Latest Sordid Tale of Tech Deal Insider Trading Reads Like Hollywood Pitch
Here at Fintel, the data we compile on corporate insider buying activity is among the most frequently sought by the platform’s users. Our dashboard charting the most significant insider activity over the last 90 days displays those companies sorted in a multi-factor quantitative model that identifies companies with the highest levels of insider accumulation.
The scoring model uses a combination of the net number of insiders buying the prior 90 days, the total shares bought as a percentage of float, and the total shares owned by insiders.
Yet it’s a case of the other type of insider trading that caught our eye in recent days.
Researchers from University of Technology Sydney estimate that insider trading occurs in one in five M&A events and in one in 20 quarterly earnings announcements, according to a 2021 study by academics Vinay Patel and Talis J. Putnins. “These estimates imply that there is at least four times more actual insider trading than there are prosecution cases,” reported the UTS Business School blog.
The matter came to the fore on June 29, with the Securities and Exchange Commission (SEC) announcement of insider trading charges against New York broker Steven Teixeira and his accomplice, Jordan Meadow.
Unsuspecting Girlfriend
Teixeira, the once chief compliance officer of LianLian Global’s U.S. arm, and Meadow, a Spartan Capital executive, stand accused of turning their friendship into an insider trading enterprise. The duo allegedly used nonpublic information pilfered from Teixeira’s unsuspecting girlfriend’s laptop during the height of the COVID-19 pandemic.
The allegations read like the screenplay of a Wall Street thriller. As per the SEC’s complaint, Teixeira breached trust and law by accessing his girlfriend’s laptop while she was away during the workday. Employed as an executive assistant at a leading New York-based investment bank, she asked Teixeira to monitor her work email, unaware that this request would lead to a scandal of such magnitude.
The plot thickens as the complaint alleges Teixeira used his purloined knowledge of upcoming tech mergers and acquisitions to purchase call options ahead of the announcements. These included the deals involving the $61 billion acquisition of VMware (US:VMW) by Broadcom (US:AVGO) in 2022, and Thoma Bravo’s $12.3 billion deal to take Proofpoint private in 2021. The trades purportedly earned Teixeira some $28,600.
But Teixeira’s cunning didn’t stop at self-enrichment. He shared the ill-gotten insights with his friend Meadow, who capitalized on the insider information to trade and provide guidance to his brokerage customers. These dealings earned Meadow a whopping $730,000 and generated millions in profits for his clients.
Scott Thompson, the associate regional director of the SEC’s Philadelphia Regional Office, described the case as “brazen betrayals of trust.” He added, “Our complaint alleges that Teixeira misappropriated information to make a quick buck, and Meadow was all too eager to use the information to line his pockets.”
The charges have been filed in the U.S. District Court for the Southern District of New York, seeking permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and bans on Teixeira and Meadow serving as officers or directors of public companies.
Simultaneously, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against both men, escalating the severity of their predicament. The authors of the University of Technology Sydney study, estimate that the actual prevalence of illegal insider trading is at least four times greater than the number of prosecutions.
Typical Outperformers
There is ample evidence that suggests corporate insiders outperform the market when buying shares in their own companies.
One study, Trading Against the Grain: When Insiders Buy High and Sell Low, which appeared in the November 2019 issue of the Journal of Portfolio Management, Ruihai Li, Wesley Wang, Zhipeng Yan and Qunzi Zhang did a deep dive into the trades of corporate insiders over the period from 1986-2017.
Insider trades, particularly purchases, provide information as to future returns. Academics have also reported that insiders are frequently contrarian traders: they buy value stocks, sell growth stocks and sell stocks with high short-term past returns.
So, with that in mind, what’s showing on the Fintel dashboard? For the just-ended second quarter, here are the top 10 stocks by insider sentiment score.
- Better Therapeutics (US:BTTX) has a score of 99.15 from five insiders buying stock
- Nogin (US:NOGN) has a score of 99.09 from six insiders buying stock
- Stran & Company (US:SWAG) has a quant score of 99.00 with activity from six insiders
- SpringBig Holdings (US:SBIG) with a score 98.85 and six insiders making moves
- authID (US:AUID) makes the cut with a score of 98.80 and five insiders buying shares
- Arena Group (US:AREN) features with a score of 98.64
- P3 Health Partners (US:PIII) has a score of 98.40
- DiaMedica Therapeutics (US:DMAC) makes our top ten with a score of 98.28
- U.S. GoldMining (US:USGO) has a score of 98.22
- Lexicon Pharmaceuticals (US:LXRX) 98.12.
This article originally appeared on Fintel
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