Insider Trading Lesson 1: No Call Options

You guys are so stupid.  The first thing the SEC looks at is the call option activity whenever there’s a high profile merger or takeover.  Anything unusual is gonna be flagged.

From DealBook:

The Securities and Exchange Commission on Wednesday charged two men with running an $8.6 million insider-trading scheme connected to Dell’s $3.9 billion agreement to buy Perot Systems.

One of the individuals charged, Reza Saleh, 53, is an employee of a firm affiliated with Perot Systems and is the one accused of masterminding the scheme. Unsurprisingly, it revolved around the purchase of call options.

Almost every insider trading perp I’ve read about over the last few years has been busted because they bought the calls.  Once an investigator determines that options trading is outside of your normal scope of activity, you’re toast.  Especially if you’re trading in a size that’s completely disproportionate compared to what you usually do.  All of these records are out there, they will get them, and then they’ve got you, they just need to connect the dots and figure out how you could’ve been informed of the deal.

That’s a piece of cake.

But the trail of crumbs that leads to the cake is in the options market, plain and simple.

Oh yeah, I thought this was pretty cool…Zero Hedge picked up on the unusual activity last week:

The lawsuit by the S.E.C. follows reports of a spike in options trading volumes following the companies’ deal announcement on Monday. Zero Hedge, in particular, highlighted a big spike in purchases of Perot Systems call options last week.

Who says bloggers, even anonymous ones, are no good?

Nice pick up for both Zero Hedge and the SEC.  Cart these little dirtbags away.

Sources:

Perot Systems Employee Charged With Insider Trading (DealBook)

Dear SEC – Obvious Perot Frontrunning (ZeroHedge)