Feeds

back to article Apple share dive scuppers trader's alleged get-rich-quick fraud scam

A US trader has been charged with fraud by the Feds over a get-rich-quick scheme involving over 2 million Apple shares and $1bn. The trader, David Miller, bought 1.625m shares in Apple on October 25 this year, the day that the fruity firm was scheduled to announce its earnings for the quarter. Miller told his bosses at Rochdale …

COMMENTS

This topic is closed for new posts.
FAIL

Get rich quick scheme turns into get poor quick scam SHOCKER!

8
0
Silver badge
Meh

Working while within his reality distortion field may give him a defence of insanity.

0
1
Bronze badge

No kidding.

Is your name Shelock or did you read the article?

0
0

Legalized gambling

Only this was illegal legalized gambling

2
1
Silver badge
Facepalm

Not just illegal but stupid

Apparently he didn't realize that 500,000 is less than 1,623,375.

1
0
Bronze badge
Trollface

Why all the fuss?

Surely he just needs to point out he's too big to fail, and ask for a bailout payment to cover the loss?

17
0
DJO
Bronze badge
Holmes

Double Standards

If this had worked his bosses would have patted him on the back and paid him a big bonus.

This is the problem, the brokerage companies turn a blind eye to illegality which profits them. This idiot should have been prosecuted regardless of how it turned out and until it becomes common for brokerages to prosecute any breach of trust irrespective of the outcome then things like this will continue to happen.

30
1
Silver badge

Re: Double Standards

I agree that anyone doing that sort of thing should be prosecuted regardless but what on earth makes you think that would stop them doing it? You need to prosecute the brokerages for failing in their duty too.

2
0
Silver badge

Re: Double Standards

As Mr Leeson pointed out: "Nobody calls you a rogue trader when you're winning"

11
0
Anonymous Coward

Re: Double Standards

If this had worked out the brokerage firm would not have known anything about it. It would have looked just like any other transaction.

If it had worked and if the brokerage firm had found out they would have taken action against him. The brokerage firm does not want anybody risking their money without their permission.

0
0
Silver badge
Unhappy

'Rochdale Securities'

That name was probably selected by the founders because it sounded distinguished and suitably WASPY. Little did they know Rochdale is a complete and absolute dump best known in the UK for the sexual abuse of children.

8
2

Re: 'Rochdale Securities'

And the home of 'Ecky Thump'!

0
0
Anonymous Coward

Re: 'Rochdale Securities'

Rochdale Securities, 'We like to Groom'.

0
0
Childcatcher

Double Standards

Totally agree. I have an intense dislike for shorting and given the nature of the gamble I feel that anyone involved should be locked up irrespective of the outcome.

1
1
Pirate

Re: Double Standards

I hate it when they say shorting is good because it provides liquidity to the market. Sorry, but I thought the original idea of stock markets was to invest in companies, not to gamble on losses for a quick buck. All I see you ever get out of this is extremely volatile environments.

This and high-frequency trading... don't get me started on that one *grumble grumble*

Load of pirates, the lot of them, if you ask me.

15
2
Bronze badge
Black Helicopters

Re: Double Standards

This is where a Tobin Tax would be a really useful solution- a miniscule tax on transactions would make the high frequency trading approach less viable while also making a whole lot of money for the tax authorities who signed up to it. The markets are primarily machines for making money, if they are to serve any kind of good to the companies invested in they need a little bit of steering from people willing to look at the bigger picture.

Unfortunately the people who could possibly apply steering currently are all good friends of the ones with their snouts in the money trough, so they aren't going to upset their buddies by making the markets serve their original purpose any time soon.

3
1
Anonymous Coward

Re: Double Standards

AFAIK this was nothing to do with HFT - he was trying to short Apple and the price went against him.

1
0
Silver badge

Re: Double Standards

The markets are all about greed and fear. If you feel neither, you can take a consistent profit from those that do.

Shorting isn't wrong, it's no different from buying shares and then selling them. We are talking about trading here, not investments - totally different ballgame.

