What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing over the past several years there have been countless cases of rogue traders in the u.s securities markets trying to make a quick buck through various means. We've seen teenage cryptocurrency gurus wall street best yolo traders and any number of other types of new entrants into the markets, but we also seem to have had an uptick in people trying to leverage the markets illegally. Two of the most common types of financial fraud in the markets today are pump and dump and insider trading. Most people are familiar with what a pump and dump is, especially with recent criminal fraud.

Charges against nicola founder trevor milton insider trading is also taking the public spotlight ever since it was announced that several federal reserve chairs engaged in questionable stock market activities around certain key fed actions to be clear. We're not taking aside on any of these issues and, of course, everyone is innocent until proven guilty in a court of law. These recent highly publicized events simply show that these issues of financial fraud are now more relevant than ever. But in this video we're going to talk specifically about recently announced charges made by the securities and exchange commission on one of the most intriguing insider trading cases.

We've seen it involves an ex-wall street banker with inside information on mergers and acquisitions. He used his parents brokerage accounts to try to evade detection. This case involves a former senior analyst at a large wall street investment bank, the spanish national, jose luis casiro sanchez, certain media outlets, including bloomberg, and the financial times report that the investment bank was goldman sachs, one of the biggest according to the sec sanchez worked in The control room at one of the bank's offices as a senior analyst, he worked in the compliance division, meaning that his department's roles included making sure that the bank's private side businesses did not share confidential information with their public side businesses. For example, one of the major functions of an investment bank, like goldman sachs, is underwriting ipos, organizing merges and acquisitions, etc.

These functions engage with private and public companies and have knowledge of and influence over highly impactful developments in these companies businesses. Obviously, this can greatly affect stock prices. On the other hand, the investment banks also engage in sales and trading wealth management and equity research, all of which assist clients in trading stocks and other financial products. If there are no limitations on the flow of information between the different businesses within an investment bank, the mergers and acquisitions divisions could potentially tip off the wealth, management or sales and training divisions ahead of key business developments that could lead to large and very illegal excess Returns for the bank's clients and in turn, for the bank itself.

For this reason, investment banks all have compliance divisions whose roles include making sure that the flow of information does not go in that way within the bank. However, it also means that employees who work in those jobs must be trusted not to go rogue with themselves, while in the compliance division of the investment bank, sanchez had access to information about many upcoming mergers and acquisitions that the bank was involved in for about a Year, he seems to have not done anything illegal with this information, but eventually he cracked, starting in the later part of 2020. The spat crate started to be a nationwide market phenomenon. Stack sponsors were bumping into each other, trying to get investment banks to back their deals.

Investment banks all around the country saw a boom in business. Some even had very publicized complaints lodged against them. By overworked junior bankers, there is just too much work resulting from so many mergers and too much investment making business. It also apparently resulted in too much temptation for mr sanchez.

He started trading the stocks of the deals that he saw going across his desk, making trades such as buying the stocks of hyped-up acquisition targets before the deals were announced publicly and then profiting. As retail traders responded to the acquisition announcements, for example, on october 2nd 2020 american renal associates holdings inc, ticker symbol, ara announced that it entered into a definitive agreement to be acquired by nautic partners. The all-cash deal specified that nautic partners would pay 11.50 per share at the time of the announcement that represented about 66 upside to where the stock was trading. Before the announcement, mr sanchez bought stock and american renal associates before the announcement and made tens of thousands of dollars overnight.

As a result, he also used options to amplify his trading profits, as well as to take advantage of negative pressures on stock prices. Norwegian cruise lines is an example of a company that has been under pressure for the last 18 months. It's no surprise that they had to raise capital at some point, including by selling stock, regardless large share offerings by cash-strapped. Companies are frequently seen as a negative sign of the company's outlook and can produce technical pressures on a stock by flooding the market because of the dilutive effect of such offerings.

Stock prices can suffer, especially in the short term, from additional offerings. On march 5th 2021 norwegian announced a public offering of nearly 50 million new shares of stock, with an option to the underwriter for an additional 5 million immediately, the stock dropped more than 12 percent on the news from about 33 dollars, a share to about 29 a Share but it wasn't before sanchez bought 110 contracts of 31.5 and 32 strike puts on norwegian to make matters even more blatant. The puts all expired the same day, the day of the announcement sanchez dumped all of his puts just two minutes after the star of trading on the day of announcement for an overnight profit in the tens of thousands of dollars. He repeated this type of trade for at least 45 different stocks, all stocks which he had advanced insider knowledge of before major announcements or deals were made.

Eventually his employer somehow found out something was going on and interviewed him about his trades. The very next day he resigned from the company and withdrew all of his assets from his brokerage account once the funds cleared, he transferred the majority of them to a bank account in his home country of spain. However, due to the unusually high profits from sanchez's trading, especially around special corporate events, the first brokerage he used closed his account fairly quickly interactive brokers. His stockbroker became suspicious after he started, making hundreds of thousands of dollars on basically single trades.

They sent him an email in november of 2020 telling him to liquidate his account within a month after which his account would be closed. He did so and then transferred nearly two hundred thousand dollars to a bank account in spain within a week. However, he opened another brokerage account this time at charles straub. He continued to make tens of thousands of dollars in overnight profits in this account.

Throughout the approximately half a year of insider trading, sanchez used the creative trading scheme in an attempt to cover his tracks. In total, he used four different brokerage accounts, interactive brokers, charles schwab, tastyworks and a second interactive brokers account. Furthermore, he didn't use his own name in any of these accounts. Instead, he used his parents names after the first interactive brokers.

Account was closed. He traded in the other three accounts in an alternating fashion. Never trading two stocks in one account consecutively. Presumably this was a weak attempt on the part of sanchez to avoid detection by spreading out his suspiciously, profitable, trades.

Unfortunately, for him the sec was able to easily trace these accounts back to sanchez. They geo-located the ip address that he used to place the trades back to the same ip address where he logged on to his employer's remote work system. The same ip address also traced him to a us-based trading platform which did have accounts in his own name. In late september of 2021, the sec formally charged mr sanchez with insider trading.

In total, he made almost half a million dollars over the course of about half a year by placing many small orders spaced out over time on multiple accounts in his parents names he unsuccessfully attempted to thwart detection. This case is a blatant example of insider trading, where it's shockingly clear. What's going on, sanchez was a compliance officer with sensitive information under his watch. He then used that information to buy stocks and calls only days or hours before positive news was to be announced or bought, puts right before negative news was to be announced.

Sometimes the expertise of the options were less than a day after the planned announcements. This case shows that even when the profits are relatively small, less than 1 million dollars in total, the sec always has ways to detect securities fraud, using data analysis tools and access to trader level data not available to the general public. They can uncover suspicious activity in the markets and investigate further. Even when measures are taken to evade detection, the sec can frequently find out bad actors, alright, guys that wraps it up for this video.

If you enjoyed this content, make sure to smash the like button and subscribe, so you don't miss future videos also leave a comment saying whether you would have thought that mr sanchez's evasive measures would have been enough to keep the authorities off his trail. In the meantime. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing.