There’s no end to the parade of corporate transactions preceded by trading underlying their selective disclosure. And there’s no sign regulators see the possibility of insider trading.
By Matthew A. Winkler and cross-posted from Bloomberg.
At 6 a.m. on Aug. 3, Google bought a 6.6% stake in ADT Inc., the largest U.S. home security company, for $450 million. ADT appreciated 100% as soon as the stock market opened. But the headlines detailing the transaction weren’t a total surprise because more than a few people knew ADT was poised to benefit from an event big enough to be gaining Google’s hitherto inaccessible technology.
Three days earlier, when ADT wasn’t reporting much of anything, a series of computerized trading alerts derived from the algorithms of Bloomberg Automated Intelligence (BAI) revealed insiders’ unmistakable handiwork:
— On July 29, the frequency of people searching for articles about ADT and reading them exceeded the most recent 30-day average.
— The same day, ADT rose 6.3% via trades 90% more numerous than the 20-day average and when its weekly gain until that point was 4.1%. ADT competitors closed with an average decline of 2.6%.
— On July 30, ADT bonds changed hands four times more than the five-week average.
— The following day, ADT volume jumped to more than five times the 20-day average.
All of this activity means investors, who were informed enough to buy ADT at $7.91 a share before the BAI alerts, could sell the stock at $17.21 on the news of the Google stake in ADT. The return was 118%, or the equivalent of turning $1 million into $2.8 million in four days.
Trading was significant: The three-day average value of the shares ($8.55) prior to the deal’s disclosure was 8.2% greater than the 30-day average price prior to July 29, indicating investors’ behavior changed in the 72 hours of trading before the news, according to data compiled by Bloomberg.
There’s no end to the parade of corporate transactions preceded by trading underlying their selective disclosure. And there’s no sign regulators see the possibility of insider trading in at least a dozen of them during the past year, including Google’s offer for Fitbit, LVMH’s plan to buy Tiffany, Avaya’s strategic partnership with RingCentral, and Stryker’s taking over Wright Medical.
That’s too bad because financial markets provide the clearest signals of people profiting from confidential information…