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Trader Pleads Guilty To Illegal Purchase of Nearly $1B In Apple Stock

timothy posted about a year ago | from the teacher's-pet-in-overdrive dept.

Crime 174

An anonymous reader writes "A trader who last year made an unauthorized purchase of nearly US$1 billion worth of Apple stock has pled guilty to wire fraud, securities fraud and conspiracy. On October 25, 2012 — the same day Apple posted its Q3 2012 earnings — David Miller of Rochdale Securities made a number of unauthorized purchases of Apple shares which ultimately led to the demise of the financial services firm he worked for. The aim of Miller's action was to make a lot of money very quickly by purchasing large quantities of Apple shares and selling them in a post-earnings surge."

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I plead guilty (-1, Redundant)

Anonymous Coward | about a year ago | (#43463041)

To getting the first post! HAHAHAHA

what about the people who bought the stock? (2, Informative)

alen (225700) | about a year ago | (#43463073)

oh wait
never mind

at least the Mac blogs i still read keep on pumping the stock

Pure Stupidity (1, Flamebait)

VeryBest52 (2897689) | about a year ago | (#43463081)

The stupidity of some people baffles me.

Re:Pure Stupidity (3, Insightful)

Anonymous Coward | about a year ago | (#43463377)

Given how rare prosecutions for financial crimes are and the enormity of the potential gains I'm not so sure.

Re:Pure Stupidity (4, Insightful)

Anonymous Coward | about a year ago | (#43463649)

He is just lucky he didn't fileshare some tunes or a movie while doing it, then they could have locked him up and thrown away the key. Rip of a billion,well boys will be boys, but pirate a song FELON!!!

Re:Pure Stupidity (0)

Anonymous Coward | about a year ago | (#43463829)

He is a nobody. He isn't politically connected and hasn't purchased influence, so why should anyone expect that he would have gotten off lightly?

Worth it? (-1)

Anonymous Coward | about a year ago | (#43463101)

If he made $1m on commissions (easily)...

Would you go to jail for 5 years and walk out making $200k/year with $0 expenses?

Re:Worth it? (2)

VeryBest52 (2897689) | about a year ago | (#43463113)

Is it worth throwing a minimum of 5-8 years of your life away for money?

Re:Worth it? (3, Funny)

sexconker (1179573) | about a year ago | (#43463199)

Is it worth throwing a minimum of 5-8 years of your life away for money?

Oh please, he's going to a white collar resort prison, not a federal pound-me-in-the-ass prison.

Re:Worth it? (2)

geekoid (135745) | about a year ago | (#43463635)

how much money? If it mean never needing to work again after 5-8 years, then maybe.

Re:Worth it? (4, Insightful)

magarity (164372) | about a year ago | (#43463207)

Is it worth throwing a minimum of 5-8 years of your life away for money?

Most people trade ~40 hours per week of their life for money. That adds up to 5-8 years after a while.

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463531)

Wow, an 8 year stint comes out to about 33.72 years of 40 hour weeks. If you could keep the money, it might just be worth it after all.

Re:Worth it? (2)

evilmidnightbomber77 (2891503) | about a year ago | (#43463757)

Thanks - my current workplace is not QUITE as bad as prison.

Re:Worth it? (1)

coinreturn (617535) | about a year ago | (#43464063)

Thanks - my current workplace is not QUITE as bad as prison.

Yeah, they ream us, but not literally.

Re:Worth it? (2, Insightful)

BradleyAndersen (1195415) | about a year ago | (#43463943)

Depending on where you live, you may be more valuable to the economy as a prisoner. For example, the US national average wage for 2011 is about $43,000 [ssa.gov] , whereas California currently spends about $50,000 per prisoner [wikipedia.org] .

Re:Worth it? (5, Informative)

nedlohs (1335013) | about a year ago | (#43464199)

You have a very strange definition of "valuable to the economy".

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463229)

I have a job, you insensitive clod!

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463239)

Is it worth throwing a minimum of 5-8 years of your life away for money?

I had a job like that.

Re:Worth it? (1)

GameboyRMH (1153867) | about a year ago | (#43463397)

I have one like that right now...it's not so good with the money part though.

Re:Worth it? (5, Insightful)

ShanghaiBill (739463) | about a year ago | (#43463577)

Is it worth throwing a minimum of 5-8 years of your life away for money?

Of course it is not worth it if you get caught.. But for most financial shenanigans, the chance of getting caught is pretty low. If enough other people are doing the same thing, there is safety in numbers, and instead of going to jail, you get a bailout. This guys problem was that he made a bet too big to go unnoticed, and he was very unlucky. He isn't being punished for making an illegal bet. He is only being punished for losing the bet.

Re:Worth it? (1)

Citizen of Earth (569446) | about a year ago | (#43463643)

Is it worth throwing a minimum of 5-8 years of your life away for money?

If AAPL had gone up, the guy would be a conquering hero raking in $millions in surprise bonuses. It's the same method Dr. House used to avoid punishment. Too bad this guy didn't realize that Apple is out of steam.

Re:Worth it? (2)

void* (20133) | about a year ago | (#43463779)

I don't think this is true. It might be if his plan had been to let the company and/or the customer keep the profits - but his plan appears to have been to personally keep the profits, based on the article links. Given that, his company may well have been inclined to have him prosecuted even if the trades had resulted in profits.

Re:Worth it? (4, Insightful)

ranton (36917) | about a year ago | (#43463159)

I would be surprised if the plea agreement that is allowing him to only serve 5-8 years will allow him to keep any commissions he made on his fraudulent sales. Even without the plea agreement, I doubt he would keep any of the money.

I assume he will have to declare bankruptcy after the firm goes after all of his money to pay back some of their losses.

Re:Worth it? (3, Informative)

geek (5680) | about a year ago | (#43463443)

Bankruptcy wont save him from court ordered restitution nor from unsecured liability. The scope of bankruptcy is actually pretty narrow. The public always seems to think "Ah fuck it I'll just file bankruptcy and 7 years later have a clean slate!" when the reality is very different. Typically people still have to pay back what they owe. Occasionally what they owe will be negotiated down so that they aren't living in a card board box but they can go decades before they get back on their feet and all the while some judge will be telling them how much they can spend on cereal and what type of car they are allowed to drive. It's not pretty.

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463783)

some judge will be telling them how much they can spend on cereal and what type of car they are allowed to drive. It's not pretty.

Still not that ugly. We can afford more mercy nowadays. In the ancient days when you were the equivalent of "bankrupt" and had nothing else left to sell and couldn't support yourself (no land), you sold yourself as a slave.

Terrible maybe, but who would or could feed you for free? This was in the days where wheat yields were about 0.25 tonnes per hectare. Even in the 1800s yields were about 0.75 tonnes per hectare. In contrast now yields are 8 tonnes with some going even up to 15.

It's no surprise the ancient laws against sexual promiscuity could be harsh - there was no decent birth control - who wants to keep having to feed and shelter someone else's children (especially if you're struggling to feed your own family)?

I'm not optimistic like some who think there will be a "post scarcity" age.

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463893)

Bankruptcy wont save him from court ordered restitution nor from unsecured liability. .... Occasionally what they owe will be negotiated down so that they aren't living in a card board box but they can go decades before they get back on their feet and all the while some judge will be telling them how much they can spend on cereal and what type of car they are allowed to drive. It's not pretty.

What you describe is typical for the 99%, but for the 1% doing a carefully planned/structured bankruptcy it's more like a minor inconvenience.

Re:Worth it? (4, Insightful)

Jane Q. Public (1010737) | about a year ago | (#43463571)

"I doubt he would keep any of the money."

Keep WHAT money? He LOST on the stock market. He didn't make any money.

Re:Worth it? (1)

Dunbal (464142) | about a year ago | (#43463849)

Some people still think AAPL stock is a magical money making machine. I remember one guy on TV saying that now was the time to buy, when it was at $700. I wonder how that worked out for his followers.

Re:Worth it? (1)

coinreturn (617535) | about a year ago | (#43464081)

Some people still think AAPL stock is a magical money making machine. I remember one guy on TV saying that now was the time to buy, when it was at $700. I wonder how that worked out for his followers.

He probably bought at $690 - that's why he was saying it was a buy at $700.

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463787)

allow him to keep any commissions he made

Just a FYI, but you probably meant to say "profits", not "commissions". (The "house" makes the commissions, not the trader.)

Re:Worth it? (1)

nedlohs (1335013) | about a year ago | (#43464297)

When you are working as a trader for some "investment" firm the firm keeps the profits (and the losses) but most of your income is in the form of commissions or bonuses.

Re:Worth it? (1)

Dunbal (464142) | about a year ago | (#43463819)

You all are assuming he made money on the deal. He bought at $600 prior to the earnings report, thinking the stock would go back up to $700. Instead, it tanked. Had the stock gone up I'm sure he would have been slapped on the wrist and told "don't do it again".

Re:Worth it? (2)

magarity (164372) | about a year ago | (#43463173)

If he made $1m on commissions (easily)...

Would you go to jail for 5 years and walk out making $200k/year with $0 expenses?

you forgot a minor point: he doesn't get to keep the money, he just gets the jail time.

Re:Worth it? (1)

femtobyte (710429) | about a year ago | (#43463301)

You really think his trading firm would out him and send him to jail if he *made* money, instead of giving him a raise and a promotion?

Re:Worth it? (2)

the eric conspiracy (20178) | about a year ago | (#43463611)

Yes. Unauthorized large transactions = jail time. Win or lose.

