Equifax CIO Put ‘2 and 2 Together’ Then Sold Stock, SEC Says(bloomberg.com)
bloomberg.com
Equifax CIO Put ‘2 and 2 Together’ Then Sold Stock, SEC Says
https://www.bloomberg.com/news/articles/2018-03-14/sec-says-former-equifax-executive-engaged-in-insider-trading
48 comments
Dupe of https://news.ycombinator.com/item?id=16584980
"Three Equifax Inc. senior executives -- Chief Financial Officer John Gamble, and unit presidents Joseph Loughran and Rodolfo Ploder -- sold shares worth almost $1.8 million in the days after the company discovered the breach. Equifax has said those three executives had not been informed of the incident when they initiated the sales."
While I'm not sympathetic to the U.S. CIO named in this article, I find it somewhat dubious that none of the above executives knew anything. In any event, I wouldn't take Equifax's word for it. The finance dudes get a clean bill of health, and the tech guy gets thrown to the feds. Again, not that Ying deserves my sympathy either, but...
While I'm not sympathetic to the U.S. CIO named in this article, I find it somewhat dubious that none of the above executives knew anything. In any event, I wouldn't take Equifax's word for it. The finance dudes get a clean bill of health, and the tech guy gets thrown to the feds. Again, not that Ying deserves my sympathy either, but...
> The finance dudes get a clean bill of health, and the tech guy gets thrown to the feds.
Maybe the finance dudes are not so retarded to sell their stock immediately after one of the biggest data leaks in history with no ahead of time sell plan, and after googling what was the impact on the stock price of another data leak.
Pretty bad op-sec for a tech guy. Or maybe he's just financially clueless, and doesn't know the the reason this doesn't happen more often (executives selling after really bad news) is exactly because the SEC it's doing a good job policing it and finance guys know that you need a SEC-proof alibi for any sell.
The reason that many stocks drop sharply 5-10% after some company news releases after being relatively flat is exactly because executives are scared shit-less of selling or leaking the info before that news is public.
Maybe the finance dudes are not so retarded to sell their stock immediately after one of the biggest data leaks in history with no ahead of time sell plan, and after googling what was the impact on the stock price of another data leak.
Pretty bad op-sec for a tech guy. Or maybe he's just financially clueless, and doesn't know the the reason this doesn't happen more often (executives selling after really bad news) is exactly because the SEC it's doing a good job policing it and finance guys know that you need a SEC-proof alibi for any sell.
The reason that many stocks drop sharply 5-10% after some company news releases after being relatively flat is exactly because executives are scared shit-less of selling or leaking the info before that news is public.
Maybe the finance guy noticed the CIO putting in a huge sell option and figured "he might know something, better join in" and this caused the others to follow suit.
That would still constitute insider trading.
The finance dudes were retarded enough to sell their stock after one of the biggest data leaks in history.
"Three Equifax Inc. senior executives -- Chief Financial Officer John Gamble, and unit presidents Joseph Loughran and Rodolfo Ploder -- sold shares worth almost $1.8 million in the days after the company discovered the breach."
"Three Equifax Inc. senior executives -- Chief Financial Officer John Gamble, and unit presidents Joseph Loughran and Rodolfo Ploder -- sold shares worth almost $1.8 million in the days after the company discovered the breach."
>Pretty bad op-sec for a tech guy.
In general, security does not seem to be his strong suit.
In general, security does not seem to be his strong suit.
The new, tacit paradigm is that to earn big bucks you have to "do what needs to be done" while preserving executive deniability. This is a big part of the reason why no big fish were even threatened with prosecution in response to 2008. This style of management is a response to the prosecution of Enron executives, and the jailing of Milken after the 1987 crash, and it resembles the Mafia's omerta.
Galling as it may seem, the way to combat this is the same as with the Mafia: you have to go after the mid-level people who facilitate it. In this particular case, the CIO is going to have a particularly hard job denying that he knew something was up, even if he had tried to maintain a veneer of ignorance. The best he (and we) can hope for now is for him to cooperate, and help uncover any evidence there is showing the others did know.
Galling as it may seem, the way to combat this is the same as with the Mafia: you have to go after the mid-level people who facilitate it. In this particular case, the CIO is going to have a particularly hard job denying that he knew something was up, even if he had tried to maintain a veneer of ignorance. The best he (and we) can hope for now is for him to cooperate, and help uncover any evidence there is showing the others did know.
To avoid this couldn't an exec announce their intention to sell as public and early as possible and cite "divorce/third house/mega yacht" as the reason for the sale?
Any counsel worth their salt won’t let them trade if there is any non-public material news, no matter what other reasons there may be for selling.
This is why most high level execs will put in place pre-arranged plans (10b5-1) for selling at different thresholds and time periods.
This is why most high level execs will put in place pre-arranged plans (10b5-1) for selling at different thresholds and time periods.
Lou Pai famously sold his Enron stock in a divorce settlement, after his wife left him because of an affair with a stripper. He got away with $280 million and no insider trading charges.
He and the stripper are now married and spend their time training dressage horses.
He and the stripper are now married and spend their time training dressage horses.
You gotta love that happy end.
Sacrificial goat comes to mind.
If you guessed that your employer may be in trouble and then sold stock, is that considered insider trading?
Let's say, you are in charge of security. The CEO is never interested in your work. One day, you got an invitation to meet with the CEO. You sold all your stock before you go to the meeting (based on a guess that something bad might have happened). Is that illegal? Is the meeting invite considered material non public information?
Let's say, you are in charge of security. The CEO is never interested in your work. One day, you got an invitation to meet with the CEO. You sold all your stock before you go to the meeting (based on a guess that something bad might have happened). Is that illegal? Is the meeting invite considered material non public information?