This guy got greedy.

3
4
Silver badge

Re: Double Standards

My gut reaction is to brand short selling as morally questionable, not so much because it gives one person a vested interest in the declining fortunes of another — that's the essence of the entire market, surely? — but because of the increased risk it creates of amplifying exceptional circumstances. The gains it allows individuals to make are insufficient compared to the risks of the whole system collapsing at once.

That said, history shows that banning short selling does nothing in the long term to stabilise the market (see e.g. http://blogs.wsj.com/marketbeat/2012/07/23/short-selling-ban-reeks-of-desperation/ ), so I'm not sure it has as much effect as I imagine and I'm happier for cases like this to be treated analogously to theft; the issue isn't so much that the dealer sold equities he didn't then own as that he sold equities there was a good chance he'd never be able to acquire. He made a bargain with someone else that he could fulfil only if it was in his favour. That it was shorting isn't the main issue.

0
0
FAIL

He was obviously selling them wrong.

</duck>

12
0

look on the bright side

It's not all gloom. Since share trading is a zero sum deal, every loss by one trader is a gain for another. The skill factor is to be of the one sort and not the other--consistently

0
0
Silver badge

Zero sum game?

Stock trading? Absolutely not. Nowhere even close.

Say, you (company A) have 10 shares of X to which you subscribed at $1 per share.

Next day you see a bid at $2 per share, you sell to Company B, making $10 profit on your original investment. Who has lost? Nobody.

A day later the market is down to $1.5 per share, Company B changed their minds, sold the shares to Company C at market, making a loss of $5. Who has gained? Nobody.

1
5
Bronze badge

Re: Zero sum game?

"Who has gained? Nobody"

Until the next day, when the market is back up to $2, and company C makes a tidy profit selling to company D. You cut your story a bit short there.

1
1
Silver badge

Re: Zero sum game?

Who has gained? Nobody.

Wrong the exchange and the trader who facilitated the deal always gain. And who loses? Well, as all the trades are generally for managed investments then it is the customers of those investments, most likely to be ordinary people at the end of the day, who lose by paying for all those transactions and hedges that the transactions create.

4
0
Mushroom

Re: Zero sum game?

You also cut your game short... because the next day the company who's shares are being traded goes bust.

You can't talk about a zero-sum game when the game never ends. YOu can only talk about zero sum exchanges within certain periods of the game, and in each case the original assertion is correct - every time a transaction in shares is concluded, it is - by definition - a zero sum. The party selling gets the price they want and the party buying pays what they want. Irrespective of the monetary quantities involved, the VALUE of the transaction on each side is perfectly balanced, otherwise the transaction would not have been conducted in the first place.

Having said that, treating the whole thing as a game and trying to apply "Game Theory" to stock markets was arguably the beginning of the whole sorry state of affairs in the first place.

2
1
Silver badge

@Goldmember

It doesn't work like that. Zero sum game means at any point the sum of gains and losses in the market must equal 0. Stock exchange market is open ended. Transactions don't need to be balanced and liquidated through the exchange. People can hold the shares indefinitely, share issuers may go bust, they may also pay dividends.

To find a zero sum game you need to look at futures markets. There, and only if you look at such market in complete isolation, you will see that each gain is always balanced by equivalent loss - that's why clearing works and that's why futures exchanges can provide trading environment practically protected from counterparty risk.

Of course, even such market would only be a true zero sum only if all participants were pure speculators. Because in real life that is not the case, even futures markets are not really zero sum.

1
0

Re: Zero sum game?

"Having said that, treating the whole thing as a game and trying to apply "Game Theory" to stock markets was arguably the beginning of the whole sorry state of affairs in the first place."

"Game" is a mathematical term meaning a situation in which two or more parties have a conflict of interests. Stock markets were always a game in that sense. Using game theory doesn't imply "treating the whole thing as a game" in the sense of the English phrase "to treat something like a game". It just implies using strategies that have some sound mathematical basis.

0
0

And now consider...