-- SEC, FINRA Enforcement Section

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p038276.pdf [finra.org]

Re:Worth it? (5, Insightful)

femtobyte (710429) | about a year ago | (#43463711)

That's the rule according to the SEC, but the SEC has largely been gutted of power to closely monitor and regulate what actually goes on. This guy is going to jail because his own investment firm outed him. If you're an investment firm boss, and one of your employees just lost you millions, you'll gladly blame the loss on a rogue employee (not standard firm operating procedures). But what if you just made millions? Is this when you announce to the world "no, we're not an especially clever investment firm, we just have dangerous loose cannons at our trading desks who got lucky this time."? Or, do you cover for your employee's actions; give him a nice bonus to keep quiet, and retire from the firm to a nice island mansion; and shuffle paperwork to keep the trading off the SEC's radar?

Re:Worth it? (1)

chill (34294) | about a year ago | (#43463917)

Option 3: Tell the SEC yourself and turn him in so he takes all of the blame. Considering the SEC can't unwind trades, the firm keeps the profits and doesn't have to pay the trader's commission.

Maybe, MAYBE they get a fine, but considering the SEC would want to encourage the self-policing, I doubt it.

Re:Worth it? (1)

alexander_686 (957440) | about a year ago | (#43463957)

Maybe - I have seen this activity up close. What is the difference between an aggressive successful trader and a rouge trader? Traders tend to be type A personalities who are always testing the boundaries and some of those are subjective. Have I seen successful traders fired for doing such things? Yes - but only at select firms. Others take the profits and let it slide.

Re:Worth it? (2, Funny)

Anonymous Coward | about a year ago | (#43464109)

. What is the difference between an aggressive successful trader and a rouge trader?

Oh, I know this one!! The rouge trader has a pinker face.

Re:Worth it? (2)

Synerg1y (2169962) | about a year ago | (#43463653)

HIs trading firm lost close to 6 million as a result of a trade that went bad for him that they did not authorize. They are probably the ones who reported him in the first place. All the other times he's done this, he's made money, but only for himself / accomplice.

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463655)

They would keep the earnings and hopefully fire him.

Re:Worth it? (1)

Teancum (67324) | about a year ago | (#43463727)

You really think his trading firm would out him and send him to jail if he *made* money, instead of giving him a raise and a promotion?

If it caused the company to go bankrupt in the process? Yes.

Re:Worth it? (1)

alexander_686 (957440) | about a year ago | (#43464115)

Doubtful. It sounds like the guy was trading on his firms accounts. Such people tend to be principal traders - i.e. no commission. The general rule is that they get to take home, as a bonus, 50% of the money they make for the firm. Thus the reason my he took a huge gamble with the firm's money.

Re:Worth it? (1)

alexander_686 (957440) | about a year ago | (#43464257)

And I kind of need to redact my statement - read up on this some more. Not a principal trader on his owns firm account. However, he was entitled to a cut of the profits, so probably was not motived by commissions - and more by wanting to hit one out of the ball park.

Re:Worth it? (1)

nedlohs (1335013) | about a year ago | (#43464363)

Isn't that what commission means? If a sales person in a clothing store works on commission they get X% of their sales. If a trader works on commission he gets X% of the profits on his trades over some time frame.

Since he clearly lost a fortune his commission would be 0 of course.

Re:Worth it? (1)

alen (225700) | about a year ago | (#43463179)

no because you have to return the money and pay additional fines on top of the jail sentence in cases like this
and you will never be able to work in finance jobs

Re:Worth it? (1)

GameboyRMH (1153867) | about a year ago | (#43463189)

ME FIRST!

Re:Worth it? (0)

Anonymous Coward | about a year ago | (#43463513)

I bet he earned close to that while he was employed at that firm be bankrupted.

Re:Worth it? (2)

Bigby (659157) | about a year ago | (#43463559)

How was the trade unauthorized? At the SEC/Federal level or the company level? If it is the company, then there should be no jail time. It is the company's fault for allowing one individual do such a trade and the company should be punished by the SEC if it broke a trading rule. Just like companies own the Intellectual Property of employees, they should be owning the crimes by employees committed filling their job role.

Re:Worth it? (4, Insightful)

Teancum (67324) | about a year ago | (#43463855)

The trade was unauthorized because the information about the bonuses was "privileged" information. The SEC operates its rules for trading on the premise that all investors should at least in theory have access to the same information at the same time. In this case the broker had knowledge of the information in the quarterly reports prior to a general public dissemination of the information, therefore he had a fiduciary responsibility to refrain from trades until the information went public.

This is one reason why "insider trading" is such a major crime, and what ultimately nailed Martha Stewart (particularly as she sat as a governor on the board of trustees for the NYSE). People in "high places" have a standard of responsibility that they should be following and it is stricter than what "ordinary" investors typically operate in. That they get time to think about the impacts of this information and can anticipate market moves by having access to such information makes it important to be much more cautious when acting upon such information.

When a large number of corporate officers start to sell off stock in the company they work for (or start buying it for that matter), it is usually considered something important to consider when investing into that company. It is assumed that those officers are acting on public information or that there are external reasons for those actions (such as personal bankruptcy or a windfall of money coming their way), but it can be due to confidential information that either hasn't or won't be publicly released. The SEC is not happy if that information is unjustly exploited and costs ordinary shareholders potential profit, which is where the crime actually happens.

Re:Worth it? (3, Informative)

alexander_686 (957440) | about a year ago | (#43464237)

Your a bit off base here. You are dead on the money about insider trading - but this is not about insider trading - this is about 3rd party trading - he was playing around with other's people money, hoping his gamble would pay off..

It is very common to give control of a account to a 3rd party either a broker or a outside advisor. They theory is that they are professionals and can trade better then you can. When this happens, certain rules are put in place by the owner of the account. Do a stop loss here, only so much in speculative trading, etc. And it looks like he broke all kinds of rules here. Some accounts he was not even authorized to trade in.

I am going to guess this is going to play out like Nick Leeson - another famous unauthorized trader.

Re:Worth it? (1)

jopsen (885607) | about a year ago | (#43464073)

That assume he gets to keep the commission, which I doubt... Granted he could hide it somewhere, but then he'll have to launder it afterwards, an act that also carries a potential sentence.

Locking people up longer, isn't a solution, in the US you've already got more inmates per citizen than Stalin did... (no joke)
This guy isn't dangerous, just give him 5 years of community service, and make sure that if he pays back in case he ever comes into sudden wealth.
(And ofcourse make sure he doesn't get employed in the financial sector anytime soon).

So this is the plan... (2)

gnasher719 (869701) | about a year ago | (#43463119)

Buy $1bn worth of shares in the name of your company. If it works out and the shares go up by one percent, sell them for $1bn and $10 million, take the $10 million, and run. If it doesn't work out, your company goes broke and you go to jail.

Re:So this is the plan... (4, Insightful)

cdrudge (68377) | about a year ago | (#43463231)

So in other words, just another day on the stock market...

Re:So this is the plan... (2)

inode_buddha (576844) | about a year ago | (#43463981)

Of course, the economic collapse and recession are due to those *eeeeeevil federal regulators forcing banks to make bad loans and not freeing the market to correct itself...

Re:So this is the plan... (0)

Anonymous Coward | about a year ago | (#43463551)

I don't understand why this is illegal (*) when shorters do this for a living.

* - not personally, but the money word operates under its own set of laws.

Re:So this is the plan... (0)

Anonymous Coward | about a year ago | (#43463747)

Its illegal because he cost the company that owns him money. Likely, the magical job creators have enough money to bribe politicians to make sure he goes to jail. Of course, now that the magical job creators are out of business, they can't bribe politicians. So basically, its illegal because politicians can no longer get bribes him the company.

Re:So this is the plan... (2, Interesting)

greg1104 (461138) | about a year ago | (#43463835)

He almost recreated the business model of every large bank. The missing step is that when you have a loss, you then ask for a bailout because it will hurt the economy if you fail.

Guilty of not being a CEO (0)

Anonymous Coward | about a year ago | (#43463143)

Because then he would have gotten a reward instead of an investigation.

What if... (0)

Anonymous Coward | about a year ago | (#43463177)

... he bought 1,623,375 iPhone instead?

Re:What if... (0)

Anonymous Coward | about a year ago | (#43463995)

... he bought 1,623,375 iPhone instead?

What if he did both? The extra orders would make the company look better, making his investment look better. Since you're probably doing it with OPM (Other People's Money) and just want to scam around, there are all kinds of reasons to do that. Start checking for warehouses in China full of brand new in-box product...

Tim Cook's fault (3, Funny)

TimHunter (174406) | about a year ago | (#43463261)

Somehow this is Tim Cook's fault. Steve Jobs would never have let it happen. Also it proves the inherent superiority of Android over the iPhone. I just haven't quite figured out how yet. I'm sure somebody will, though.

Re:Tim Cook's fault (0)

Anonymous Coward | about a year ago | (#43463439)

Yep, And don't forget the arbitrary unrelated comment using (anti)religion / political rhetoric.

Re:Tim Cook's fault (0)

Anonymous Coward | about a year ago | (#43463441)

Well, when you figure it out, I'm certain the All-Seeing Disapproving Glare of Saint Jobs will disapprove of your heresy and unfaithfulness to The Apple.

