> Most insider traders are never caught

Executing an inside trade profitably and secretly is difficult. Catching it ex post facto is easy. (The SEC scans for unusually profitable trades and accounts. These systems are thorough, clever and effective. When they're updated, they re-run back data through the statute of limitations.) This is the P != NP element of insider trading that outsiders miss.

It's why inside traders are usually unsophisticated. They assume Wall Street is doing it. That they're getting the short end of the stick. So they run out and buy out of the money calls or whatever through their nephew's account and get nailed.

This is not at all in line with research on the field.

> It's why inside traders are usually unsophisticated

Insider traders who get caught are usually unsophisticated.

There is a huge survival bias here: the ones we know who did it are unsophisticated about it so were easy to catch. The ones we suspect might be doing it are sophisticated enough that there is no evidence of their wrong doing. Maybe they aren't doing it, or maybe they are just good at doing it.

One of the ways hedge funds do, or used to, do is this strategy: trade a ticker very regularly (every other day, or thrice a week), then get the insider info, make the profit in that week. Then buy and sell. A month later, move on to another ticker.

I mean, for the people in this case it seemed like that they communicated that they relied on the database access in writing somewhere that was the issue.

Surely if they, by (supposed) conjecture, figured that the company might do better if people are more dependent on phone calls in lockdown (a reasonable assumption), and there was no evidence to the contrary, how from a technical basis would it look any different from someone simply going "oh yeah my company looks like it's gonna do great, I'd recommend getting some shares"?

I wonder if this investigation would have had teeth if it had relied on coffee shop conversations as opposed to digital media.

Not really a matter of most are never caught but a matter of people doing really stupid trades because they think there's no way SEC's paying someone to check they cleared all their open positions to buy deep out of the money call options just days before a big company announcement.

My suspicions are many on Wall Street do it.

my guess is if they did everything via in person discussions and didnt leave a paper trail of messages, they likely wouldnt have been caught

Matt Levine wrote some good articles on how people get busted.

The main point is you can't buy or sell securities without identifying yourself. So when someone opens a new account and buy out-of-the-money call options that expire a few days after an earnings announcement it's not hard for the SEC to flag all those.

Then all they have to do is look up that person and see if they have any connection to the company. They can look at who you are connected to on LinkedIn, who you live with, where your family is employed. Then they come to that person and ask them a question that seems innocuous "Have you ever discussed Company X with <insert name>". If you lie, then you've already committed a felony when they get your text records or email or Whatsapp.

I think an element people miss is that to make more than negligible amounts of money from this stuff, you generally need to invest large amounts or or make the trades many time, or both. ... and this generates a pretty strong signal.

"Hmm. This guy just bet his entire account on a crazy bet and won" or "Hmm. This guy flipped a coin and it came up heads 20 times in a row."

Exactly.

I have no idea if it would work, but having a few years of making similar trades (some winners/some losers) likely helps stay off the SEC's radar.

A track record of buying and selling similar options in similar amounts is much more explainable than only contributing a few thousand to your Roth IRA by buying ETFs, then suddenly making a few hundred thousand on your first options purchase that so happened to be in a single company that a LinkedIn contact works for.

By the time the SEC is knocking on your door asking questions you're already screwed.

they almost always get caught. The SEC is so good at detecting this stuff especially when people do it many times thinking they got away with it the first few times. .

Can you find any sources to support this claim? It is easy to find sources claiming the opposite.

And no, it’s really difficult for SEC to detect any but the most basic forms of insider trading.

Try to apply some adversarial thinking and envision a situation where you want to insider trade, but don’t want to get caught.

I have seen cases where people get caught even after using many middlemen/intermediaries involving seemingly multiple unrelated contacts, breaking the trades up into tiny batches, using encrypted chat services, making normal trades and trying to mix the illicit trades in.

>Try to apply some adversarial thinking and envision a situation where you want to insider trade, but don’t want to get caught.

Criminals take great efforts to not be caught and still are.

> Criminals take great efforts to not be caught and still are.

Insider trading is not like other crimes.

Consider the reasons why it is criminalized, which have been discussed elsewhere under this post.

Agree with that, it's a bad analogy. These guys that got caught are the tip of the iceberg. They probably did something reckless in the process.