There is an important distinction between working within the confines of the law to make the most profit possible and going outside those lines to make a profit while hoping you don’t get caught. To drive that point home, the FBI has stated "what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet." Assistant Director in Charge Janice K. Fedarcyk wrote that when referring to a recent bust of seven individuals accused of insider trading of Dell and Nvidia stock. The arrests, made as part of Operation Perfect Hedge, include seven men who are connected by "friendship or business association."
Thanks to three of the seven men cooperating with the FBI, we know that the men used information about Dell and Nvidia’s quarterly earnings prior to any public release of such earnings documents to purchase stock to resell after positive earning documents caused the stock value to increase or to short their stock to avoid losses that would be incurred by lower than expected quarterly earnings causing the stock price to drop. On the Dell side of things, two employees in the know provided quarterly earnings numbers to various hedge funds. The first employee, Sandy Goyal, is charged with providing a hedge fund with Q1 earning results for 2008 in exchange for $175,000. The hedge fund then used that insider information to make $3.8 million dollars. Another (former) Dell employee, Jesse Tortora furnished three hedge funds with quarterly earnings numbers who each then made $4 million on Q1 information and $53 million on the Q2 information, $1 million in profit, and the final Hedge fund avoided #78,000 in losses by selling stock before the inevitable price drop thanks to knowing the negative earning numbers before hand.
Finally, Danny kuo knew someone who worked at Nvidia and provided information to the other members of the insider trading group.
Let this be a lesson to those business folks that slept through ethics classes, stay away from insider trading, especially when you are paid for the information as you are just asking to get caught. (Cue the "Cops" theme song). Normally we don’t cover this kind of news; however, I thought it applicable since it involves Dell and Nvidia. Also, speaking of quarterly earnings, Josh will have all the details from today’s Intel Earnings Call up soon.