Would they arrest him if he had won money? (5, Insightful)

femtobyte (710429) | about a year ago | (#43463263)

Color me skeptical, but for some reason I doubt that a trader who recklessly threw a billion dollars on the stock market roulette table and *won* would be outed by his firm and sent to jail. Rather, he'd be the "ballsy financial genius" who'd be in charge of $10 billion next time. And of course, this type of perverse incentive system only encourages the next thrill-seeking gambling addict to try their own play. A few years in a minimum security white-collar slammer, versus the chance to take your cut of zillions in winnings gambling on others' money? Sounds like a gamble far too many "I earned my position by skill, not chance!" scamming scum would take.

Re: Would they arrest him if he had won money? (1)

UnknowingFool (672806) | about a year ago | (#43463353)

That depends on his company. Some companies may be wary of a reckless attitude about financial regulations especially with what has happened in the last several years. He may have been fired anyway. Then again some other companies may have promoted him for bold initiative, but they would have had to cover him for his crimes if the SEC investigated.

Re: Would they arrest him if he had won money? (5, Insightful)

mapsjanhere (1130359) | about a year ago | (#43463395)

They would have laid him off with a golden parachute and a huge non-disclosure. Unauthorized high-risk trading is not something you let your investors know about, even if it went well. It shows your internal procedures lacking at the very least.

did I read that correctly? (0)

Anonymous Coward | about a year ago | (#43463919)

"Some companies may be wary of a reckless attitude about financial regulations especially with what has happened in the last several years."

are you suggesting that the last several years are serving to _DISCOURAGE_ reckless behavior in the financial sector?

wow...

Re:Would they arrest him if he had won money? (1)

Jane Q. Public (1010737) | about a year ago | (#43463547)

This is a big problem with today's stock market (and its regulation).

I mean sure, this guy was caught. But a lot of them have gotten away with a lot of things before they were caught. Simply because there is inadequate oversight.

Too much speculation is not a good thing. Legitimate investment in a company can be a good thing. But there is no fundamental difference between stock speculation and gambling, except that the stakes are usually higher.

I would remind people that the 2008 debacle was largely caused by irresponsible speculation and corruption (falsely valued derivatives, etc). Complete with government collusion (the problems with Freddie and Fannie).

Re:Would they arrest him if he had won money? (1)

Teancum (67324) | about a year ago | (#43464075)

I would remind people that the 2008 debacle was largely caused by irresponsible speculation and corruption (falsely valued derivatives, etc). Complete with government collusion (the problems with Freddie and Fannie).

The fiasco in 2008 was due to the credit rating agencies over valuing the "safety" of the derivatives and other investments, claiming that they were rated as "AAA" or some other "safe" investment, when in fact they were more or less worthless (the term commonly used is "junk" status as in "junk bonds"). One of the reasons for this was because of an inappropriate relationship between the companies who were exploiting the inflated ratings on their debt instruments and the credit rating agencies, where the "investors" who were using the information from the rating agencies weren't really the customers paying for the ratings.

Some of this can be blamed on the part of the investors involved, as they shouldn't be looking at "free" things given by brokers who are tweaking the numbers to extract more money from these investors. These investors should have been working together to independently evaluate these investments and really finding out how much they were worth rather than taking the word of a brokerage firm. In addition, much of the derivative market turned out to be a sort of Ponzi scheme simply disguised to look legal. That works fine for those early investors as they make a pile of money, but eventually somebody gets left holding the bad and screwed over in the end.

There is nothing wrong with speculation in and of itself, as long as the people involved in making those investments are well aware of the risks involved. If this particular trader of the original story had risked $1 billion of his own money that he had obtained legally through other means and saw the whole pile of money disappear as a bad investment, the story would have ended right there. The problem was that he was risking $1 billion of other people's money that was given to him on a condition it would be used for much safer investments. That is where it turned into a criminal endeavor as he destroyed the fiduciary responsibility which was entrusted in him and violated the contract with the people depending on this trader.

As for Fannie Mae and Freddy Mac, those organizations are also using "other people's money" and recklessly using it as well. The problem is that the "investors" are taxpayers who have the money taken from them at gunpoint anyway, so there is no fiscal responsibility other than to think they can take even more money at gunpoint from the same "investors" if they get into trouble. On the rare chance that Fannie Mae or Freddy Mac turn a profit, the profits disappear into the fiscal black hole known as the National Debt, so there is really no incentive at all to even be efficient or to consider the needs of their investors when making decisions. Such is the case for any government agency, so it isn't exclusive to just these two agencies.

Re:Would they arrest him if he had won money? (1)

Jane Q. Public (1010737) | about a year ago | (#43464309)

"The fiasco in 2008 was due to the credit rating agencies over valuing the "safety" of the derivatives and other investments, claiming that they were rated as "AAA" or some other "safe" investment, when in fact they were more or less worthless (the term commonly used is "junk" status as in "junk bonds"). One of the reasons for this was because of an inappropriate relationship between the companies who were exploiting the inflated ratings on their debt instruments and the credit rating agencies, where the "investors" who were using the information from the rating agencies weren't really the customers paying for the ratings."

