Trading On Inside Information While Posing As Your Own Mother Is Not Legal: Preet Bharara

Maybe try a little harder next an aunt perhaps?

Here's a conundrum: You're an analyst at a fund who just came across some sweet inside info on a pending private equity deal, and you just know that you could turn a tidy little profit if you could somehow manage to pull off a small trade and grab a taste...just a taste. But how?


And don't forget Preet Bharara is out there. Hunting. Tenaciously stalking small fires like you in order to prove once and for all that insider trading is still a thing that exists. You gotta play this smart.

Or if you're John Afriyie, formerly of MSD Capital, you play it not very smart at all.

Take it away, Preet:

"In February of this year, John Afriyie made a quick $1.5 million profit by trading in options of ADT stock. His profits were not the result of trading acumen, diligent research, or blind luck, but rather the alleged spoils of criminal insider trading. Afriyie allegedly traded on material nonpublic information he had obtained about a pending acquisition of ADT that had not yet been made public." 

Oh Johnny boy, you never inside trade on your own account! That's just Criminality 101... What's that you say? It wasn't your account?

But then who's was it?

"Afriyie’s attempts to keep his alleged criminal insider trading secret by trading in his mother’s name failed, and thanks to the efforts of the FBI and the SEC, he will now answer to federal securities fraud charges.”

Your mom? Really?

In approximately 28 separate transactions between January 28, 2016, and February 12, 2016, AFRIYIE purchased approximately 2,279 ADT call options for a total of $24,254.02 before the public announcement of that transaction. AFRIYIE purchased the ADT call options through a brokerage account in the name of AFRIYIE’s mother, which AFRIYIE controlled. 

So... Happy Mother's Day from Preet Bharara and the entire US Attorney for the Southern District of New York family!

Manhattan U.S. Attorney And FBI Assistant Director Announce Insider Trading Charges Against Analyst At Investment Fund [DoJ]


After The STOCK Act It Will Still Be Legal To Trade On Congressional Inside Information*

Here's a sort of touching monologue from David Einhorn's call with Punch: If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done -- signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the -- you know what’s going on here. And -- and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you. You could sort of see why the FSA read that to mean that he was insider trading. Like ... (1) You have told me something with signalling value. Sorry - "a lot of signalling value." (2) I will now act on that signal. (3) Don't be mad. "Signalling value" sure sounds like it means "material nonpublic information," doesn't it? Now as we've discussed before, trading on that information would not be enough to make Einhorn guilty of insider trading in the US, though maybe it wouldn't be exactly a great idea here either. Why? Because in our weird but sort of sensible insider trading laws, it's just not illegal to trade on material nonpublic information. It's only illegal to trade based on material nonpublic information that was obtained in violation of some sort of duty of confidence. Since Einhorn didn't sign an NDA, he had no duty of confidence. And since the Punch CEO and bankers weren't tipping him for nefarious purposes, but were instead sounding him out on the company's behalf as a shareholder and potential investor in a new capital raise, they weren't breaching their duty of confidence. You could quibble with the details of that but it's basically the law here. In England not so much. That also seems to be the law for our friends in Congress, who recently passed a law making it illegal for them to insider trade, which is worrying some people who make their living from trading on Congressional inside information: