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Apple analysts under SEC investigation for 'channel checks'

post #1 of 53
Thread Starter 
The U.S. Securities Exchange Commission is investigating Wall Street analysts who cover Apple over the possibility that 'channel checks,' routine checks with suppliers and manufacturers, constitute insider trading.

Wall Street analysts were shocked recently when federal prosecutors began investigating them over routine supply chain research data, The Wall Street Journal reports. Though it appears that no analysts have been charged, the Securities and Exchange Commission probe is part of a broadening of the definition of insider trading.

"Insider trading basically comes down to where you know or ought to know that the person from whom you're getting this information has a duty to someone else to keep it confidential," said Paul Atkins, former commissioner for the SEC. "If you go in and pay the mail clerk to give you special information, that's not proper."

According to the report, the investigation centers around channel checks where analysts contact manufacturers' representatives "to gauge how a business is performing."

Channel checks are common among analysts covering Apple, who is known for being highly secretive about future plans or production figures. Analysts report information from channel checks to investors through "build plans," which have become almost as significant as Apple earnings.

"Expert network" firms, which charge a fee to investors for connecting them with employees of companies, are also part of the investigation.

As examples of channel checks, the Journal cited a recent RBC analyst report on increased iPad production and a Rodman & Redshaw report on low iPad production volumes that may have caused Apple shares to tumble.

Investors are "wary" and have been meeting with compliance officials and lawyers to gain clarity about the issue.

Last year, the SEC reportedly investigated four specific time periods in which suspicious trading activity of Apple stock took place. Trades made with inside information regarding iPod sales, the health of Apple CEO Steve Jobs, and the release of public information regarding either topic, were examined as part of the investigation.
post #2 of 53
I can think of a few people who should have their analyst license taken away for not having a clue?
post #3 of 53
"Apple analysts under SEC investigation for 'channel checks'"

It's not Apple analysts under investigation, it's Wall Street analysts who cover Apple.

Guys, you don't get to suspend the fundamentals of Journalism 101 just so you can write a catchy headline...

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post #4 of 53
hate to break your logic la la land party up, but they are two ways of saying the same thing. a wall street analyst who covers apple can also be referred to as an apple analyst.

Quote:
Originally Posted by John.B View Post

"Apple analysts under SEC investigation for 'channel checks'"

It's not Apple analysts under investigation, it's Wall Street analysts who cover Apple.

Guys, you don't get to suspend the fundamentals of Journalism 101 just so you can write a catchy headline...
post #5 of 53
Quote:
Originally Posted by MacRR View Post

hate to break your logic la la land party up, but they are two ways of saying the same thing. a wall street analyst who covers apple can also be referred to as an apple analyst.

Sure, if your only goal is generating page views.

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post #6 of 53
And ironically the name of this website is Apple Insider.
post #7 of 53
Quote:
Originally Posted by MacRR View Post

hate to break your logic la la land party up, but they are two ways of saying the same thing. a wall street analyst who covers apple can also be referred to as an apple analyst.

Wrong.

Wall Street Analysts who specialize in Apple and other Fortune 100 companies... is the only way to parse it and be correct.

The other way implies Apple has a team of Wall Street Analysts on the pay roll.
post #8 of 53
Regarding this series of investigation I'll respect the SEC when I see some heads justly roll.
post #9 of 53
This is the US Government's way of shake'n Apple down for some coin. Steve probably said 'no' to him when he stopped in a month back.
Now it's payback time.

Common all you greedy bastard Apple Shareholders... sho me da money...
-luv Obama xoX

Hey, it's Chicago politics at it's best.
post #10 of 53
Quote:
Originally Posted by rain View Post

This is the US Government's way of shake'n Apple down for some coin. Steve probably said 'no' to him when he stopped in a month back.
Now it's payback time.