That's called "corruption", which I believe I mentioned.

"Some of this can be blamed on the part of the investors involved, as they shouldn't be looking at "free" things given by brokers who are tweaking the numbers to extract more money from these investors."

Yes but. Yes they should have researched better, but they were being told by the "experts" that those were good investments. I don't think you can absolve the creators and raters of the derivatives from the vast majority of responsibility. After all, THEY did it on purpose. The others were victims.

"There is nothing wrong with speculation in and of itself, as long as the people involved in making those investments are well aware of the risks involved."

I should have worded more carefully. My point was that it is fundamentally no different from gambling. I don't think we are really disagreeing much here. What it is, is hard to dispute. But whether you think that is good or bad is a matter of opinion. Personally, I think it's bad because much of what the Government and the Fed falsely call "the economy" is dependent on nothing but a bunch of high-stakes gamblers who have proven over and over again to be grossly irresponsible and even criminal.

"If this particular trader of the original story had risked $1 billion of his own money that he had obtained legally through other means and saw the whole pile of money disappear as a bad investment, the story would have ended right there."

Yes, absolutely. He can gamble with his own money if he wants. But if a lot of people did the same thing, at the same time (which has happened in the past) it can still cause LOTS of harm.

"As for Fannie Mae and Freddy Mac, those organizations are also using "other people's money" and recklessly using it as well. "

Yes, precisely. But why? Barney Frank and friends, over the years, increasingly pushed F and F to lower their loan standards so more "poor people" could buy homes, eventually leading to a very large portion of their portfolios to be "sub-standard". And the market followed suit. Substandard became the new standard.

So at least some of the blame can be traced straight back to Congress.

Re:Would they arrest him if he had won money? (0)

Anonymous Coward | about a year ago | (#43463659)

Color you a fool then. Whether they win or lose, it's against SEC rules as well as the law (hence the wire fraud charge). All of these firms must submit to financial audits by outside firms like one of the big 4 as well as frequent SEC random audits, so even making money they would be caught. The SEC would revoke their license and send all of the partners to prison, and these days white collar crime is typically penalized not only with a jail sentence but also a fee of 1-3x the value of the fraud.

As much as people are skeptical of the Wall Street folks and the 1%, the reality is the political people get voted in by the masses who are not Wall Street or 1%. The Sarbanes Oxley Act has substantially increased the financial penalties for white collar crime, while making all of it a criminal offense. Most white collar crimes these days involve a fine of at least 1x the damages caused, sometimes as much as 3x depending on how much can be accounted for, as well as a 5-25 years in prison.

Re:Would they arrest him if he had won money? (1)

femtobyte (710429) | about a year ago | (#43463851)

The fool is the one who thinks the SEC is capable of uniformly and comprehensively enforcing their rules, while being crippled by massive political pressure against regulation and managed by revolving-door Wall Street industry insiders. The fool also thinks that the "political people voted in by the masses" ever make it onto the election ballot without solid approval from the 1% (even if the 1% is divided on whether the (R) or (D) faction of the Oligopoly Capitalist party should win), or that their un-elected political appointees survive the confirmation process without passing the Disciples of Mammon religious tests.

Re:Would they arrest him if he had won money? (1)

greg1104 (461138) | about a year ago | (#43463931)

All of these firms must submit to financial audits by outside firms like one of the big 4 as well as frequent SEC random audits, so even making money they would be caught.

(Snort) Right. Search for information about the SEC with keywords "revolving door" and "document shredding" added and you'll see how this really works. The big firms get busted by the SEC about as often as they are nailed for off-shore tax schemes--neither ever happen with enough impact to matter. The worst the SEC does is issue them a few million in fines, like the recent HSBC case, which are just lumped in as cost of doing business relative to the profits earned. This guy's problem is just that he was working for too small of a company to be playing the game he picked.

Re:Would they arrest him if he had won money? (1)

u38cg (607297) | about a year ago | (#43463929)

If your risk controls work properly, you treat unauthorised wins as severely as you do losses. Unfortunately, that doesn't always happen. However, it does happen more often than you think - just with no attendant publicity.

Re:Would they arrest him if he had won money? (1)

femtobyte (710429) | about a year ago | (#43464239)

"just with no attendant publicity," i.e. with no one getting arrested, and no troublesome SEC scrutiny. The perpetrator just gets a nice wad of shut-up money, and a glowing recommendation letter for a job at his boss' most hated competitor firm. Or, perhaps a new job as a congressional staffer advising on financial regulation.

