Insider Trading Insights, Twitter’s Big Bet, Hacking at the Fed

By Peter Ward     June 3, 2016

Insider Trading Examined

How do you take down an insider-trading ring? For more than seven years, the U.S. government has been aggressively prosecuting Wall Street traders who used inside information to make hundreds of millions of dollars.

Federal prosecutors in New York have secured 91 convictions and collected nearly $2 billion in fines, and the FBI continues to pursue cases such as that of a Las Vegas gambler accused of profiting from insider knowledge passed onto him by the former Chairman of Dean Foods. Bloomberg’s interactive article, published Wednesday, looks at how the feds build their insider trading cases.

The first interactive graphic shows what each person convicted over the seven years did. In some cases, traders paid cash to company insiders. The most in-demand information was data about technology companies and drug trials. And profits were huge – one trader, Roomy Khan, made $50 million on insider tips, according to 2009 insider trading charges against him.

The second interactive shows how the insider rings worked. These loosely overlapping groups consisted of insiders, traders and facilitators linking the two. One facilitator, Winifried Jiau, for example, collected $10,000 per month for herself while offering live lobsters and Cheesecake Factory meals to her sources in Silicon Valley.

The article then explains how the government caught people like Jiau. The ring structure that so efficiently put money into their pockets was ultimately their downfall, as the FBI infiltrated the insider rings and used wiretaps and informants to work their way up the chain.

Two interactives also show who served time and for how long, and who paid up in the form of fines. For those who didn’t cooperate with the FBI, the average prison sentence was 34 months. Convictions produced $1.94 billion in total fines over the seven-year period, of which one company, SAC Capital, paid $1.8 billion.

Twitter’s Big Bet on its Founder

In July last year, Twitter announced its CEO Dick Costolo was to leave, and his replacement was one of the company’s original founders, Jack Dorsey. Vanity Fair’s feature on Twitter’s big bet, published this week, examines the circumstances that brought Dorsey back to Twitter and the difficulties he has faced in his attempts to turn the company around.

The article begins with the day Costolo resigned and Dorsey’s return was announced. Costolo’s reign had seen the company grow from 300 employees to around 4,100, and revenues increase from literally nothing to around $2 billion a year. But in that time Twitter also slipped from the second largest social media company to the ninth. Worse still, Twitter’s monthly active user numbers, considered all-important in Silicon Valley, had become stagnant. The company’s stock had also declined steadily over 18 months.

Costolo, tired of investor revolts and backstabbing within his own executive team, offered to resign, and refused requests to stay on to help a successor settle in. The Twitter board decided on Dorsey as a replacement. But there was one problem – in the time since founding Twitter, leading the company, being forced out, and receiving the offer to return, Dorsey had founded Square, a hugely successful payments company that was due to go public in late 2015. Dorsey refused to quit his role at Square, and the Twitter board was forced to offer him a bizarre deal in which he serve as CEO of both companies at the same time.

The author then focuses on the corporate culture of Twitter. Insiders recount the public ousting of a communications executive after he attempted to resign, and the doomed product chief position, from which seven or eight people have been fired or forced to resign over the past decade. A board member described the company as “Shakespearean.”

Dorsey’s current reign has been far from successful. On July 1, 2015, the day Costolo left, Twitter stock closed at $35.40. This week the stock has been hovering around $15. Towards the conclusion of the article, reporter Nick Bilton, who also wrote a book on Twitter, asks board members what they will do if Dorsey fails. “There is no Plan B,” he was told. “This is it.”

U.S. Fed Hacks Revealed

The U.S. Federal Reserve’s cyber security was breached more than 50 times between 2011 and 2015, according to Fed records unearthed by Reuters on Wednesday.

Several of the incidents were described internally as “espionage,” the records show, and the central bank’s staff suspected hackers or spies. The Fed’s computer systems store critical financial information, such as records of discussions about monetary policy that drives financial markets.

Reuters obtained the cybersecurity reports through a Freedom of Information Act request, although they were heavily redacted to keep the Fed’s security procedures secret. The records obtained by Reuters only cover a small portion of cyber attacks on the Fed, as they only include cases involving the Board of Governors, an agency that is subject to public records laws.

The Reuters article comes at a time when cyber security is high on the agenda of financial institutions. In February, hackers stole $81 million from an account that the Central Bank of Bangladesh, called Bangladesh Bank, holds at the New York Federal Reserve.

“Hacking is a major threat to the stability of the financial system. This data shows why,” James Lewis, a cybersecurity expert at the Center for Strategic and International Studies, a Washington think tank told Reuters.

Brazil’s Economic Woes Continue

The next host of the Olympics games is facing a plethora of challenges as the opening ceremony draws near. Brazil’s economy shrank for the fifth consecutive quarter in the first three months of 2016, contracting by 0.3%. The country’s GDP also fell by 5.4% year-on-year.

Brazil is currently struggling with its worst recession in decades just as it reels from a huge political crisis. Last month President Dilma Rousseff was temporarily suspended by a congressional impeachment vote. She will face charges of breaking budget rules in a trial which will probably continue until September-charges that many Brazilians believe are a complete sham. Vice President Michel Temer, who himself faces corruption charges far worse than those against Rousseff, has taken over as interim president.

The Organization for Economic Cooperation and Development (OECD) cuts its economic growth forecast for Brazil, on the back of political and corruption concerns. The OECD says it now expects the country’s economy to contract by 4.3% this year. The latest economic data showed that production fell in all three of Brazil’s main sectors: agriculture, industry and services.

Economists had forecast the country’s economy would shrink by more than it did, but analysts say the better-than-expected numbers were due to Rousseff’s last ditch efforts to win public support through increased government spending. On Tuesday, it was announced that unemployment in Brazil had increased 11.2% between April and February.

The Brazilian recession began at the start of 2015, when the prices of commodities, the country’s main export, crashed. A corruption scandal at Petrobas, the state-run oil company, also affected numerous politicians and business owners.

Brazil will host the Olympics games in August, but the recession, together with corruption and the spread of the Zika virus, have raised concerns over the country’s ability to host such a major sporting event.

The Week’s Top Headlines

Uber Turns to Saudi Arabia for $3.5 Billion Cash Infusion – Mike Isaac, Michael J. de la Merced, New York Times

Premier League finances enter new era, says Deloitte – BBC

From $4.5 Billion To Nothing: Forbes Revises Estimated Net Worth Of Theranos Founder Elizabeth Holmes – Matthew Herper, Forbes

Opec leaders meet in Vienna as Iran rejects oil output cap –AFP

Johnson & Johnson to Buy Vogue Hair Care for $3.3 Billion – Kristen Hallam, Bloomberg News

Snapchat Now Has More Daily Users Than Twitter Does – Matthew Ingram, Fortune

Fed Governors Signal Bigger Bank Capital Requirements Looming – Ryan Tracy, The Wall Street Journal

Why Americans are giving up citizenship in record numbers – Yian Q. Mui, The Washington Post

EU throws support behind ‘sharing economy’ firms like Uber, Airbnb – Julia Fioretti, Reuters

Facebook sticks by Gawker attack funder Peter Thiel – BBC

This entry was posted on Friday, June 3rd, 2016 at 5:43 pm. It is filed under Week in Review. You can follow any responses to this entry through the RSS 2.0 feed.