Common all you greedy bastard Apple Shareholders... sho me da money...
-luv Obama xoX

Hey, it's Chicago politics at it's best.

post #11 of 53
actually, if you work in the financial industry- it's one and the same thing. If you are an anal english teacher talking amongst other anal english teachers you might be right. however, that's not the case, nor ever will be on appleinsider.

perhaps you would enjoy this site more?

http://www.englishclub.com/tefl/





Quote:
Originally Posted by mdriftmeyer View Post

Wrong.

Wall Street Analysts who specialize in Apple and other Fortune 100 companies... is the only way to parse it and be correct.

The other way implies Apple has a team of Wall Street Analysts on the pay roll.
post #12 of 53
The one analyst that has nothing to worry about is Gene Munster. He has been wrong so many times that he could never be accussed of having insider info.
post #13 of 53
I have to admit I thought it odd that I read iPad production was 'increased'. I know, and I'm not making this up, at least a dozen people that want to buy one that I told to wait. I own one. I picked it up the first day available. So rumors are that there's a gen2 in production and that apple increases production of gen1 didn't really make sense to me.
post #14 of 53
I can understand how checking with suppliers would seem like unfair insight into the plans and pulse of a company, but to call it 'insider trading' is a bit much. Going by the definition mentioned in the article the only sources of information for investors are information the company itself authorizes for release and the historical data of its past performance. Investors should be allowed the ability to receive a wider, more objective picture of a entity's worth and future than just the information the entity wishes to let them know.
post #15 of 53
Is there a forum that's just for 'problems' with 4.2 that we can post to? Hopefully something that Apple staff reads?
post #16 of 53
Quote:
Originally Posted by Aeolian View Post

I have to admit I thought it odd that I read iPad production was 'increased'. I know, and I'm not making this up, at least a dozen people that want to buy one that I told to wait. I own one. I picked it up the first day available. So rumors are that there's a gen2 in production and that apple increases production of gen1 didn't really make sense to me.

Part of the ramp up may be for Holiday presents and then the switch to the second gen model.

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post #17 of 53
Quote:
Originally Posted by MacRR View Post

actually, if you work in the financial industry- it's one and the same thing. If you are an anal english teacher talking amongst other anal english teachers you might be right.

The financial industry is the worst of all for puking out confusing and pretentious uses of English. And I love how wanting to read simple, clear communication whose point is easily to establish without reading half a dozen times is now "anal."

The AI headline is incredibly confusing for people who speak normal English. The financial industry doesn't fall in that category.

On topic, I wonder what the venerable Shaw Wu will do if the entire basis for his career becomes illegal?
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post #18 of 53
Quote:
Originally Posted by rain View Post

This is the US Government's way of shake'n Apple down for some coin. Steve probably said 'no' to him when he stopped in a month back.
Now it's payback time.

Common all you greedy bastard Apple Shareholders... sho me da money...
-luv Obama xoX

Hey, it's Chicago politics at it's best.

Reading comprehension fail.
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post #19 of 53
Quote:
Originally Posted by Mike Reed View Post

I can understand how checking with suppliers would seem like unfair insight into the plans and pulse of a company, but to call it 'insider trading' is a bit much. Going by the definition mentioned in the article the only sources of information for investors are information the company itself authorizes for release and the historical data of its past performance. Investors should be allowed the ability to receive a wider, more objective picture of a entity's worth and future than just the information the entity wishes to let them know.

Not at all. They are not talking about information that Apple releases or authorizes. They are investigating information that analysts get from contacts on the sly. The article mentioned talking to mail clerk for info. This would also include talking to someone in a firm who supplies parts to apple to get an idea of Apple's build rate.

Contrary to what the Obama hater is trying to say, Apple is surely fine with this. They go through great trouble to keep production info secret...
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post #20 of 53
While I agree that insider trading is an issue and stock manipulation even worst, I see it as a very sad day if one can't have a discussion with a shop keeper about business or sales. Really what is next, will they make it illegal to sit outside a store and count boxes leaving?