Re:Would they arrest him if he had won money? (1)

alen (225700) | about a year ago | (#43463961)

no, because any legit trade would also involve hedging in case of loss

Re:Would they arrest him if he had won money? (0)

Anonymous Coward | about a year ago | (#43464155)

Oh, how cute! Someone who believes the "a sufficiently complex bundle of securities turns gambles into sure gains" line! It's like inventing "free energy" machines by adding enough spinning magnets and armatures and escapements to thwart "conservation of energy" by sheer force of confusion. How are those Credit Default Swaps working out for you?

apparently he wasn't that good of a trader (0)

Anonymous Coward | about a year ago | (#43463291)

From the article:
Later that day, Apple posted solid earnings, but as is typically the case after an earnings report, shares of Apple went down over the next few days.

Seems if he was worth anything as a trader he would have known this and thought up a better plan.

Re:apparently he wasn't that good of a trader (1)

femtobyte (710429) | about a year ago | (#43463403)

If all good traders knew this, then it wouldn't happen --- there'd be a rush to sell/short the stock, driving the price down *before* the earnings report. "Reliable rule of thumb" investment ideas like "Apple shares go down after earnings reports" always look great in hindsight --- until they don't.

Re: apparently he wasn't that good of a trader (2)

UnknowingFool (672806) | about a year ago | (#43463557)

For Apple and other companies the pattern has not been whether they had good earnings. It has been whether their earnings met some analyst's prediction. Many companies like Apple are very conservative about future earning estimates and so they lowball the amount. But in anticipation of this, an analyst will raise his/her estimate. I don't know how they come up with the numbers but some of them make no sense (like Apple selling more products after the holiday season than during it). Often what happens is the actual earnings is higher than Apple's estimate but lower than the analyst. So the stock takes a hit. Sometimes it is higher than the analyst estimate and then it goes up . . . until some other analyst makes a negative forecast for the next quarter.

Re: apparently he wasn't that good of a trader (1)

Teancum (67324) | about a year ago | (#43464217)

The analysts try to use things like reported sales in trade journals and by 3rd parties like major retail chains (aka Wal-Mart, Target, Cosco, Best Buy, etc.) to try and anticipate independently what sales might be for a company like Apple. They might even conduct surveys of customers and ask customers if they've purchased electronic products recently, and if so what brands and items have they purchased. Much of this is even healthy in a market as it acts as an independent verification that the company is accurately reporting the information it is supposed to report. Sometimes these forecasts will simply be based upon reported sales of similar products that have happened in the past, thus the analysts are using some models that may or may not be accurate with what is actually happening today.

In other words, analysts can legitimately anticipate what a quarterly report is likely going to say even before it is released based upon public information. Sometimes they are wrong, and a good analyst will try to re-evaluate their independent data sources and models if that happens too often.... or in some cases seek an audit of the company itself if they start to suspect that some mis-reported information is coming from "official" sources. It is highly unlikely that a company such as Apple is going to risk mis-reporting those kind of numbers though as it would land several Apple executives into prison for doing that kind of thing.... but it happens from time to time as well.

Diversified portfolio? (0)

Anonymous Coward | about a year ago | (#43463315)

The poor bloke clearly hadn't heared about portfolio diversification.

Thank goodness (1)

Anonymous Coward | about a year ago | (#43463339)

Thank goodness this would never happen with Bitcoin!

from the original FBI press release: (1)

nimbius (983462) | about a year ago | (#43463401)

https://www.fbi.gov/newhaven/press-releases/2013/rochdale-securities-trader-admits-role-in-fraudulent-scheme-involving-nearly-1-billion-purchase-of-apple-stock [fbi.gov]

"This defendant participated in a fraudulent scheme in which he would either reap huge profits through the unauthorized purchase of approximately $1 billion of Apple stock or, if he faced huge losses, explain it away as simple human error"

how is this in any way different than regular financial trading? it seems to me the word 'unauthorized' was applied after the investment company decided this guy was a nuisance.

again:

"Risk is inherent in the investment world, but that risk should never be borne from the actions of investment professionals who choose to serve their own financial agendas rather than those of their client" stated FBI Special Agent in Charge Mertz.

if investment bankers didnt serve their own financial agendas im sure Lexus would be a far less profitable company and the hamptons would have a few less mailboxes. this guy wasnt arrested for anything as far as the FBI is concerned related to a specific SEC violation. i venture he was arrested for

Re:from the original FBI press release: (0)

Anonymous Coward | about a year ago | (#43463585)

Come on, don't leave us hanging!

i venture he was arrested for being an apple fanboy

Ahh, that's better.

Re: from the original FBI press release: (3, Insightful)

UnknowingFool (672806) | about a year ago | (#43463657)

Most likely the unauthorized part had to deal with the size of the purchases. A trader does not have unlimited buying power. He could bankrupt the whole company (which he did). He worked with an accomplice to make purchases he should not have been allowed to make. Also the FBI noted.