... that if he had guessed correctly he would have been hailed as a hero by his employer, received a huge bonus, and we'd never have known about it.

1
1
WTF?

Apple is hardly circling the drain, but anybody with any brains knew the stock was in a huge bubble and it was going to normalize out soon.

If some poor schlub like me could see it, how did people who were supposedly "professionals" stay blind to it?

3
2
Silver badge
Stop

I don't think you understand the meaning of the word

For there to be a bubble the shares would have to be trading at a huge multiple of earnings per share. Anything between 10 and 20 times earnings per share is normal, and Apple were smack in the middle of that range. If you want to see a bubble then look at Amazon or Facebook.

What caused the shares to drop was not meeting the markets estimate for earnings that quarter. They exceeded Apple's guidance, but the Analysts were betting that they would be higher so the price went down. Mad, but that's the way the market works.

0
2
Silver badge
FAIL

> how did people who were supposedly "professionals" stay blind to it?

That's easy, it is profitable right up to the end, whereupon it becomes someone else's problem.

It amazes me that there is no requirement to have a hard account against every trade. Even if the bank is funding the trading from its own pocket, surely the accounting should be instant, not put off until later.

If you buy shares, the money should be there for the full purchase price at the time of the trade, or an agreement has been reached for a fixed amount of credit.

Shorting is wrong because you are buying something without knowing what the price is. That means that it isn't possible to say that you have the assets required to complete the purchase. That isn't just risky, that is criminally reckless.

0
0
Pint

T+3

I trade actively on the Thai market in real time. I always know the price of any share I'm buying or selling. If you're shorting you can see the price on the screen (and you're guessing it'll fall), and your broker knows you have funds to cover to an agreed lower price/percentage fall and an agreed future buy back time.

If you don't buy back the shares you sold (borrowed), the agreed market price/time is simply deducted from your account. As for cash on the spot, the traditional payment method is T+3 ie you pay for a Buy 3 days later and receive proceeds of a Sell 3 days later. It allows me to to buy in again immediately after a sell.

That said, shorting is a nasty game because it distorts market sentiment - a big buy at the end of the day could be a panicky shorter buying to get out rather than a confident buyer coming in. Confusing. But fun. And profitable if you're sensible and cautious. It pay the bills.

HFT is for the big money boys (who own brokerages and don't pay commission, well except to themselves). An estimated 70% of all HFT trades take less than a few seconds. Scary if you're a day trader (scary anyway), but no big threat for trend traders like me. Again it's market distortion that's troubling.

1
1
Anonymous Coward

There is a book written by someone who survived the Wall Street Crash - "Where are all the customers' yachts" by Fred Schwed. It is still in print, I think. Read it. It is all there.

Basically at one point [spoiler alert] Schwed says that in Wall Street the highest paid banker knows no more than the lowliest office boy, the difference is the time scales on which they demonstrate their ignorance.

0
0
Anonymous Coward

Trading in Fruity shares

Is much easier if your "basis" (original share cost, factoring in splits, etc.) is around $7.00 like it is for me. The gain is almost too much, given how they (the US Government) taxes everything. But life goes on, and I await the rise to $700/share price soon.

0
1
Silver badge

Terminology

Share Brokers are middle men. They are not supposed to buy or sell shares on their own behalf, only on instruction from a client. They make a profit by charging a fee for each transaction. The risks that they run are that their purchase or sale will fail to complete (the counter party they are dealing with has some sort of problem) or that their client can't pay. There are areas within a brokerage company that keep track of these risks.

Share Traders are people that acquire a position in a share or shares. They hope to make a profit in the difference between buy and sell price. They may use brokers or, if they're big enough, go direct to the exchange. They hold a lot more risk. They stand to make more money if they get it right, but can lose a lot if they get it wrong. If they are part of a bank or other financial institution then they will also have a risk department keeping an eye on them.

