Wall Street

Insider trading, 26 cases in the US net the SEC 67 million since the beginning of the year

39.5 million fine for Shaohua (Michael) Yin, who earned 30 million through negotiations on DreamWorks Animation and Lattice Semiconductor

by Mo.D.

1 October 2024

3' min read

Key points

The Case for Excellence 2024
The Coinbase case
The potential profitability of illegal insider trading

3' min read

Insider trading cases are not many on Wall Street, but they carry significant weight because of the penalties they lead to Of the 228 cases announced by the Securities and Exchange Commission (SEC) in the US in the first nine months of 2024, 26 involved illegal insider trading. That's a small number, but it accounts for only 12% of all litigation for the year, but one that, according to Finbold research, led the SEC to impose penalties totalling $66.8 million on insider traders between 1 January and 30 September 2024.

The case par excellence of 2024

On average, each case resulted in a fine of approximately $2.3 million and the regulator imposed more than $7 million in penalties per month for insider trading disputes during this year. Not all of the 26 cases examined, however, received the same size of penalty.

A single case in August accounted for more than half of the total sanctions for insider trading in 2024. This resulted in August peaking at almost four times the value of any other month this year.

Sanzioni Sec mese per mese

What made the difference was the insider trading case involving the former partner of a Hong Kong-based investment firm, Shaohua (Michael) Yin, and Benjamin Bin Chow, managing director of the private equity fund Firm-1 and later managing partner of Firm-2. In late September, the SEC obtained a final ruling against Yin in a case involving companies such as DreamWorks Animation SKG and Lattice Semiconductor Corporation. Yin was accused of raking in nearly $30 million in illicit profits from these trades.

The resulting penalty amounts to USD 39.5 million, or more than half of all refunds, injunctive penalties, interest and other payments that the SEC has imposed this year.

The case is considered emblematic by analysts not only because of the size of the penalty, but also because of the particularly long duration of the proceedings. The verdict against the other defendant, Benjamin Bin Chow, accused of having provided Yin with confidential information, was handed down on 25 August 2022, about two years before the one that convicted Yin.

More generally, most of this year's cases were resolved with the defendant agreeing to pay even substantial fines, but without confirming or denying the control body's allegations.

The Coinbase case

The first three quarters of 2024 also featured a mix of high-profile and less publicised cases. On 11 March, the SEC settled the case against Ishan Wahi, a former product manager at Nasdaq-listed Coinbase. To be precise, the authority revealed that it had obtained a final judgment against one of Wahi's friends, Sameer Ramani. The latter was accused of using confidential information on future Coinbase listings to make decisions on his cryptocurrency trades and was ordered to pay $817,602 in restitution and a civil penalty of $1.6 million. The SEC also pointed out that Wahi's actions explicitly went against Coinbase's instructions not to use its prior knowledge of quotes and deletions to avoid incurring the offence of insider trading.

The potential profitability of illegal insider trading

At the same time, less important cases unveiled in 2024 demonstrate how much of a stock market advantage can be gained by illegally using crucial insider information. On 7 June 2022, financial advisor Federico Nannini allegedly used information about MasTec's then-stalled acquisition of Infrastructure and Energy Alternatives to profit himself, his father and several friends by accumulating illicit profits in excess of $1.1 million. Certain messages obtained by the SEC formed the basis of the allegations because they contained details of the plan, which involved multiple transactions driven by a series of internal updates on the acquisition progress provided by Federico Nannini. It is now expected that the Sec will seek penalties of between $2 million and $4 million from the four people involved.

Morgan Stanley fined for insider trading

Monica D’Ascenzoredattrice
Luogo: Milano
Lingue parlate: Italiano, inglese
Argomenti: Finanza, startup, diversity
Premi: Premio dell'Associazione per lo Sviluppo economico per il libro "Donne sull'orlo della crisi economica"
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