Miller convinced the broker-dealer to sell 500,000 shares of Apple stock, falsely claiming that he was trading for the account of a company, which he had no relationship with and for which he was not authorized to trade.

Re:from the original FBI press release: (2)

PhamNguyen (2695929) | about a year ago | (#43463801)

I agree that it's suspicious the way things suddenly become "crimes" once companies don't approve of them. However there do seem to be distinctly criminal elements to what this trader did: taking very deliberate actions to invest money in an unauthorized way, making trades on behalf of a non-existent client. So I believe this case truly is a criminal matter. On the other hand, I doubt that it would still be considered if someone higher up had done the same thing (using more complex excuses to cover up their actions).

Re:from the original FBI press release: (1)

u38cg (607297) | about a year ago | (#43463963)

Traders have limits they cannot (well, should not) breach. And normally, you'd hedge your exposure as well, so you're not just exposed to the stock going up in smoke.

At a loss (0)

Anonymous Coward | about a year ago | (#43463471)

I'm at a loss to imagine how these idiots thought this was going to work. No one is going to miss a $1 Billion transaction. Maybe they thought their bosses might overlook it if they made a hefty profit. I'd love to have seen the looks on their faces turn from worry to terror as the stock prices fell after the earnings report came out and they realized they weren't making money, but loosing it hand over fist. In the end the firm lost over $5.3 Million according to the article. Could have been worse though, Apples stock price overall continued to fall from that then till now.

Not quite big enough... (1)

Jawnn (445279) | about a year ago | (#43463561)

...to not fail, apparently.

Unauthorized? (5, Insightful)

DarthVain (724186) | about a year ago | (#43463569)

Erm. How does one spend ONE BILLION dollars unauthorized? Wouldn't the firm be at fault? Someone singularly has the ability to decide to spend a billion dollars on something?

Re:Unauthorized? (0)

Anonymous Coward | about a year ago | (#43463765)

Erm. How does one spend ONE BILLION dollars unauthorized? Wouldn't the firm be at fault? Someone singularly has the ability to decide to spend a billion dollars on something?

Not only was he able to purchase one billion dollars worth of stock, but did so at a company that went out of business due to a 5.2 million dollar loss.

Re:Unauthorized? (1)

Anonymous Coward | about a year ago | (#43464179)

A trader, who is allowed to execute trades, and has all the machinery to do so at his disposal, sends out orders to buy one billion dollars of stock and relies on the settling period, which I believe is three days (may be five). So, the money doesn't actually have to trade hands for three days. He was hoping he could sell the stock before the settling period expired.and make a profit. That way he never had to deliver any money, only collect the profit. Unfortunately he lost money and his firm had not authorized him to spend that much money in that way. (He may well have been authorized to trade tens of millions of dollar, so he just made multiple trades.) And yes, the firm was on the hook because he was trading on the firm's account.

Eh, this is what happens (1)

fustakrakich (1673220) | about a year ago | (#43463623)

The small fry is trying to play a big boy's game, and he picked the wrong target.

wait, what? (1)

slashmydots (2189826) | about a year ago | (#43463729)

How is it even possible to unauthorizedly purchase stock? That sounds almost as impossible as me R-ing TFA lol. Stock either is for sale or isn't and it's all checked by computers. You can't just go to ebay and buy something that's not there and I thought stocks were the same.

Re:wait, what? (0)

Anonymous Coward | about a year ago | (#43463811)

I think he purchased Apple stock that was for sale, he just wasn't authorized by his client/company to purchase the stock on their behalf.

Re: wait, what? (3, Funny)

UnknowingFool (672806) | about a year ago | (#43463827)

I think the amount of stock/transaction was unauthorized. There are usually safeguards in place so that a rogue trader doesn't purchase a gazillion dollars of stock that his company cannot cover. He worked with an accomplice to somehow get around those safeguards.

trading is pseudo science (0)

Anonymous Coward | about a year ago | (#43463763)

I am a financial engineer and also a PhD in science, so I can tell you that trading is a pseudo science. It is very hard to distinguish real profit from the noise. Most big guys that you see making lots of money would have made zero money if they had to pay the same commission and fees as individual day trader. The big guys make money in commission, fees, private placement, special offering, mergers and so on. As this [nymag.com] article show, the top hedge funds managing $2.6 trillion actually made less than market returns for the last 4 years. Since they charge 2% asset management fee plus 20% commission, the net proceeds they pocketed equaled hundreds of billions of dollars and that is for doing worse than passive investing. Personally, I would never invest in any actively managed funds.

Trading Places (3, Funny)

JonahsDad (1332091) | about a year ago | (#43463925)

I was going to suggest that the trader stick to frozen concentrated orange juice, but I see that it was down that day too, so it wouldn't have worked.
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