Ultimately stock holders need solid information about sales to value a company and understand customer acceptance of it's products. Waiting for quarterly reports leads to abuse by the management teams of public companies. Certainly there are recent example in the auto industry here and in the past in the computer industry. In fact it makes me wonder how a company can legally keep sales figures from stockholders.
post #21 of 53
Quote:
Originally Posted by Bageljoey View Post

Not at all. They are not talking about information that Apple releases or authorizes. They are investigating information that analysts get from contacts on the sly. The article mentioned talking to mail clerk for info. This would also include talking to someone in a firm who supplies parts to apple to get an idea of Apple's build rate.

Paying someone for insider information is always a problem.
Quote:
Contrary to what the Obama hater is trying to say, Apple is surely fine with this. They go through great trouble to keep production info secret...

This is where I as a stockholder has huge problems. Sales figures really shouldn't be secrete, as investors have no ability to make informed decisions about the stock. Worst there is a history of management teams doing bad things when the data isn't that good. From the standpoint of an investor, waiting for quarterly reports is not acceptable.

As to the Obama hater one could see this as another element in what is becoming a very repressive government.
post #22 of 53
Quote:
Originally Posted by rain View Post

This is the US Government's way of shake'n Apple down for some coin. Steve probably said 'no' to him when he stopped in a month back.
Now it's payback time.

Common all you greedy bastard Apple Shareholders... sho me da money...
-luv Obama xoX

Hey, it's Chicago politics at it's best.

Wow -- a truly massive reading comprehension fail.
post #23 of 53
It seems to me that "insider trading" should be viewed as a form of embezzlement. Employees of a firm work for the owners of the firm (the shareholders). The owners of the firm choose to compensate those employees in a variety of ways -- salaries, bonuses, stock options. In exchange for that compensation, the employees of the firm are supposed to do work to maximize shareholder value.

If the employees of the firm use their knowledge of the firm to take money from the owners beyond what their employment contract specifies, that is embezzlement. For example, if a cashier takes money from the cash register based on his knowledge of how to open the cash register, that's stealing from the owners and it is rightly illegal.

If an employee of the firm knows that a new product has major production problems and uses that knowledge to short the stock, he is essentially taking money from the owners of the firm above and beyond what his employment contract calls for. It seems to me that should also be illegal.

But what if instead of shorting the stock, the employee sells the information about the production problem to someone who is representing some (but not all) of the owners of the firm? Seems to me that is what's going on here, and that it's still a problem. Go back to the cashier analogy -- what if instead of taking the money from the cash register only for himself, the cashier shared some of it (perhaps even most of it) with one of the owners of a store but not the other. So in that case, the cashier isn't purely stealing from the owners -- he's helping one owner steal from the other.

But with these analysts, at least some of them, they seem to report their information to the public. So they aren't (at least not always) reporting their information to some owners but not others. At least in those cases -- where the information is made available to everyone -- I think this could be a net positive for shareholders, since it gives them more information than they would have otherwise had.

Definitely a tricky issue, I think.
post #24 of 53
SEC is investigating Wall St. analysis for having "eyes" and "brain". Also under suspicion are a class of new electronic devices, "phones".

This is retarded. The SEC completely missed the sub-prime and CDS/CDO meltdowns because they didn't understand them, and this is how they're going to fix it? By punishing people for improving transparency?
post #25 of 53
Quote:
Originally Posted by Mike Reed View Post

I can understand how checking with suppliers would seem like unfair insight into the plans and pulse of a company, but to call it 'insider trading' is a bit much. Going by the definition mentioned in the article the only sources of information for investors are information the company itself authorizes for release and the historical data of its past performance. Investors should be allowed the ability to receive a wider, more objective picture of a entity's worth and future than just the information the entity wishes to let them know.

The company I work for encourages us to become knowledgeable around insider trading and has given us some training in that area. It's a very worthwhile exercise. What the SEC is looking at in this case certainly seems to fall within the realm of insider trading.

