Why Shadow Insider Trading is a "Red Flag" for Private Companies, Too

Shadow Trading Verdict Is Red Flag for Private, Public Companies

Most private companies don’t have policies addressing insider trading since purchases and sales of company stock is more cumbersome than trading on the open market (and, in many instances, restricted until a public offering or liquidation event). However, an individual need not be an employee of a public company to engage in shadow trading since the concept applies to trading in another company’s stock.

As Panuwat’s case illustrates, for life science companies there are often reasons to believe that information about one company, public or private, might have implications for another public company’s stock. For instance, if a private company and public company are both developing drugs that target the same biological pathway, and the private company obtains positive clinical data, it might be possible to infer that the public company program will also succeed.

To prevent employees from using non-public information for their own benefit, a private company may find it prudent to assess its current employee confidentiality agreements or other policies to address shadow trading.

Is the Sam Bankman-Fried Story Over?

“I did not think it a fruitful use of time to spell out every time I thought Mr. Bankman-Fried testified willfully and knowingly falsely at trial. There are more than the ones I’ve articulated, but that suffices,” the judge said. “And when he wasn’t outright lying, he was often evasive, hairsplitting, dodging questions and trying to get the prosecutor to reword questions in ways that he could answer in ways he thought less harmful than a truthful answer to the question that was posed would have been.”

It’s a harsh, but accurate assessment of Bankman-Fried’s performance on the stand. His performance, as the judge put it, was awful. I’m somewhat sympathetic to the idea that being in jail made it difficult for Bankman-Fried to properly prepare for cross-examination, but he seemed to resent his narrative being questioned during his testimony and it undoubtably made an impression on the jury, witnesses and the judge.

DeFi Trader Eisenberg ‘Wasn’t Borrowing, He Was Stealing,’ Prosecutor Says in Opening Argument

At issue is the October 2022 trade where Eisenberg turned $13 million of crypto into $110 million by draining the trading venue Mango Markets of all of its assets, in part by trading against himself.

He did so by making a massive bet on the future price of MNGO tokens and then allegedly gaming the crypto markets to drive up their value. Once the token was up over 1,000% he borrowed against their inflated value to capture virtually all of the crypto on MNGO, rendering it insolvent.

These kinds of trades aren’t allowed at the banks, swaps shops and equities exchanges that power traditional financial markets and are closely regulated in the U.S. Mango Markets isn’t like those institutions; rather than a company, it’s a set of computer programs that operate on a blockchain where the old rules don’t so easily apply.

But they should, according to federal prosecutors bringing this landmark criminal case against Eisenberg, the first crypto trader facing potential jail time for allegedly breaking commodities rules while trading in DeFi.

The greening of corporate names: Another way of greenwashing

Companies are looking for ways to change their public image as concerns about climate change and sustainability grow. A study by Carmelo Latino of the Leibniz Institute for Financial Research SAFE sheds light on the financial impact of corporate name changes. His study is based on a textual analysis of the business description sections of Form 10-K, the standard annual report filed by companies with the U.S. Securities and Exchange Commission (SEC) after the name change. It demonstrates that many of these name changes can be interpreted as a novel form of greenwashing, wherein companies strategically alter their image to project eco-friendly and sustainable impressions.

SAFE researcher Latino analyzes whether the adoption of green names influences investor behavior. His findings reveal a significant positive stock market price reaction to the announcement of corporate name changes to green-related names, particularly if the respective company was not involved in green activities at the time of the announcement. “Companies that add ‘green’ words to their names experience significant cumulative abnormal returns of about 15 percent during the one-day period following the announcement.”

Large US Audit Firms Poised for More Scrutiny of Financials

The largest US auditors, hired to vet corporate accounting for some of the most valuable multinational companies, would have to submit their own set of financial statements to their oversight board under a proposal advanced Tuesday.

The Public Company Accounting Oversight Board voted 4-1 to release draft rules that would require firms to report a batch of new information to the audit regulator including cyber breaches, material threats to their business, changes in firm ownership and significant financing that could alter their access to capital….

SEC’s Narrower Emissions Rules Shaped by Powerful Farm Lobby

For all of the American Farm Bureau Federation’s lobbying prowess in Washington, the Securities and Exchange Commission wasn’t a place where it had much experience.

It hadn’t needed it. The SEC, after all, didn’t have much to do with farming. That is, until it proposed rules in 2022 that would have required big public companies to disclose the greenhouse gas emissions of their suppliers—among them, family farmers.

SEC Charges Canadian Attorney for Selling Billions of Shares of Stock on Behalf of Others in Violation of Broker Registration Requirements

On April 8, 2024, the Securities and Exchange Commission charged Canadian attorney Mark Borden with selling billions of penny stock shares on behalf of others without registering with the Commission as a broker, thereby violating the securities laws. Borden has agreed to settle the case by, among other things, paying over $335,000 in disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty.

According to the SEC’s complaint, between 2017 and April 2021, Borden sold penny stocks on behalf of his customers without registering with the Commission as a broker or being associated with a registered broker. Borden allegedly did so by taking possession of the stock, drafting documents that appeared to transfer ownership of the shares to himself, depositing that stock in accounts he controlled at various brokerage firms, selling those shares to retail investors often in coordination with stock promotion campaigns funded by his customers, and keeping a commission of the stock sale proceeds before disbursing the remainder to his customer. The SEC alleges that Borden and his customers understood that the customer retained beneficial ownership of the stock at all times and would receive the vast majority of the stock sale proceeds. For example, one of Borden’s customers allegedly received over $15 million in stock sale proceeds from Borden in less than three years.