SEC

Here’s a strange little SEC securities fraud case. Imaging3 is a small, now-bankrupt medical imaging device company that was developing a 3D scanner (pictured right, with CEO Dean Janes) that certain members of the medical establishment did not like, quite possibly because it didn’t work, hard to tell. Imaging3 sought FDA approval for its scanner and, in October 2010, the FDA rejected its application. On November 1 after the close, the company announced that it had received this rejection and held a conference call with investors. Janes, the CEO, was mad:

Janes informed shareholders and others on the call that the FDA’s rejection of the submission was not based on concerns regarding the device’s technology or image quality or the safety of the device. Instead, at numerous points during the call, he described the FDA’s denial as “ridiculous,” “administrative,” “not substantive,” and”nonsensical.”

During the November 1 call, Janes omitted any mention of the FDA’s specific and substantive concerns. For example, he never explained in any way that the FDA had determined that the use of certain sample images was “scientifically invalid and useless,” or that the FDA had expressed concerns about vibration hazards or overheating of the device.

So a difference of opinion then? Read more »

A question that you may or may not find interesting is: have the U.S. government’s rather strenuous recent efforts to stamp out insider trading actually reduced insider trading? How would you go about answering that, if you really wanted to know? I guess the right approach would be a survey; like, go email every hedge fund manager and ask “have you insider traded in the last 12 months? more or less than you used to?” and see what they say. That has … problems, so you look for proxies. Do stocks tend to go up, on heavy volume, before the announcement of secret good news? Then that at least suggests that someone traded on the secret good news before it was announced. It’s something.

A while back I idly committed some pseudoscience about pre-merger trading and found some indications that (1) stock prices and volumes tend to increase before mergers and (2) that increase has been more pronounced in say 2009-2013 than it was in say 2001-2008. This would seem to be weak evidence of increasing insider trading? This was a little puzzling given:

  • those strenuous efforts, lots of people going to jail for long periods, etc.; and
  • my assumption, anyway, that traders would be rational and competent judges of risk and reward who would weigh the increased odds of being caught and sent to prison in their decision to insider trade or not.1

But there my pseudoscience was. Anyway I learned today (via) about a recent study where some b-school professors committed some … I dunno, whatever b-school professors do, something between “pseudoscience” and “science” … of their own and got the opposite result, so I figured I’d pass it along. Here’s the abstract: Read more »

Evidence.

Well, technically there’ll be some, but a lot fewer instances than in the past. Don’t do the crime if you can’t do the can’t do the time and admit publicly to [circle all that apply] insider trading/running a fake hedge fund/blowing investor money at T.G.I. Friday’s. Read more »

“Self-regulation is a unique and fundamental component of federal securities regulation in the United States,” the SEC begins its order against the CBOE announced today, but it’s also a little silly. It’s right there in the name! If you’re doing it yourself, it’s not regulation; it’s just some stuff you’re doing. Regulation is being forced to do what you don’t want to do. And who better to force you to do what you don’t want to do than a voluntary organization that relies on your business to pay its salaries? Lots of people probably.

“CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC’s charges,” from which you’d think there was a lot of terrible malfeasance. But not really? The order is more like a list of minor harmless-ish lawlessness by CBOE, albeit a long and varied list. As best I can tell it grew out of a sequence of events something like the following:

  • A CBOE member firm, optionsXpress, engaged in a mildly complicated naked short selling scheme in violation of Regulation SHO.1
  • CBOE didn’t catch it because, basically, they were dolts at Regulation SHO. From the order:2

Read more »

If you’ve been really closely following the SAC-Diamondback-expert-network-etc.-etc. insider trading investigations you might be able to keep the players straight but it’s beyond me. I have a hard enough time keeping one list of their prison sentences. The SEC’s new case against Whittier Trust and Victor Dosti really ought to come with a flowchart:

During at least 2008, a Dell employee (the “Dell Insider”) passed material nonpublic information regarding Dell to Sandeep Goyal (“Goyal”), an analyst at a New York-based investment adviser who had previously worked at Dell. … Goyal, in turn, passed this material nonpublic information to Jesse Tortora (“Tortora”), who at the time was an analyst at the investment adviser firm Diamondback Capital Management, LLC (“Diamondback”). … Tortora, who was a member of a group of hedge fund analysts who regularly shared material nonpublic information regarding technology companies, passed the material nonpublic information that he received from Goyal to other members of the group, including [Whittier Trust employee Danny] Kuo. … Shortly after receiving the Dell inside information from Tortora, Kuo communicated the information to Dosti.

Oh what the heck here’s a flowchart:

I guess that wasn’t so hard. Read more »

Badin Rungruangnavarat knows what we’re talking about. Read more »

Today in when prediction-markets-are-outlawed-only-outlaws-will-run-prediction-markets news, the SEC and CFTC have sued Banc de Binary, a prediction market that sounds like it’s no Intrade:

Banc de Binary solicited customers in the United States. … It broadly advertised its websites to individuals in the United States through YouTube videos, spam emails, and other internet-based advertising.

Also it’s a “Cypriot and Israeli company … based in the Republic of Cyprus and regulated by the Cyprus Securities and Exchange Commission (‘CySEC’),” so even if they are keeping your money in an escrow account at a bank it’s still not safe, ZING.

I dunno, is Banc de Binary a scam? I like the name: you say “prediction market,” they say “binary option,” someone says “online betting,” but they all mean roughly the same thing. And the website has I think median levels of eye-bleeding scrolling overpromising hyperbolic red-and-green flashing misery for an online trading site. “Spam emails” sounds bad but for the rest BdB advertises 24/7 live customer support and the SEC backs them up, saying as though it’s a bad thing “Banc de Binary also solicited potential investors in the United States by sending them emails, calling them on the telephone, and chatting with them via instant messenger over the Internet.”

Also the SEC’s (and CFTC’s) allegations about the harms of BdB are pretty meh. E.g.: Read more »