Goldman And The 3Com "Insider Trading" Connection
Following up on our earlier disclosure about potential insider trading in 3Com stock, we have uncovered something interesting. Did Goldman (in)advertently tip off clients that 3Com was potentially in strategic negotiations? 3Com was previously supposed to present at Goldman's Data Center Techtonics Conference today at the Sheraton Hotel in New York (Agenda below). In a limited distribution note, Goldman yesterday advised selected clients that 3Com had withdrawn at the last minute from the Conference. As those in the industry are well aware, any last minute switches of this kind are indicative of imminent good or bad news dissemination, and more often than not are associated with some strategic announcement.
While the person buying the calls (if indeed this was not a calendar spread) may have been provoked to do so as a hedge against anything crazy out of the firm, it is amusing that once again a very selectively disseminated piece of information to only Goldman clients may have been the driving reason for making markets "efficient."
(2 votes)
on Wed, 11/11/2009 - 19:01
#127757
The "quiet" period.... was not so quiet...
on Wed, 11/11/2009 - 19:09
#127762
out of interest - what do you think of the argument put forward by Don Boudreaux, of Cafe Hayek, that 'insider trading' helps in the formation of accurate prices?
on Wed, 11/11/2009 - 21:50
#127931
Sounds to me like Boudreaux's algo is set up for front running off the bottom. Kinda like "Short? What's that?
on Thu, 11/12/2009 - 03:14
#128195
... as a function of price, definitely !!
Did you short / buy puts on LEH during the Wednesday afternoon that the GS prop desk (alone) explicitly bought over 35,000 front month puts of innumerable strikes at market within the MOC (market on close, 15:30 -16:00 EST)?
Insider trading absolutely helps technicians; and while the SEC seems to be kosher with it, Joe Plumber with an always fully invested 401(k) doesn't seem to take kindly to it.
on Wed, 11/11/2009 - 19:28
#127781
Hewlett Packard's next big blunder = 3COM
on Wed, 11/11/2009 - 19:28
#127782
I'd like to see Goldman out of business, but this is making something out of nothing. What else were they supposed to have done? If they had made a big deal of this by telling all clients that 3Com was not going to present at a conference many or most of them probably didn't even know was taking place, that would have set off the alarm bells. Unless of course, unless Goldman notifies all clients every time any company cancels a presentation at every one of their many investor conferences.
on Wed, 11/11/2009 - 23:20
#127981
Agreed. Anyone who wants to base their trade on a conference cancellation can do so. I think Tyler's thesis that these types of cancellations are "more often than not" strategically relevant (ie: tradable) is reaching.
on Wed, 11/11/2009 - 19:39
#127796
Green Sharts has a point. This agenda is packed.
I would like for someone to explain to me this Cloud thing, real short, 20 words please.
on Wed, 11/11/2009 - 19:51
#127809
OK, here it is:
They just pocketed millions by of virtue of "information asymmetry". You did not. They are above the law, you are a peon.
Whew.
on Wed, 11/11/2009 - 20:05
#127826
Woulda been more impressed with a Haiku...
on Wed, 11/11/2009 - 21:12
#127894
+1 I admit. So here it goes:
The Cloud needs network.
H-P wants to own cloud.
G-S raped you hard.
on Wed, 11/11/2009 - 20:30
#127856
Well, I googled the term and found 8 definitions. I have to admit, yours makes as much sense.
on Wed, 11/11/2009 - 20:45
#127868
cloud computing = information technology starting to resemble some characteristics of the power grid. Who cares where the cpu, memory and IO infrastructure resides... just plug in and pay your bill at the end of the month. like when you turn on your TV, do you care if it's powered by a coal plant vs. nuclear? Quebec Hydro vs. AEP... whatever
The real challenge is building the infrastructure to support it. But this is way more than 20 words... and who cares about IT in this forum?
on Wed, 11/11/2009 - 19:42
#127802
It may not "making something out of nothing" if COMS publicly stated they would be presenting and then GS selectively disclosed they had canceled. Companies almost universally announce when they will be speaking at events like this and disclose the presentation on their IR site. I don't know what actually happened, but this would make sense to me. If this is what happened then I blame COMS and not GS. However, I can see how this could easily be overlooked by management.
on Wed, 11/11/2009 - 19:52
#127811
Note the open interest in the November 5 and December 5 call options on COMS prior to today, vs the amt traded in these strikes today (more than 3k contracts each). Someone was either very smart or very well informed.... SEC - are you looking into this????
on Wed, 11/11/2009 - 20:03
#127824
"out of interest - what do you think of the argument put forward by Don Boudreaux, of Cafe Hayek, that 'insider trading' helps in the formation of accurate prices?"
Obviously it does make prices more accurate, but the question is how desirable is this? In this case, prices converge to the "true" price one day earlier but the majority of the profit opportunity is captured only by those individuals with the inside information. Why do those with access to inside info deserve huge paydays at the expense of everyone else?
on Wed, 11/11/2009 - 20:56
#127881
Sounds to like Boudreaux's algo is set up for front running off the bottom. Kinda like "Short? What that?"
on Wed, 11/11/2009 - 20:09
#127833
Sure wish they would catch somebody at this because all the speculation is starting to dull the mind
on Wed, 11/11/2009 - 20:15
#127841
Gold = $1120
on Wed, 11/11/2009 - 20:41
#127864
tyler was right the other day. we metal heads are getting bored with all of this good news...ha ha ha ,.....
on Wed, 11/11/2009 - 20:39
#127862
yeh and we shall see how many perp walks we get out of this charge. just how many at the squid will go down for this? any? i will state here and now, that none, nothing will ever come of this, that is, unless that is, they set someone up for a fall, and then they lay the blame off on them for it and thereby taking some of the heat off of the squid. sometimes the squid will allow some of its lower life forms to be sacrificed for the good of the squid...
on Wed, 11/11/2009 - 21:17
#127899
Are you saying the SEC is a joke?? THE SAME SEC that put Martha Stewart (the menace to society) behind bars for trading 5 shares of her stock with insider information. Come on.
You are delusional. You probably are one of those tin-foil hatters that think GS owns the government and Global Warming is a joke.
on Wed, 11/11/2009 - 20:46
#127869
Just what is HP going to do with 3Com? Is not 3Com about eliminating the products HP sells?
Reducing cost to use data bases is what I thought it is about. No need for a computer.
on Wed, 11/11/2009 - 22:55
#127964
Vertical integration? Why does MSFT want YHOO or GOOG?
on Wed, 11/11/2009 - 20:47
#127870
I noticed a weakness in the trading of HPQ today, given that most of the relavant tech stocks were trading up it was down, I was wondering why (since these days all move up and down in unison), and now I know why....
on Wed, 11/11/2009 - 20:52
#127874
This is a bit ridiculous. Just telling people that 3COM is pulling out of a conference means nothing. It's not something you can trade on. End of story.
on Wed, 11/11/2009 - 21:15
#127897
jedewards - you can call it ridiculous if you wish. Companies do not randomly pull out of conferences the day before the event. There are times managements are allowed to speak and there are times they are unable to say peep. Most of the periods when they must keep their collective mouths shut land in quiet periods around earnings releases or offerings of securities. There isn't necessarily anything illegal here. It looks to me as though it was handled poorly by GS/COMS. When companies pull out of events traders go looking for vol trades. The puts didn't move today.
I do wonder though if GS is advising either side of the deal. This was clearly in the works for a little while b/c HPQ pre-announced as they announced the deal.
I'm not an option expert but I'm not buying the calendar spread theory. I wonder if a dealer was active in the other contract. Why in the hell would someone put on such a large calendar spread (relative to open interest) on a holiday?
on Wed, 11/11/2009 - 21:44
#127926
It very well could be a random event. The presenter could have died, or maybe he was needed for an important meeting. Unless GS said that 3COM was being acquired, there is nothing to disclose here. People drop out of conferences all the time. It might meansomething, but you don't know what that something is. It may or may not be a random event, but it's definitely not a tradeable event the way insider information is.
It doesn't present ANYTHING useful to work on. If someone pulls out of a conference and you think it means something, and trade on it, that's the perfect definition of SPECULATION not INSIDER TRADING.
It's like when traders were trying to trade based on how heavy Greenspan's suitcase wasm whether it meant he was going to raise rates or lower rates. Just because some people might speculate off of that info doesn't mean that it needs to be disclosed the way real financial information needs to be.
on Wed, 11/11/2009 - 22:00
#127938
It DOES NOT happen all the time. You know what happened last time 3Com had an issue with a conference? They issued a press release and announced they were sending someone else. Look it up.
http://phx.corporate-ir.net/phoenix.zhtml?c=61382&p=irol-newsArticle&ID=1330483&highlight=
It's not insider trading per se, but it's damn sure bad practice. Anyone that attends these conferences knows companies show up as planned unless the company announces othewise. It's not normally the bank the makes the statement. Specific to 3Com, there is precedent for them announcing changes.