What we had here was a Share Broker trying to act as a Share Trader without authorisation. Even if it had worked out there was risk that the brokerage company would find its self in trouble with the financial regulator for exceeding its licence, so I doubt they would have been all smiles if they'd found his profit either. The guy seems to have been an all-round idiot.

4
0

Re: Terminology

I'd be a happy little trader if brokers were not also traders but it just ain't so.

Broker/traders are "testing" the market all the time (HFT alert) with piddly bids and offers that would not cover commission costs. Why would anyone bid for $5.00 worth of shares, knowing they'd pay $10.00 fees? They'd need a 100%+ sell for any profit. These little bids/offers are probes to test market sentiment. I watch these probes trying to drive prices. For me it's a signal to get out. A sucker play, like losing the first hands at poker to a punter.

These probes can inundate a market and distort it because there's no commission loss. It's a free game .

Caveat emptor.

0
0
Silver badge

The clue is in the name

High Frequency Trading systems are owned by TRADERS. They try to look for movements in market prices and buy early, gaining a small but noticeable profit from selling seconds later.

The job of a broker is to get the best price for their client. Probing the market with small trades helps them determine that price, and owning a few shared in consequence isn't considered a position. It's also unlikely that their costs for the trade will be as high as you think (they tend to be exchange members). That it may also confuse HFT systems is a bonus.

0
0
Anonymous Coward

Re: Terminology

> Why would anyone bid for $5.00 worth of shares, knowing they'd pay $10.00 fees?

They are pinging the market, looking for icebergs.

In other words when enough of their small $5.00 trades are taken up it might indicate the presence of a large hidden order that they can then take advantage of.

0
0

Shorting is Theft and Fraud in one neat package

That's all there is too it.

Borrow your mate's car, promise you'll give it back at the end of the month and sell it to someone else, that's theft of the car and fraud on the buyer.

There is no valid reason why shares should be any different.

What makes share shorting even worse is that the institutions that are most active in 'lending' shares are our pension funds - effectively betting against themselves, and therefore us..

The whole thing is disgusting way of sucking value out of trading companies, their investors and employees..

3
3
Silver badge

Re: Shorting is Theft and Fraud in one neat package

"Borrow your mate's car, promise you'll give it back at the end of the month and sell it to someone else, that's theft of the car and fraud on the buyer."

You forgot one little but crucial detail - at the end of the month you buy that car back to return to your mate. No theft and no fraud. Mate.

1
0
Silver badge

Re: Shorting is Theft and Fraud in one neat package

You missed out some facts

1) Your friend is charging you a fee to borrow his car

2) He understands that you may sell it, BUT at the end of the month you will return it or an exactly equivalent model.

So at the end of the month he gets cash and a car. If you've guessed right and can buy a replacement for less than you sold it for minus the fee he's charging then you make a profit. If you get it wrong then you make a loss.

Where things go wrong are NAKED shorts - you promise to sell shares up front, knowing that you don't have them and haven't borrowed them. You can only get away with this because trades take several days to complete a trade.

0
0
Silver badge

Re: Shorting is Theft and Fraud in one neat package

No, it depends on how you do it. In some instances it's a hedge. In fact, if you look at the overall markets and where the short sale actually originates, you'll see that properly used, they benefit the littlest guy in the market. They were originally used by farmers and distributors for farmers in the futures market. When you liked the price because it let you make budget, you'd lock in the money you were making by shorting for what you were selling. That way, regardless of what the price did AFTER the short, you'd make the money the short locked in.

That shorts can be abused with naked shorts on borrowed money is a defect of changes we've made to the system, not the short itself. And I've seen arguments that even the naked short helps clear the market. Not sure I believe them, but I do believe some of the people who've made that case are honest people.

0
0
Silver badge

Re: Shorting is Theft and Fraud in one neat package

But all this arguing about the merits or evils of short sales got us somewhat distracted from the fact that the guy has lost the money when he went *long* Apple shares, not short...

0
0
Happy

Obviously didn't read the disclamer in the small print

Remember! The value of your shares can go down as well as up.

0
0
This topic is closed for new posts.