Here’s What Insider Trading Looks Like

Alright, despite what the SEC or anyone else tells you, insider trading is quite prevalent in today’s financial markets.  In fact, if you’re paying attention and know what to look for you can probably spot it yourself.  

Yesterday, I was keeping an eye on shares of Energy Transfer Partners (ETP) when I noticed something odd.  The whole day ETP had pretty much been trading in lock-step with the oil & gas index. Then all of a sudden at about 3:30 pm, Energy Transfer Partners and the index started trading in the complete opposite direction. As you can see from the chart, ETP went on to finish the day at its lows, while it’s index and the broader markets in general finished the day at their highs.  This was strange to say the least…

During the last half hour of trading, (when the sell off occurred) there was also a dramatic spike in volume.  If you look at the volume section of the chart below, you’ll see that moments before the final bell rang over 200,000 shares exchanged hands.  This is clearly an outlier since nowhere near that many shares had been traded the entire day.  It’s important to keep in mind that there was no news release that would have explained the increase in volume and late day sell off.

Now typically these two oddities above wouldn’t necessarily have me up in arms complaining about insider trading.  It’s perfectly possible that a mutual fund or hedge fund wanted to sell some shares into the day’s rally.  This would perfectly explain the volume spike and sell off.  

However, about 12 minutes after the markets closed, ETP issued this press release.  The press release states that ETP will be selling about 5 million new shares in order to raise capital.  When a company issues new shares it dilutes the value of all the other outstanding shares.  This usually causes the stock to sell off.  In my opinion, (and I’m no expert) it looks like someone got their hands on this information and either shorted ETP or sold a long position they had been holding.  Either way they traded and profited from information that wasn’t yet public… and that my friends is illegal.  

I’m fairly certain the SEC will not look into this matter.  I personally don’t have much faith in them.  All I will say is that it’s pretty sad that a 24 year old with a computer, yahoo finance and no experience can spot possible financial shenanigans like this occurring regularly in the market.