The SEC has rules for what constitutes legal and illegal insider trading: https://www.sec.gov/fast-answers/answersinsiderhtm.html
Generally though, the rules don't disallow average employees from guessing about the future stock price. It becomes illegal insider trading if somehow you had obtained material non-public information to make the decision.
Generally though, the rules don't disallow average employees from guessing about the future stock price. It becomes illegal insider trading if somehow you had obtained material non-public information to make the decision.
The mere fact of meeting invite, standing alone (no other information that you had, innocuous subject line, etc), would be non-public, but would probably not be found to be material.
However, if you're the Equifax CSO and the CEO is never interested in your work, you might want to sell your shares as soon as they vest anyway.
However, if you're the Equifax CSO and the CEO is never interested in your work, you might want to sell your shares as soon as they vest anyway.
I'm not a lawyer, but I expect that would depend on if you were aware of non-public information that could affect that decision.
Can you prove whether you guessed or knew something only an insider would have known?
Appalling. One would have thought that a C-level officer in a listed company would know enough about insider trading as to not do it...
What's mind-boggling to me about this is to take such a risk over such a paltry (for a C-level) amount of money.
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On the other hand, we simply accept insider trading as one of the perks of Congress.
Those are pretty much the same people who know enough insider info to even be in a position to trade on it....
When there's insider trading happening, it's almost always a C-Level person or someone closely connected to him.
When there's insider trading happening, it's almost always a C-Level person or someone closely connected to him.
The company was intentionally keeping him in the dark about the matters, and he put things together. Is that really insider trading?
Insider trading requires inside _knowledge_. Deducing it oneself is not a defense. Just like classified information, it doesn't matter how you got it, it matters what you do with it.
At what point does the deducing it yourself become allowable(if ever)? If I work at Amazon, and see Bezos in a conference room banging his hands on a desk and raging(which is not his normal behavior at all), I sell AMZN based on that, and then it turns out they had a massive data breach that tanks the stock price, is that insider trading?
> Ying was invited to a mandatory conference call. While he didn’t initially join the call, one of his direct reports did, the SEC said.
He was trying to sell his stock and didn't wait an official trail of him knowing about it. It would be hard to deny knowing about it once he joined the conference call. Did I read that right? Because that's what it sounds like to me.
> “VERY large breach opportunity”
"opportunity" what does that even mean? Were they celebrating and planning on monetizing it? That kind of makes sense I guess. Since they get to charge people to freeze their credit, their stock has recovered and executive retired happily to Bahamas or wherever. It was an opportunity after all!
He was trying to sell his stock and didn't wait an official trail of him knowing about it. It would be hard to deny knowing about it once he joined the conference call. Did I read that right? Because that's what it sounds like to me.
> “VERY large breach opportunity”
"opportunity" what does that even mean? Were they celebrating and planning on monetizing it? That kind of makes sense I guess. Since they get to charge people to freeze their credit, their stock has recovered and executive retired happily to Bahamas or wherever. It was an opportunity after all!
Per the complaint, with my notes in brackets:
Project Sparta [breach tooling team] was kept separate from Project Sierra [breach action team] to limit the number of people who knew that Equifax itself had been breached. Those Equifax employees who were only part of Project Sparta were not told that Equifax had been breached, but were instead told that they were working for an unnamed client that had experienced a large data breach [...]
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...
Project Sparta [breach tooling team] was kept separate from Project Sierra [breach action team] to limit the number of people who knew that Equifax itself had been breached. Those Equifax employees who were only part of Project Sparta were not told that Equifax had been breached, but were instead told that they were working for an unnamed client that had experienced a large data breach [...]
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-4...
I suppose the firewalls between Project Sparta, Sierra, and the rest of the company explain why the 'equifaxsecurity2017.com' or whatever it was called website was a completely separate thing and not part of equifax.com
No, that was public relations 101. Equifax the company and their domain can move past the beach without dragging along the baggage that's attached to that quasi-random, only ever so slightly connected domain. Mitigation playbook page 1, baby!
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"Prosecutors say he searched on the internet for what might happen to Equifax stock when the news of the attack broke"
1) CIO should probably know the answer w/o searching. 2) CIO should probably know how to search w/o leaving evidence trail (incognito mode in a coffee shop on personal laptop for starters).
1) CIO should probably know the answer w/o searching. 2) CIO should probably know how to search w/o leaving evidence trail (incognito mode in a coffee shop on personal laptop for starters).
If insider trading laws didn't exist, would we have known that something was wrong more quickly? Are high-volume trades from executives public? It seems to me that insider trading laws mean people take every step to keep bad things about a company secret, which is not good for consumers.
It's not about keeping bad things about a company secret - it is about letting the world of investors know at the same time important information.
That's not the point of insider trading laws. The point is to prevent misappropriation of insider knowledge that you acquire as a course of fulfilling your job responsibilities.
If you have material information about a company that others don't, you're more than welcome to trade based on it. The profit incentivizes accurately pricing securities. If you know that some other company is concealing massive fraud, feel free to short the daylights out of it and write an exposé.
If you have material information about a company that others don't, you're more than welcome to trade based on it. The profit incentivizes accurately pricing securities. If you know that some other company is concealing massive fraud, feel free to short the daylights out of it and write an exposé.
All executive (officer) trades are public. You can typically find it on a companies investor relations website.
I wonder if this is a step on the way to going after the CEO too.
According to this article, apparently, the other executives hadn't been "informed of the breach" when they sold their stocks.
My bullshit detector is going off the charts.
My bullshit detector is going off the charts.
No kidding. He wasn't told either, but easily figured it out. The rest of the executives should by charged with insider trading if they knew, or fired for incompetence if they were unable to figure it out.
What would’ve happened if this guy just bought some puts in a regular brokerage account?
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Equifax is still around? :-(