romaine: from bloomberg headquarters, i'm romaine bostick. we are going to talk about what happened with the fed this week. a lot of headlines out of the fed this week. it wasn't just about tapering and inflation and the recovery, but also on trading. two presidents, rosengren and kaplan resigning. following criticism over their investing activities last year when the fed was actively buying assets. today we are going to put a spotlight on insider trading of

the corporate kind. new research showing this trend is growing everywhere. it is seeing regulators and the department of justice and companies not doing anything to stop it. a big take on an article today that really delve into this. taylor: it will be out on newsstands shortly for bloomberg businessweek. liam takes a lot of these big stories and digests it for us. what does your research show you when it comes to insider trading? >> it has to do with how well corporate insiders do, executives, board members. people with 10% or more shareholding. the research is becoming more clear that insiders outperform the stock market.

. aggressively. over the last five years, -- the stock market massively. over the last five years, insiders are performed the s&p 500 by an average of 5%. in particular, for example, [indiscernible] and that is something that's been long-term understood by those in the know. they've become increasingly accepted by the wider section of the market. my piece looked at that phenomenon and compared the law, which says it is legal to trade insider information. taylor: i remember going into

the office of a billionaire investor, and he used to look at the wall street journal and make decisions off those companies. now they are all online. you don't do that anymore. at this point in time, we have insiders being a large group of people. if they are benefiting, are we actually seeing any outrage from the people who are not benefiting perhaps as much as they are? >> one of the interesting things is the divergence of opinion. there shouldn't be a situation existing where the elites are running companies benefiting over everyone else.

the only way to do that is to stop or restrict their trading. but a lot of people on the others will take your view. they make disclosures, so if you are eagle eyed enough and you take the time and energy to study this stuff, then you can benefit from that, too. all is fair in love and war and markets. it is a pick a side situation, really. romaine: i want to play devil's advocate. we talk about this as if everyone knows insider trading is wrong and unethical. there's still a little bit of debate here about the full legality of it. the way the law is written is not necessarily as clear-cut as we make it out to be. one law says you're not supposed to do this but the standard of proof to convict somebody of that is not necessarily as black-and-white. >> let's definitely one of the interesting things in reporting this out. you have a weird situation

with enormous controversy about the subject. if you look at what's happening on the flipside, the amount of prosecutions are very low, at a 20 year low. amazingly, when the agency started, they would bring 150 cases a year, now the same amount of insider trading cases. it is almost an un-prosecutable offense. as you point out, it is a very hard case to actually bring, because there's actually no such statute in insider trading. you have to charge people with

fraud. and to convict someone of fraud, you have to demonstrate its. that's very hard. particularly if it is an individual in charge of their own company doing it. it's not necessarily that, it's hard to make those cases. romaine: it is a very complicated subject. you actually did a wonderful job here breaking down a few examples of what's going on. this is liam v. we are talking to. is it luck or insider trading? greenbaum is one of the people quoted in the story. he actually has an interesting service that lets you follow some of the insiders and what they are doing and maybe pattern your own trade after them. they give for being here on the

program. for those who are not familiar , tell us, what is the service you are offering? >> it is a big financial company committed to bringing transparency and financial account ability to the investor. we started the ranking system, showing an investor if it could hurt them or not. we expanded services, covering more markets. to understand if it makes sense to take one of those or not. taylor: i think what's also interesting is in the story, when we are quoting you, there's a big fine line and a big blurred line between insider trading or not. what world do exec it is having determining what is private nonmaterial and also what is private, nonpublic, and

material? if you need those standards, you know it is indeed insider trading. >> i think you are referring to informative versus not informative transactions. the reality is most of the transactions we see today are a stock option trend. major shareholders selling or buying shares. they don't necessarily know the exact status of the company. many senior executives have third parties managing their equity as well. about 30% of the transactions are informative. we can see it as indicative, buying shares, managing the company in a proactive way. taylor: that's what i wanted to

expand on. as we know, so much of this really is legal. so much of this gets close to the line. and so much of it -- very little of it comparatively crosses that line. when you look at the data you cover, what starts to concern you about those things i get really close to the line? >> i'm not looking at the point of view of what is legal. from our point of view, it is whether or not there is output here. and does it create an efficient market and ensure everybody is aware of that in not just leave the executives inside of the company? if you are a ceo in the company, you have a good idea of where the company is going regardless of where -- regardless of whether you waited or not. we've seen that pretty well last year after the crash in q2.

we started seeing excessiveinsider transactions . a lot of ceos buying a lot of shares. a few weeks later, we started seeing the market go way back up. there was a great opportunity for investors to see what the people inside the company's really know. romaine: 10 interesting concept here, when you talk about the idea of the trades these insiders are making, there's a lot of insiders at of course have automatic programs that buy and sell for them primarily to avoid any appearance of a legality or conflict of entrance -- conflict of interest. it's hard to know the rationale behind some of these buying in selling. -- buying and selling.

