Signs of insider trading in Facebook?

GSV Capital Corp (ticker symbol GSVC) has been an indirect way for investors to get exposure to Facebook. It's a closed-end management investment company that "invests through private secondary market transactions, direct investments in its portfolio companies, and through transactions executed on public securities exchanges." Basically it is a publicly traded venture capital fund. Supposedly close to 20% of the GSVC's holdings are shares in Facebook.

Here is the intraday price action for GSVC. It rallied this morning, traded around 18.70 until 2:30 PM and then started selling off - down some 6% from that level at the close. The overall market certainly hasn't moved in this pattern.

GSVC intraday price action

Then just after 5PM Facebook files an amended registration statement. The theme is that ad revenue is not keeping up with subscriber growth and Europe is part of the issue.

Not a great comment from a company that has such tremendous growth priced into the expected share value. It's not clear whether or not the IPO range would need to be adjusted. But it does look as though someone knew about the restatement earlier in the day and started selling GSVC before the news became public. This one is hard to prove and given that FB shares are not public yet, it's a bit of a gray area... Nevertheless it points to a possibility that insider trading may be taking place even before the long awaited IPO.

SoberLook.com

Go ahead, bribe the SEC

It's Friday and time for something on the lighter side - particularly after discussing leveraged finance. For those who have an iPhone or an iPad, here is some entertainment for the next couple of months. It's an app game called Insider Trading

From MacSpots:

• You start off with $1000, can you become a bizillionare? 
• This stock trading game can be played in 30 / 60 / or 90 days. 
• Visit the Bank to take out loans.
• Inside Traders alert you when inside info available. 
• But dont use them too much or the SEC will crack down on you!

 Enjoy!

Affiliated Computer Services options volume

As predicted, M&A activity is picking up. This morning it was Abbott Labs planning to buy Solvay as well as Xerox grabbing Affiliated Computer Systems.

But as with Perot Systems, once could ask questions about how "clean" these transactions are.

The chart below shows Affiliated Computer Services option volume for $50 strike call options maturing 17-OCT-2009.


source: Bloomberg

We are not going to make any statements about this, and would like to invite the readers to draw their own conclusions.

Insider trading in M&A is alive and well

In an earlier post we discussed the fact that M&A about to pick up steam. That is in fact happening and will be accelerating as companies look for growth avenues in this economy and are feeling more confident about their own share price. Here is an example:

"CNN: Computer maker Dell will acquire information-technology company Perot Systems for $3.9 billion in cash, the companies said Monday. Once the purchase is complete, Perot (PER) will become Dell's services unit, a press release said. Dell plans to buy Perot for $30 per share, 67% higher than the IT firm's Friday closing price of $17.91."

But with M&A comes the dirty little feature of the US equity markets: insider trading. As the SEC spends their resources on implementing misguided registration and oversight of thousands of small hedge funds and venture capital firms, insider trading in public securities is alive and well. The proof is right there in plain sight. The chart below shows the PER Jan $20 call option price action and volume. As expected, the price spiked this morning with the acquisition announcement, but the volume spiked a few days earlier. And this is not some small random volume jump, it's a serious spike for a stock with a fairly sleepy options market.


Source: Bloomberg

Obviously not only was the information about this acquisition leaked out a couple of weeks earlier, but someone acted on it and made a bunch of money. In the boom days of M&A this sort of activity went on all the time and obviously things haven't changed much. It's a sad statement about the US equity markets and their regulator who is unable to halt this illegal practice.