I trade (though I don't trade tech that often) and I damn sure would have been poking around had I known they were a no-show.
Again, it's not necessarily illegal UNLESS the person(s) executing the call transactions had info about the deal. If it was pure speculation then congrats to them. It's still bad corporate practice.
on Wed, 11/11/2009 - 23:21
#127982
"Companies do not randomly pull out of conferences the day before the event. "
Pure bullshit. 'Happens all the time.
on Wed, 11/11/2009 - 20:54
#127878
Companies pull out of conferences all the time. This is not an inadvertant tip off at all.
on Wed, 11/11/2009 - 21:31
#127914
if it was the announcement that mattered and announcements like this are so meaningful then you would expect that all people who received this memo took action on it, not just one or two buyers. Any idea whether these shares were bought in blocks or by lots of different people?
on Wed, 11/11/2009 - 21:31
#127915
Gold is going to call dollar's (Bernanke's) bluff. What do you think's gonna happen?
on Wed, 11/11/2009 - 21:42
#127925
By the way, Bain offered $2.2bb (I think) for COMS in '07 when the US govt killed the deal for "national security" reasons (concerning Bain's Chinese partners on the deal). Now HP pays $2.7bb a couple years later. Bain could've used ANY positive realization given the portfolio of garbage their LPs are stuck with.
on Wed, 11/11/2009 - 21:46
#127928
CLOUD: ie a bunch of put servers together that offer storage and cpu 'services'. like everything is else in america ... super size me;
on Wed, 11/11/2009 - 22:38
#127953
Same old same old-
Buy on rumor - sell on news.
on Wed, 11/11/2009 - 22:39
#127955
"Blue Horseshoe likes 3Com"
on Wed, 11/11/2009 - 23:03
#127968
Beautifully succinct explanation of the shenanigans at work here. 3COM's cancellation was a tell. They should have known that and announced, during trading hours, that they were pulling out of the conference. That way, every investor has the news. Only a select few had this news and somebody used it. If the NYSE or Nasdaq are not interested in correcting these wrongs, they will kill their "markets".
on Wed, 11/11/2009 - 22:46
#127960
I knew the 3com Cheif was taking a shit 3 days ago...
Still not understanding where the insider trading idea is coming from?
Tyler - you got some names?
Or are we Ass.U.Meeing?
on Wed, 11/11/2009 - 23:27
#127987
puleese.!
on Wed, 11/11/2009 - 23:57
#128019
Normally harmless, it all depends on how GS disseminated the information. If there is proof that someone at Goldman went out of their way to mention that 3Com wasn't attending their conference in a close group setting, there's likely a problem there.
I've attended a conference with a last minute cancellation a few years ago. I later found out that the CEO was detained by the local authorities on a soliciting of prostitution charge.
So yeah... those "last minute" cancellation deals, could mean ANYTHING.
on Thu, 11/12/2009 - 00:55
#128091
Great highlight Tyler, but GS strategists are only guilty of being excellent at what they do.
While relaying their knowledge of what it effectively means to pull out of such a convention, which is simply that materially critical information is forthcoming, GS did not commit a material breach of ethics. Now, because it was their convention there might be a legalese loophole to examine there; that said, we each know that their legal has already well-threaded it and is more than kosher with simply being slightly immoral and heavily uncouth while not overtly unethical.
Whether or not they were, or simply could have been, in the possession of the actual 'information' is left open for debate, but the quality authors behind this piece were simply earning their girlfriends' upkeep in the dissemination of such 'news.'
on Thu, 11/12/2009 - 08:38
#128323
How about the guy who bought 3800 Nov 5 Calls and 3k Dec 5 Calls yesterday. Yet that person will never be investigated.
on Thu, 11/12/2009 - 09:27
#128382
More shams and games.
on Thu, 11/12/2009 - 12:14
#128611
Misdirection once again. Pulling out of a conference indicates wither good or bad news. If this was the only leak we would have seen buyers of puts and calls. Instead majority of activity was the 7000 calls. This was direct insider information and that letter posted was just misdirection.
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