It's generally illegal to trade securities in a company where you've been exposed to non-public information that could effect a company's stock price, even if you didn't willingly go out and get that information yourself. Non-public sales and production data definitely can influence a stock price.

I understand a couple of the comments in the thread about Apple not being as transparent as they would wish on some of this data. However, Apple, like all companies, has to comply with all kinds of financial disclosure rules and I can't imagine they wouldn't be. If what they disclose is not sufficient in your mind then probably the best recourse is to find other companies to invest in where the level of public data is higher.
post #26 of 53
Please remind of this crap the next time the SEC whines about not having enough staff or budget to cover the absence of oversight of crooks in the investment and banking industries.

America's political priorities continue to be a farce.
post #27 of 53
Quote:
Originally Posted by BUSHMAN4 View Post

The one analyst that has nothing to worry about is Gene Munster. He has been wrong so many times that he could never be accussed of having insider info.

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post #28 of 53
When you consider this is AAPL we are talking about, I'm not surprised. The stock of what is nearly and soon could be the largest company on planet Earth by market cap it is hardly a shock that there will be illicit behavior afoot. Like so many of these things, many illegal financial practices start off as a small incidence that someone gets away with, perhaps even accidentally. Then they repeat and it becomes a pattern.
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post #29 of 53
Quote:
Originally Posted by Eideard View Post

Please remind of this crap the next time the SEC whines about not having enough staff or budget to cover the absence of oversight of crooks in the investment and banking industries.

America's political priorities continue to be a farce.

Somethings have to be done to repair the damage done by almost a decade of greed and deregulation. Not that I am saying this is it mind you. It can't all be fixed in two years, but lets not drag politics into this too far eh?
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post #30 of 53
Let's be frank.
The whole stock market is stacked against the individual trader, and is rigged from top to bottom. Getting involved is a fools paradise.
For example
a) If a trading company makes a purchase, it is executed in an instant. You do it, and it take a few minutes. So you are not playing on a level field.
b) The trading companies have computer programs that do "hands off trading" to scrape off every cent they can of a short drop and rise. Its like you vers. a supercomputer.
c) The financial models that make the big money are designed by very smart guys who are overpaid for the social value they perform in our society, allowing them to leave their morals behind. And they never go to jail, you might pay a fine ( but never have to admit to wrongdoing) and just might be able to get into the big money, politics.

They tell you its a gamble to play the stock market. It is only a gamble if you are a small investor. It is a well oiled, money making, secret black box if you work for a fund. And why? There is to much money involved to leave it to chance. That would be illogical.

End of Rant.
post #31 of 53
Quote:
Originally Posted by wizard69 View Post

While I agree that insider trading is an issue and stock manipulation even worst, I see it as a very sad day if one can't have a discussion with a shop keeper about business or sales. Really what is next, will they make it illegal to sit outside a store and count boxes leaving?

Ultimately stock holders need solid information about sales to value a company and understand customer acceptance of it's products. Waiting for quarterly reports leads to abuse by the management teams of public companies. Certainly there are recent example in the auto industry here and in the past in the computer industry. In fact it makes me wonder how a company can legally keep sales figures from stockholders.

Spot on.

I too have mixed feelings about this. The definition of what constitutes 'insider information' is so loose so as to give the government sweeping powers.

Moreover, it is not as though speculation on Apple stocks and guesstimates of its fundamentals is going to magically disappear if analysts stopped doing channel checks: the information quality (such as it is now) will get even worse, leading to even greater volatility for AAPL.
post #32 of 53
Insider Trading rules are a bit crazy in the US - home of the once free enterprise. Officers of companies, their relatives etc. should be subject to insider trading laws. These guys are external investigators into Channel, talking to suppliers. Cant see them as employees of Apple.

Meanwhile the SEC did little to stop the bubbles, Lehman, and/or Madoff despite having a report on their desks about Madoff. This is easy pickings, it is not insider trading ( by any sane definition) and these guys actually produce some service to normal traders.
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post #33 of 53
Quote:
Originally Posted by Eideard View Post

Please remind of this crap the next time the SEC whines about not having enough staff or budget to cover the absence of oversight of crooks in the investment and banking industries.