is there anyway to sort of parse the rationale behind some of the streets? >> maybe. but for that you need to know how to connect. when insiders sell their own shares, there's no short selling of exec it if shares for the exact reason you just mentioned. taylor: what is interesting on that note and i'm wondering if you see a pattern within your research, you have a preset selling. we mentioned the shares of moderna. corporate insiders were set to sell anyways right as the vaccine was being rolled out. so the shares were climbing. do you see patterns where people hold back? or do they continue with some of

the preannounced selling, even though they have the ability to change it if they want? >> that's an interesting question. we look at it as a big data question. we are talking about hundreds of thousands of transactions every year. what we are trying to do is trying to find strategies that are the most simple. for instance, as we should before, you can generate 4% to 6% of the s&p by following c level executives. if you follow mid-cap companies from 2 billion to 15 billion dollars, it goes up significantly. the same if you move between sectors. in the commodities sector, then obviously the executives have less ability to predict the performance of the company. it's not something they can't control.

when you go to growth stocks, it is much more obvious. it is easy to understand whether the performance is much better. taylor: really fascinating, uri gruenbaum. ceo of tipranks. romaine: you actually printed out the story. taylor: i did. there are some things i really wanted to highlight in the last segment and the next segment. coming up in the next segment, we will dig further into the legalities. -- the legality of insider trading. we know the sec is prosecuting 33 cases last year. we will discuss why that feels so low. that is it. we will do that with a former prosecutor in the front section of the u.s. justice department.

it is ankush khardori. this is bloomberg. ♪

romaine: today we are focused on insider trading. research shows the trend is on the rise. trying to enforce those cases where executives might cross the line. that is a little bit more difficult. taylor: we have a really cool chart on page seven of the story that really lays it out. in 2019, the agency brought 32 cases of insider trading. the good to -- the good news, and 2020, the number adds up to 33. -- in 2020, the number adds up to 33.

you are really looking at some of the fewest number of cases we've seen going back in 20 years. let's discover why with ankush khardori. former prosecutor in the front section of the u.s. justice department. give us a lay of the land of why so few cases. is it so difficult to prove ? >> one of the answers is a simple resource issue. in terms of the white collar space, the amount of resources that the agencies have, in relationship to fraud of all sorts of types throughout the markets, it pales in comparison. even if you zero in on just this particular conduct and abstract out the resource question, these are uniquely difficult cases to bring. the typical insider trading that people usually will see in the

news is a case where there is a tip going from a corporate insider to may be a family member or someone misappropriating inside information. a lawyer working on something. you're going to get external evidence. whether it's an e-mail or a record of phone calls. in the case or sorts of cases that your story is focused on today, as are just insiders themselves trading on information of their own companies. you're not going to have those opportunities for evidence as with those other cases. when you layer in the conventions that have grown up legally and operationally, including the plans you have been talking about, all of the lawyers come all the compliance teams, layer after layer make it difficult to prosecutor's to go after these sorts of cases and reluctant, too. romaine: what do you look for? we think of the big sensational

cases. the narrative back in the battle days of wall street here. prosecutors have to sort of go for the big fish. they have to sort of make an example out of someone in order to try to scare everyone else away. i'm wondering, what tips them off, what get some looking at a particular person or firm? >> often it's the news. someone like bloomberg or another financial outlet reports some suspicious information. for doj, it is often referrals from the sec. where they see a case they think is particularly problematic that they think might rise above civil and move into criminal liability. within the sec, i'm not an expert in that area. based on my own dealings with them, it tends to be reviews and data analysis to flag transactions and dig deeper and see.

taylor: we were talking about the issue in terms of resources when it comes to enforcement itself. in your experience, do you think there's actual law that needs to change that congress should be looking at, or is this a matter of resources that do need to go in certain places? is there political will to get the resources there? >> i don't think there's political will. there have been for years proposals that are betting around an academic, academics to reform laws. right now it's kistler regulation. symptoms very significant developments in the case law that can change the complexity of the law. those proposals have not gotten anywhere. there's not much of an appetite in congress.

i think liam's piece touched nicely upon this as well. there's a train of people, some questions about whether in this world we live in with limited resources, is this really the area to be going all in on? during the insider trading crackdown, you had a ton of free press, the financial press not so happy with them. then in hindsight, we see that s g s

people wanted to see prosecuted, those organizations -- none of that was happening. none of that was happening.

romaine: another successful show here on "what'd you miss?" talking about insider trading.

the great cover story on bloomberg businessweek about the idea of whether this is insider trading and some people are insiders and getting wonky with their trade. it brings up the broader issue that we talked about about the idea that it's really just hard to even determine what it is and once you find out what it is, can you prosecuted? taylor: do you go after the big ponzi schemes, and is that where you get the most bang for your buck, people stealing from grandma versus the ceo making a couple of trades? >> what do you actually look out for, do you look at the bank analyst working at a firm and passing tips? >> it does get to the heart of these prosecutors, when it hits

home to where real people can understand it and feel it. that's maybe where you go after it. that is the end of our show. we've got about 15 seconds left. that does it for "what'd you miss?" taylor: "bloomberg technology" is up next. this is bloomberg. ♪

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>> from the heart of where innovation, money, and power collide, in silicon valley and beyond, this is "bloomberg technology." with emily chang. emily: the moderna vaccine could soon be approved by u.s. regulators. this is youtube doubles down on vaccine mi