> The people who get CAUGHT doing it are complete idiots

and/or greedy.

Even if you're "smart" about it, you can only hit so many lottery tickets before you come under suspicion.

I'd bet the best way to get away with insider trading is to do it once, make under $1 million, then walk the hell away and never speak of it.

Insider information isn’t guaranteed to let you predict the stock price. You are much more likely to actually make money with multiple small bets than any one big bet.

Yes, there have been several people charged with insider trading who actually lost money on the trades.

Martha Stewart was charged with insider trading - I'm mostly certain she lost money in the trade.

Also, she was convicted for LYING about insider trading.

Through insider trading, Martha Stewart avoided a $45,000 loss.

She lied repeatedly to investigators saying among other things that it was a pre-arranged trade. The person that tipped her off admitted everything though.

She went to jail for lying to investigators, obstructing justice, etc. And still had to pay a $195,000 civil fine for the insider trading!!

Source: https://biography.yourdictionary.com/articles/why-did-martha...

Imagine being a (former?) billionaire and going to prison over avoiding a $45,000 loss. I don't know what she was thinking.

Just to correct my last comment, after looking up the case, it seems Martha Stewart was actually not found guilty of insider trading. She was found guilty of lying to investigators.

How were they caught then?

The SEC will send a list to your compliance dept if they see weird trades (e.g. short-dated out-of-the-money calls) and ask if anyone on the list works there. The compliance dept also has a list of people with material non-public info and they get the list of people who made weird trades with the question “do you know any of these people?” If you know one and you didn’t provide them info then you say so because the implied threat is they’ll find out either way that you know one of them.

And the wild thing is that lying to a federal investigator is a crime in and of itself! So don't say you don't know the person they ask about.

18 U.S. Code § 1001 - Statements or entries generally

https://www.law.cornell.edu/uscode/text/18/1001

That's not exactly true, but to use a turn of phrase - close enough for government business! [1]

The lie is a felony but only when connected to a federal matter. [2] [3] [4]

[1] This used to mean (many moons ago) something of very high quality. However, as our government became ever more like what is _now_ our government, the idiom took on the opposite meaning: good enough to say it's done, so we can move on from it. It's also used to say when something is correct for the discussion but not in the broader sense. Source? My neighbor the FBI agent told me, and I've heard it in action many times since then.

[2] https://www.pagepate.com/experience/criminal-defense/federal...

[3] https://www.justice.gov/archives/jm/criminal-resource-manual...

[4] https://www.mololamken.com/knowledge-Is-It-a-Crime-To-Lie-to...

Rule the first: Don't talk to the police.

The SEC and the IRS are police.

Obligatory repost: https://www.youtube.com/watch?v=d-7o9xYp7eE&t=612s

insider trading does not imply making money. just trading on insider info.

Because they made over $3 million probably having done little to no trading prior to that run.

Pretty much anyone could spot insider trading patterns. I’d be willing to bet these guys were making bets only on Netflix in the form of short-dated options most of which typically expire worthless. If someone were to repeatedly aggressively buy low probability short-dated options around an event like earnings and win consistently you would be able to infer that they are trading on insider knowledge.

Of course recognizing the pattern is only half the battle. They also have to figure out how they are accessing the inside info, hence tracing the traders back to Netflix employees and conversations they had regarding paybacks, etc.

not enough to know the numbers, u have to know how market will react. I have seen many times a company post huge numbers that beat estimates and not go up much.

Good point - we'll file making negative money under "make under $1 million".

Even if you lost money the one time you did it, I'd probably still recommend doing it approximately once.

if the worst penalty means loss of gains, it is rational to do it at least once and be verrrry careful to not get caught

Martha Stewart went to prison for lying about a trade.

There's a "simple" solution to that: don't lie about it. If the SEC comes knocking on your door, refuse to talk to them until you've had a chance to consult with a lawyer, and then do what the lawyer says.

Nah, the safest way involves relatives in politics.

or just being a senator

Yeah, the write the laws and exempt themselves.

The thing is, 1 million is a pretty cheap price to sell your integrity. If you do get caught, you got caught over a relatively small sum. Once you've gotten your hands dirty, why not go all in? Why not go for James Bond villain money?

That's not rational, of course, but humans aren't rational.

You don't always have that option, rarely does someone say "Hey, I have a plan to steal unlimited amounts of money, do you think we should steal $1M or $100M"

Besides, unless you're already wealthy it's harder to hide the theft of huge sums of money.

It is rational if the punishment for insider trading stays relatively constant but the benefit increases with money traded - which it probably does.

pretty sure they claw it all back, then fine you, then you pay your lawyers, then they maybe throw you in jail.

> then they maybe throw you in jail.

If you are very rich they dont throw you in jail.

You forgot the (non-linear) increased risk of getting caught with each iteration.

It's worse than that. It's also something similar to no true Scotsman, because presumably the act of getting caught is the only piece of evidence used to argue that they're complete idiots.

“ This is selection bias. The people who get CAUGHT doing it are complete idiots.”

I used to know a Wall Street guy sometime around 2005. The way he presented it was that there is a ton of variations of insider trading going on. People talk to each other and insiders are always ahead of the general investors.

I tend to believe that. As creative , greedy, competitive and smart these people are I can’t imagine them not taking advantage of every opportunity they see. Also, in most other industries the regulators mostly go after the smaller guys because the big guys are too hard and expensive to prosecute.

Yea, I'd imagine if you have enough discipline (e.g. don't use your family to make the trades) and use tradecraft well (e.g. don't talk about it on slack or in text messages), it should be possible to get away with it. It would be neat to know how many hedgefunds do it and what process they follow to do it.

I am not uncertain. (Billions reference)

To elaborate - use someone who gets their hands dirty gathering info then communicates their certainty in code and in person.

congressmen and women have been caught doing it yet nothing is ever done.

Congress critters are exempt from insider trading laws. Insider trading by congress (and their staffers and family) was briefly made illegal by the STOCK Act of 2012 [0] and quietly neutered a year later.

[0] "STOCK Act - Wikipedia" https://en.m.wikipedia.org/wiki/STOCK_Act

True!