank before going to a new job. On February 28, a judge sentenced him to three years in prison and he will be deported when he completes his sentence.
The case is USA v Aleynikov, U.S. District Court for the Southern District of New York, No. 10-00096.
(Reporting by Grant McCool; Editing by Tim Dobbyn)

Ex-Goldman programmer gets 8 years for code theft | Reuters: “Ex-Goldman programmer gets 8 years for code theft

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Insider Selling To Buying: 2,341 To 1 | zero hedge


Insider Selling To Buying: 2,341 To 1

Insider Selling To Buying: 2,341 To 1 | zero hedge

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