Insider trade on Splunk acquisition?

I don't know if this is genuinely suspicious or not. Is buying 20K of options an unusual thing? Or is this something that happens regularly with options expiring worthless or with a small gain - and it just happened to hit big this time?

IE "someone bought a lottery ticket and won" - interesting to know if they play the lottery every other day (and don't usually win?)

"short-dated out-of-the-money call options that cash out a day after a merger/acquisition" is, like, the definition of a suspicious transaction. Somebody's gonna get a knock on the door from the SEC.

It's definitely suspicious and will probably be looked into. If it turns out it's a trader who regularly buys soon-to-be-expiring option calls, maybe it'll fly. But if the trade was made by someone who doesn't regularly make $20,000 options bets, they will need a good explanation.

Maybe unless that person was a US senator/congressperson.

But lottery-ticket options trading is done all the time. The fact that the options expire the next day is part of the strategy (because before that, the options cost more). $20k might sound like a big stake but you don't know the size of the trader's portfolio, it might be 0.01% of it, and they didn't stand to lose the whole thing necessarily.

All true in the abstract. But doing it the day before an acquisition is always gonna earn you a door knock, even if you're a serial gambler.

Buying 20k of options when there's a 99.99% chance of them being worth $0 is pretty unusual, unless you're actively regularly trading in the millions.

This is false. Then-sitting Congressman Chris Collins (R-NY) pled guilty and was sentenced to 26 months in prison for insider-trading back in 2019-2020. He was pardoned by President Donald Trump as one of his last official acts as President, but Collins still spent 10 weeks in prison for insider-trading as a sitting congressman (this was for knowledge he gained outside of his duties as a congressman, it was knowledge he got as a member of the Board of a company).

Congresspersons separately aren't allowed to trade on things they learn from their job- that was banned in 2012 under the STOCK act.

If they obtained info about this through their role as a senator/congressperson, and not just through normal channels. If I understand it correctly:

Insider trading off of classified or whatever info they get from their senate/congress job - not illegal (though imo it should be illegal). (Edit: as mandevil points out, strictly speaking illegal, but largely uneforceable/unenforced)

Insider trading off of info they got from their buddy at XYZ place who knew about something ahead of time, unrelated to their senate/congress job - still illegal, same as for other people.

Yeah, this is not that suspicious IMO. The trade was opened yesterday when Splunk was at $119. They just needed a 7% gain by Friday to be profitable on their $127 calls. Traders make those kind of gambles all the time.

Banned, but not enforced, and due to the 2013 removal of electronic disclosure requirements, harder to detect?

https://campaignlegal.org/update/part-2-stock-act-failed-eff...

Not at this volume. Also, typically they do it for indices and typically based on some event (e.g., rate announcement), not on a heels of an unknown acquisition.

Why don’t people track the investments of senators and congresspeople and race to follow them? It seems like an easy way to get nearly insider trading.

// unless you're actively regularly trading in the millions.

A lot of people/organizations bet in the millions.

In 2013 the electronic disclosure part of the 2012 STOCK act was removed, so they can just disclose in some way you can't follow.

Because:

> Trades executed by lawmakers or their families must be disclosed within 45 days of execution

Is probably an issue (it's it's actually insider trading).

People do track it, though:

https://www.capitoltrades.com/politicians

Sure, and the SEC investigation will probably figure out if this is one of a thousand daily trades that got placed by the beneficiary, or if he opened a trading account last week, and this is the first time he's buying options.

This is a thing: https://www.quiverquant.com/sources/senatetrading

Why will they need a good explanation? Can't they just say I lucked out and the burden of proving insider trading would fall on the SEC? Innocent until proven guilty right?

If they did not usually trade in such options but suddenly started doing so the day before it had a major market-moving event, that could be the type of "reasonable suspicion" that you need to get a search warrant from a judge. From there on, investigators could demand access to (say) electronic communications to determine if the person doing the trade got a text from a friend saying "yo buy 20k of short term call options on Splunk you won't regret it bro" or something similar.

Especially if the person doing the trade is found to be employed by (or closely related to someone employed by) Cisco or Splunk or one of their banks.

Eh, my take is that the electronic disclosure stuff makes this more annoying for the activists- the people who are building dashboards of Congressional performance etc.- but doesn't fundamentally change the nature of the problem. The activists still build their dashboards, still comb through the documents and find things that look really bad, it's just slightly more out of date and slightly more work for them.

I do think that something like the Ban Congressional Stock Trading Act (everything in a blind trust), or its even more draconian (no blind trusts, just sell!) Ban Stock Trading for Government Officials Act will probably pass, eventually. Those are general markers for where we are going. But to just say "It's not illegal if you are a Member of Congress" is flat wrong and encourages a level of cynicism that makes it harder to actually fix the problems we face today.

They could probably just tell the SEC, "I think you're a bunch of stupid doodooheads" and see how well that works.

Even worse than opening a trading account last week: they've got a looooong history of doing nothing but the most boring buy-and-hold-index-funds investing you can imagine, until they suddenly bought 20k in lottery tickets that just happened to hit their one-in-a-billion chance to pay out.

That was the point of the post you originally replied to...

Yes, if the SEC chooses to refer to the US Attorney then the gov't will need to prove to a jury that insider trading occurred.

But, to start, the SEC will just come knocking and asking questions. If you have a good explanation then they'll go away. But if you don't then they'll keep digging, get warrants, etc.

If it's some random hedge fund that makes these bets all the time then the SEC will probably go away. If it's a broke old lady who opened her brokerage account a week ago then it's pretty clear what's going on, and they'll have the tools they need to turn the screws and get to the bottom of it. And if it's someone whose wife works in Cisco M&A then it'll be pretty open and shut because these kinds of mergers keep track of who had access to what info, for exactly this reason.

Works great if your rich enough.. Maybe they will go private at $420 a share.....

A jury gets to decide whether the evidence proves the crime. Do you think a prosecutor could convince the jury that no reasonable person would make that bet without insider knowledge?

I've been downvoted here before for telling people what Musk says SEC stands for. But this guy didn't make plutocrat money off the trade, so he should watch his back for sure.

As in they need to announce them 45 days before they make them? Or 45 days after?

After

And really, the stuff banned by the STOCK act is separate from insider trading which is why it needed a separate rule.

It’s a pretty common occurrence in r/wallstreetbets

After.

Or you're a subscriber to /r/wallstreetbets

We really ought to make them disclose them in advance like CEOs.

I would be 100% supportive of all congresspeople being required to file 10b5-1 plans in advance for the whole year, for any stock holdings

Right, they still get legally protected insider trading otherwise.

The public ought to benefit from the same insights and info.

And if a trade disclosure would be considered a threat to national security for some reason, you don’t make the trade.

Has anyone calculated how much $$$ has been made by Congress folks due to this type of trading?