America's political priorities continue to be a farce.

Yes over-regulate on minor infringements, and ignore the rest.
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post #34 of 53
Quote:
Originally Posted by wizard69 View Post

Paying someone for insider information is always a problem.


This is where I as a stockholder has huge problems. Sales figures really shouldn't be secrete, as investors have no ability to make informed decisions about the stock. Worst there is a history of management teams doing bad things when the data isn't that good. From the standpoint of an investor, waiting for quarterly reports is not acceptable.

I agree that you rase a very valid question.
I don't claim to understand where the line is between legal information gathering and insider trading, so I would be hard pressed to get involved in a discussion about exactly what sort of information gathering should be legal. I can see good arguments for more information being made available (who doesn't want more transparency out there) and I can see good arguments for Apple wanting to be able to keep secrets (everybody seems to be copying them all the time--shouldn't they at least have a head start?)

Quote:
As to the Obama hater one could see this as another element in what is becoming a very repressive government.

This is where I believe it gets silly. Represive? Really? I suppose people see what they want to see and everyone believes what they want to believe. But if this is where you need to go to fine evidence of "repression" it seems that you are really grasping at straws!
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post #35 of 53
Quote:
Originally Posted by Blastdoor View Post

It seems to me that "insider trading" should be viewed as a form of embezzlement. Employees of a firm work for the owners of the firm (the shareholders). The owners of the firm choose to compensate those employees in a variety of ways -- salaries, bonuses, stock options. In exchange for that compensation, the employees of the firm are supposed to do work to maximize shareholder value.

If the employees of the firm use their knowledge of the firm to take money from the owners beyond what their employment contract specifies, that is embezzlement. For example, if a cashier takes money from the cash register based on his knowledge of how to open the cash register, that's stealing from the owners and it is rightly illegal.

If an employee of the firm knows that a new product has major production problems and uses that knowledge to short the stock, he is essentially taking money from the owners of the firm above and beyond what his employment contract calls for. It seems to me that should also be illegal.

But what if instead of shorting the stock, the employee sells the information about the production problem to someone who is representing some (but not all) of the owners of the firm? Seems to me that is what's going on here, and that it's still a problem. Go back to the cashier analogy -- what if instead of taking the money from the cash register only for himself, the cashier shared some of it (perhaps even most of it) with one of the owners of a store but not the other. So in that case, the cashier isn't purely stealing from the owners -- he's helping one owner steal from the other.

But with these analysts, at least some of them, they seem to report their information to the public. So they aren't (at least not always) reporting their information to some owners but not others. At least in those cases -- where the information is made available to everyone -- I think this could be a net positive for shareholders, since it gives them more information than they would have otherwise had.

Definitely a tricky issue, I think.

Let us see:

If the Wall Street Apple Analyst makes these comments to manipulate the AAPL stocks so that his company or his associated company tries to take advantage of the situation either to decrease or increase the value of the AAPL stocks, to gain monetary advantage is certainly illegal. May be that is what SEC is after.

just my 2 cents.
post #36 of 53
Quote:
Originally Posted by Y.M.S.BUSHAN View Post

Let us see:

If the Wall Street Apple Analyst makes these comments to manipulate the AAPL stocks so that his company or his associated company tries to take advantage of the situation either to decrease or increase the value of the AAPL stocks, to gain monetary advantage is certainly illegal. May be that is what SEC is after.

just my 2 cents.

Thats not what they are claiming,
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post #37 of 53
Quote:
Originally Posted by Y.M.S.BUSHAN View Post

Let us see:

If the Wall Street Apple Analyst makes these comments to manipulate the AAPL stocks so that his company or his associated company tries to take advantage of the situation either to decrease or increase the value of the AAPL stocks, to gain monetary advantage is certainly illegal. May be that is what SEC is after.

just my 2 cents.

