> "Bechtolsheim has agreed to pay a civil penalty of $923,740 for earning slightly more than half that for his illegal trades, and has also agreed to be barred from serving as an officer or director of a public company for five years.
Forbes lists Bechtolsheim's net worth at somewhere north of $16 billion. The SEC fine is less than 0.006 percent of his holdings."
The fine seems reasonable. He disgorges the profits, and then gets fined twice what he earned and banned from serving on boards (worth far more than $1m over 5 years).
Big question for me is why was he doing crimes for such low stakes. It's like seeing a faang engineer rob a 7-11.
We should not be punishing people for what we think they might have done.
I suspect the SEC may now be taking a deeper look for other surprising trades that might be linked to him, and if it finds anything he did not disclose in the course of reaching the current agreement, it will not go down well.
I think its well documented that people are not necessarily rationale when making risk/reward payoffs. Also perhaps he is just bored! Hopefully lesson learnt for him.
To be fair, the punishment for shoplifting is often a slap on the wrist. I say this as someone who had a troubled youth and was caught shoplifting as a teenager. I got banned from the premises and no criminal charges even though the police did get involved.
If I had been an adult it undoubtedly would have been a tad harsher but unless the theft amounts to many thousands of dollars I don't think prison time is ever on the table. Even then I'd be surprised. We're not talking about grand theft auto, we're talking about shoplifting. So it's usually misdemeanour. If the merchandise is retrieved then it is returned to the store and the store can sue the guilty party recover to damages if it's worth it.
So I'm not really sure what kind of point you're trying to make. I think it's about inequality. I'm just not really sure how you get there by using shoplifting as your example.
Hey I think we both agree children should not be thrown in jail for shoplifting, or for insider trading.
If you shoplift anything of significance you might be looking at least a night in jail, but more importantly a criminal record. If you shoplift over the threshold of grand larceny you will absolutely be spending a bit of time in jail and will have a criminal record. These are virtually non-existent outcomes for insider trading, even though people "guilty" of insider trading are also thieves. Guilty in quotes because WTF knows, they are rarely criminally prosecuted.
So yeah, my point is generally about equality, but I was responding specifically to the casual "yeah that seems right" attitude about it.
I suspect that much of the time it's pretty ambiguous. It's widely known that a company is ripe for sale and you hear from someone you know "confidentially" that they're in pretty serious talks with $X. Maybe they're a lawyer or a banker or...
And, in general, non-execs are not prohibited from unscheduled trading in their own company's stock (though company rules may prohibit trading in options) but lots of people have a pretty good sense of how the quarter is going.
Shoplifting laws are occasionally not enforced. Financial crimes are only occasionally enforced. These things are asymmetric, and that is the whole gist of the argument.
I think the purpose of the fine is to disincentivize the behavior, not to sting necessarily. And to properly disincentivize the behavior it just has to make the behavior have negative expected value.
A fine of 2X profit is only negative expected value if the chance of getting caught is at least 50%. I'm very confident that the chance of getting caught is far less than 50%.
So you're saying that for a VC, where a common approach is to invest $1 million each in 100 different startups and if just two of them turn into $50 million then you break even, a fine like this is already factored into the game?
I wonder what the ROI difference is between the two gambles. 100 $1 million dollar bets returns $120 million? 20 $100000 insider trades returns $5 million - $1 million fines?
A 20% return is pretty good. But if it takes 2-3 years per startup, it's not as good. And it ties up $100 million.
A $2 million investment that pays out $4 million within a year is much more spectacular.
Edit: I am not accusing anybody of having made 20 insider trades. I am just musing about potential business models.
Forbes lists Bechtolsheim's net worth at somewhere north of $16 billion. The SEC fine is less than 0.006 percent of his holdings."