"Insider Trading by Other Means" -- The Lucrative Loophole of the "J-Coded" Trades

Insiders’ ‘Other’ Trades Are Just Too Profitable

Case in point: A new paper by an influential research group finds that insider trades that are disclosed in an opaque fashion are often, suspiciously, among the most lucrative. When insiders disclose their trades to the Securities and Exchange Commission, they’re often — but not always — coded with a “P” (for purchases) or an “S” (for sales). Any armchair regulator can figure out that something’s fishy when S transactions accumulate just before a negative piece of news that moves the stock. Alas, it’s frequently more complicated than that.

In fact, it turns out that the most profitable trading by insiders doesn’t involve S-coded trades at all, but is instead filed under the umbrella term of “other” dispositions (those with the J code) — a discovery that the researchers suspect is consistent with deliberate and widespread efforts to confuse people and avoid scrutiny1. According to “Insider Trading by Other Means,” insider trading involving J-coded share dispositions meaningfully outperforms the market, and seems to be on few people’s radar. The J-coded trades amount to more than $3 trillion in the sample period and are “mentioned in essentially no criminal indictments, civil complaints, news articles or scholarly papers,” write authors Sureyya Burcu Avci, Cindy A. Schipani, H. Nejat Seyhun and Andrew Verstein. In essence, those profiting from inside information may have found a loophole in the trading disclosure rules that allows them to evade SEC scrutiny.

Chief Compliance Officer Pay Rises, but at a Slower Pace

Chief compliance officers continue to rake in more money, but increases in most sectors have slowed, according to a new survey.

Median compensation—which includes base salary plus bonus—for compliance chiefs at public companies rose 7% to $419,000 in 2024, while it climbed 12% to $250,000 at nonprofits, according to a March survey of compliance heads conducted by boutique executive search firm BarkerGilmore. The median CCO salary and bonus at private companies dropped 1% to about $300,000.

Don’t Buy The Buzzwords: “AI Washing” Gets Its Reckoning

Key Takeaways

As evidenced by these enforcement actions, the SEC is taking AI Washing very seriously and companies should be diligent and honest to ensure that they do not engage in this practice – either intentionally or inadvertently. To ensure compliance with the SEC’s protocols, companies should consider the following:

–Fully and accurately disclose your AI usage. AI capabilities vary, so avoid using boilerplate language that is either overly vague or broad. Also avoid using vague or exaggerated claims and hypothetical examples to describe what your AI model is capable of doing.

–Be specific about the nature and extent of your AI technologies, the role AI plays in your business operations, and any potential risks or limitations associated with AI.

–Understand how your key service providers employ and use AI, as that will likely be the focus of future SEC oversight rules….

Australia’s Securities Regulator Sues ASX for Misleading Statements About Blockchain Project

Australia’s Securities and Investment Commission (ASIC) has sued the country’s largest market operator, ASX Limited, for allegedly making misleading statements about how its blockchain project to replace its aged Clearing House Electronic Subregister System (CHESS) was progressing, before revealing that it had cancelled the project, the regulator announced on Wednesday.

In Nov. 2022, ASX cancelled its planned blockchain system for settling trade after Accenture identified “significant challenges” with its design. The decision saw it write-down about A$250 million ($168 million) after several delays. After years of tests, ASX had announced in 2017 that by Q1 2020 it would migrate one of its core services to a blockchain-based system.

Senate GOP Prepares Assault on Regulations After Chevron Ruling

Senate Republicans are quietly targeting a broad swath of agency rules after the Supreme Court eliminated a longstanding precedent on judicial review.

Senators plan to propose more than a dozen bills aimed at cementing the relationship between the three branches of government following the court’s decision to overturn the Chevron doctrine, under which courts deferred to reasonable federal agency interpretations of unclear laws, according to aides to Sen. Eric Schmitt (R-Mo.).

Possibilities include creating a separate regulatory office on Capitol Hill and expanding the statutory exceptions to the filibuster for agency rules, the aides to Schmitt, who’s leading the group of Republican senators, said.