Yes, that most certainly is one of the issues the SEC is zeroing in on with this case.

Lastly, to reiterate my point made earlier, it's generally illegal to profit from non-public news about a company (typically when that news has the potential to cause a market value change) regardless of where that information came from. It's fine to chit-chat with shopkeepers over non-public info but to attempt to make money from that is another matter.
post #38 of 53
Do analysts trade. And if they tell people, is it hidden?

The insider trading laws are absurd. They are basically banning analysis,
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post #39 of 53
Suppose I work for a company that supplies parts for the iPad and my wife and I have decided we're going to sell $40,000 of our Apple stock to put in a swimming pool in the backyard. Then consider the following two scenarios:
1. I go to work and find out iPad production is being significantly ramped down due to slow sales. This is "insider" information and the poor sales information, when made public, is likely to affect Apple's share price. No worries, I've already decided to sell to finance the pool, but does having that information now make my sale suspect? How do I prove intent? What if my next door neighbor is the one with the Apple stock and is putting in the pool. If I tell him, are we both now guilty of insider trading? What if it's my son and daughter-in-law?
2. I go to work and find out iPad production is being significantly ramped up due to blowout sales and possibly a next generation iPad coming out the next quarter. Again, I have "insider" information, only this time I go home and tell my wife we should wait a few months before selling and she agrees. In this case the insider information has clearly affected my sell decision, but there's no way for anyone to know. And if it's my neighbor putting in the pool and I tell him, no one can prove it in that case either.

You can construct a million scenarios like this. No one is going to care when we're talking $40,000, but if my neighbor happens to run a mutual fund, now it matters. You can't stop that kind of information flow unless you can get inside people's heads and discern intent. Contractually a worker can sign non-disclosure statements, and if the company finds he is leaking information take appropriate legal action.

The system will never be perfect. We should demand transparency at every opportunity, but if the company is secretive in the interest of increasing shareholder value, then they're doing the right thing. Being secretive is one thing, being dishonest is another.
post #40 of 53
Quote:
Originally Posted by kvh14 View Post

Suppose I work for a company that supplies parts for the iPad and my wife and I have decided we're going to sell $40,000 of our Apple stock to put in a swimming pool in the backyard. Then consider the following two scenarios:
1. I go to work and find out iPad production is being significantly ramped down due to slow sales. This is "insider" information and the poor sales information, when made public, is likely to affect Apple's share price. No worries, I've already decided to sell to finance the pool, but does having that information now make my sale suspect? How do I prove intent? What if my next door neighbor is the one with the Apple stock and is putting in the pool. If I tell him, are we both now guilty of insider trading? What if it's my son and daughter-in-law?
2. I go to work and find out iPad production is being significantly ramped up due to blowout sales and possibly a next generation iPad coming out the next quarter. Again, I have "insider" information, only this time I go home and tell my wife we should wait a few months before selling and she agrees. In this case the insider information has clearly affected my sell decision, but there's no way for anyone to know. And if it's my neighbor putting in the pool and I tell him, no one can prove it in that case either.

I heard a story on this on NPR while driving home yesterday. Your scenario above sounded very much like what analysts are doing. They "befriend" the wife in the story above, or the sister of the wife or some such. Then they "hire" these people to work at shell corporations and pay them for the above sorts of insider information. They also work with ex-employees who maintain contact networks within companies and pump their old "friends" for information.

It certainly sounds a bit shady, but 'illegal'? I think there's a big grey sliding-scale here. It's one thing if you overhear something in a bar. It's another if you pay someone to hang around in said bar to eavesdrop. It's yet another if that someone starts buying drinks, hookers, & blow for people in said bar.

But should it be illegal to say, watch the parking lot of one of the suppliers to see if people are working more shifts than usual?

There's probably some clearly illegal stuff going on, but as others have said, there's also been some BIG things dropped in the SEC's lap that they ignored. Why not chase the easy stuff first?

- Jasen.
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