An equally plausible version of this story is that a very rich fund exec came to the personal conclusion that VMware was a great buy & bought, then had some part in convincing his firm of same, because that kind of judgment is what he’s there for. None of that is illegal.
As the article makes clear, it’s only front-running if the employee has reason to believe his firm will be making an investment, not simply that it’s under consideration. There was an attempt to make consideration the standard, but it was beaten back as impractically vague.
https://www.dodgeandcox.com/financial-professional/us/en/new...
I sometimes look at how they’re investing the money on deposit. They often buy the same ticker at (radically) different prices.
The honest excuse is they spread the purchase throughout the day or at different times in the day.
But I’ve always had this suspicion that they might be doing something to boost their profits. I have zero proof or otherwise and don’t intend to defame them in any way.
But the reason I’m writing this is simply to share that there are a lot of businesses where the client really puts a ton of trust in the vendor. An insane amount of trust (literally your life savings) with very little assurances in return.
Without swift and strict enforcement of consumer protections and regulations, these sort of things will keep happening because it’s easy to steal from places where no one is looking.
Guaranteed someone is paying to front run for them.
After a few beers he'll sometimes start bringing up "customers purchasing order flow" from them, which apparently accounts for a significant part of their revenue. He's also indicated that this is not a practice unique to their shop but is fairly commonplace among companies that have highly advantageous (next-building or same-floor/dc equivalent latency) transport to various exchanges.
I assume, but am hesitant to ask directly, that this activity cannot actually be what it sounds like, but now I don't know.
“There is no evidence that he engaged in front-running or any other improper trading activity,” Dodge & Cox said.
After the dude clearly engaged in front-running.
This is the textbook definition of front-running, or at the very least, a blatant display of insider trading.
what? horse betting is parimutuel. the timing of your bet does not change your realized odds.
> Horse racing uses a pari-mutuel system. There's a pool of money wagered, the track takes a cut and the rest is distributed to the winning bettors. But that system means you don't know what the final odds will be when you make your bet —because they are constantly changing until the race begins.
This is in contrast with fixed odds betting against the bookie where they'd adjust the odds as bets came in to hedge their position. That is no longer common.
The way to make money when front-running is to buy early, wait for the pop, then sell immediately. The longer you hold on, the less of an impact that pop will have on your gains. Company fundamentals and market forces will overwhelm any short-term pop in the long run. Especially so for highly liquid stocks like VMWare where the decisions made by individual funds have a smaller impact on the stock price.
I'm saying all this because the guy was buying and holding for many years. He held on to VMWare for 4 years. And NetApp for over 2 years. At those timescales, the vast majority of your returns are independent of your decision to front-run the trade.
It does seem very coincidental that he bought and sold just before/during his fund's trades. But consider another possibility. He does a lot of active trading - the article mentions that most of his trades are unrelated to his fund's trades. On one of those occasions, he thought VMWare was a good buy, and so, bought the stock for himself. He's also on the fund's investment committee, where his job is to help the fund make good investment decisions. Unsurprisingly, he pitched VMWare as a good buy... because that's what he genuinely believes. The committee agreed with him, and bought the stock.
4 years go by, and he thinks VMWare is no longer a good stock to hold. Hence, he sells his holdings. As part of the fund's investment committee, he also expresses his genuine belief that holding VMWare would not be a good decision at this time. The committee agrees with him, and decides to sell the fund's VMWare holdings. All of the above seems extremely plausible and above-board.
I don't know the exact details of the case, so I'm not claiming the guy is innocent. But the information given in the article isn't as damning as it's presented to be. I'm just glad we have a criminal justice system to try cases like these, as opposed to a media witch-hunt
So is my understanding correct that ProPublica has someone’s private financial information that was illegally released to them?
I understand that there may be something illegal or unethical here, but I find it weird that organizations like ProPublica or others are given a pass for violating the privacy of others. It’s also strange that social media platforms often censor information under things like policies on hacked materials or non public information, but only selectively enforce it - perhaps depending on the political implications.
> In a statement, Dodge & Cox said that the firm had given advance approval for all of the trades identified by ProPublica, and a review of Hoeft’s trades after ProPublica asked about them found none violated the firm’s policies.
OK so these trades were submitted for review and approval ahead of time, which is pretty standard, and seems completely unlike some hidden scheme. Is this really front running or just people acting on reasonable information available to everyone about these securities?
This was a really lengthy article and in the end the actual evidence for some criminal activity is flimsy.
Journalism depends on getting access to private information, there's nothing new in that.
If not you could just shield against journalistic investigations by declaring all relevant information as private.
It's the job of a journalist to be responsible when using its sources, how to disclose the information, etc. but having access to it is a foundational aspect of investigative journalism...
