Insider Trading Patterns Sending Up Red Flags
The SEC don’t mess around when it comes to insider trading. They got special data analysis software looking for suspicious patterns that suggest someone’s trading on non-public info. Even if the profits don’t seem huge, they’ll drop the hammer if the trading looks sketch. Let’s get into some shady patterns that’ll have the SEC taking a closer look.
Repeated Below-the-Radar Profits
You know what they say – the straw that breaks the camel’s back. If someone makes a string of profitable trades that are just under the radar, the SEC takes notice. They call it “repeated access to valuable non-public information.
“Like, maybe some mid-level manager dumps his stock right before bad earnings news drops, 3 quarters in a row. Or an analyst’s brother-in-law somehow buys right before every acquisition. Even if the profits are small, the SEC sees the pattern.
They don’t care if it was “just a hunch” or you’re “just lucky.” If it looks suspicious, they investigate. And once they start digging into phone and email records, something always turns up.
Out of Character Trading
If some exec whose held stock for years suddenly starts trading actively before news drops, some red flag’s is waving. Especially if they haven’t sold shares in ages.
Or like if a usually buy-and-hold investor starts daytrading ahead of news. Even if the profits are small, it raises eyebrows.
Changes in trading patterns often mean someone’s got insider info. And the SEC’s analysis sees it pretty quick.
Weird Options Trading
The SEC’s got their eye on unusual options activity too. Say some no-name investor bets big on short-dated out-of-the money calls right before news that pops the stock. You better believe they’re investigating that crap.
Especially if it’s big bets relative to the investor’s net worth. The SEC knows odds that good are near impossible without inside info.
They even check for connections between options buyers and sellers too. Like if someone sells calls to their brother-in-law right before news breaks. Think that trade don’t show up on the SEC’s radar? Lol.
Circles of Friends Get Burned
It’s not just direct insiders the SEC targets. They look at networks of friends, colleagues, relatives, hookups, whatever. Some analyst passes a hot tip to his college roommate who tells his golf buddy? Best believe that crap gets found out.
They look for commonalities across unusual trading patterns. Same social circles, colleagues, whatever. The connections might seem random but analytics connects the dots.
And once they got someone on insider trading, best believe they’re flipping them as informants too. Cutting deals to spill other names. The whole circle getting burned.
So if you come across hot insider info, do the smart thing – keep your mouth shut and don’t trade on it! Trying to get rich ain’t worth landing in prison and everyone you know hating you. The SEC’s got way too many tricks up their sleeve, feel me?
https://corpgov.law.harvard.edu/2018/08/28/making-a-case-for-insider-trading/
https://www.sec.gov/files/enforcement-annual-report-2019.pdf