From the archive, originally posted by: [ spectre ]


“This confidential, internal JP Morgan presentation details the
aspects of Hedging and monetization, the so-called PrISM concept, Rule
10b5-1 and Postpaid PrISM. Wikileaks contacted JP Morgan Private Bank
successfully. The bank refused to respond once asked to deny the
document. The introduction into Hedging and monetization, titled
Diversifying restricted stock requires navigating complex rules and
regulation explains various regulatory limits a trader is constrained
by, and explains strategies to optimize investments under these

One of these strategies, called PrISM (Principal Installment Stock
Monetization strategy), is explained in the second part of the
document. Besides various details on transaction flows and ROI
information, the section also provides popular samples of investors
into this program. The third part of the presentation pertains to Rule
10b5-1, a regulatory rule enacted by the United States Security and
Exchange Commission (SEC) and explains how PrISM relates to the
constraints imposed by this rule [that is already considered to be
object to abuse] This gets more detail in the figures presented in the
fourth and last part.

[Wikileaks editors note: The thrust of the “original submitter”‘s
interpretation and a follow up article by GAWKER.COM based on this
material is very likely incorrect. The JP Morgan document released by
Wikileaks shows that Barry Diller is not named in the IAC example.
Further IAC / Diller have issued a strong denial to Wikileaks in
response: “The suggestion that Barry Diller entered into any hedging
transactions is incorrect. Mr. Diller did not directly or indirectly
hedge or otherwise insure his shares against a decline.” — April 5,

Whistleblower exposes insider trading program at JP Morgan

Legal insider trading in three easy steps, brought to you by JP Morgan and the SEC
BY Kevin Wilson, Maria Christina Padro, Julian Assange  /  March 17, 2008

“A confidential memo obtained by Wikileaks shows that not only has the
U.S. Securities and Exchange Commission created an insider trading
loophole big enough to drive a truck through, but that Wall Street is
taking full advantage of it, establishing ‘how-to’ programs and even
client service divisions to help well-heeled clients circumvent
insider trading regulations. Most of us think of insider trading as
illegal. It allows those with inside knowledge to tilt the playing
field, with the small investors invariably losing to the privileged
few. Unfortunately for the small investor, the big boys get to play by
different rules, and it has all been made legal, thanks to the SEC.

In 2000 the SEC promulgated Rule 10b5-1. The new Rule was designed to
address the confusion caused by a series of court decisions that had
left investors uncertain about what constitutes insider trading. Rule
10b5-1 was designed to “clarify” what constitutes illegal insider
trading. But top Wall Street houses were not to be deterred from
advantaging their big clients at the expense of their small ones. Wall
Street firms like JP Morgan found loopholes in Rule 10b5-1 that
allowed them to continue trading on inside information “legally.”
Indeed, JP Morgan has gone so far as to set up an entire ‘selling
program’ within its Securities division to help their clients profit
from the loophole.

Documents obtained earlier this month by Wikileaks from JP Morgan
Private Bank, which subtitles itself as “World class solutions for
wealthy individuals and families”, show the firm has a dedicated
’10b5-1 Selling program,’ along with a ‘dedicated 10b5-1 team’ to help
its clients take advantage of the loophole.

Here’s how it works:
1. An insider client transfers all or a portion of their company stock
into a JP Morgan Securities Inc. brokerage account.
2. The insider then develops, in conjunction with the 10b5-1 team, a
‘phased, pre-planned sales program to be executed at either market or
specified prices’.
3. Depending on the information available to the insider (but not the
public), the insider can decide whether to execute the sale or not.

By gaming the system this way, JP Morgan teaches insiders how to use
their knowledge to create a rigged market, one in which it is the
“house” that always wins, and the small investor that always loses.

Alan D. Jagolinzer, an assistant professor at Stanford University
Graduate School of Business, completed a study of roughly 117,000
trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He
found that trades inside the plans beat the market by 6% over six
months. By contrast, executives at the same firms who traded without
the benefit of plans beat the market by only 1.9%.”


email : jagolinzer [at] stanford [dot] edu


Insiders With A Curious Edge
BY Jane Sasseen  /  Dec 18, 2006
How corporate executives seem to be violating the spirit, if not the
letter, of a rule meant to prevent insider trading

The confusion over corporate executives trading on inside information
never seems to go away. In 2000 the Securities & Exchange Commission
came up with a way to remove the guesswork over when it’s legal to
trade and when it’s not. But a raft of recent trades by executives
suggests the plan might not be the cure-all that was hoped for.

The SEC’s solution was to create prearranged trading plans, known as
10b5-1 plans for the rule that authorized them. Launched six years
ago, they were designed to remove discretion from executives’ trades
and provide a “safe harbor” from insider trading charges. The rules:
Executives can’t set up a plan when they possess material inside
knowledge, and they must set the dates or prices of their trades in

But those are the only major stipulations. The SEC never addressed the
number of shares sold or the possibility of stopping and starting
plans or running multiple plans at once. As a result, executives have
far more flexibility than is generally understood. Besides providing
legal cover, the plans allow execs to trade around earnings
announcements and other significant events. Normally insiders are
prohibited from trading on these “blackout dates.”

Executives appear to be using their flexibility to the max. People
selling shares in 10b5-1 plans generate returns substantially better
than would be expected if the trading were truly automatic. As
reported in BusinessWeek on Nov. 6, Alan D. Jagolinzer, an assistant
professor at Stanford University Graduate School of Business, recently
completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426
executives at 1,241 companies. He found that trades inside the plans
beat the market by 6% over six months. By contrast, executives at the
same firms who traded without the benefit of plans beat the market by
only 1.9%.

Those numbers imply that the rules allow execs to benefit from inside
knowledge. “The SEC’s intent was to shelter people who didn’t have any
[material] inside knowledge from liability,” says Jesse M. Fried, a
Stanford law professor and expert on executive compensation who has
reviewed Jagolinzer’s study. “But that outperformance suggests instead
that it’s the people using what information they have who are most
often entering into trading plans.” Says Walter G. Riccardi, deputy
director of the SEC’s Enforcement Div.: “Setting up a 10b5-1 plan
while in possession of material information…could be securities

BusinessWeek examined a database created by Thomson Financial (TOM )
of companies that had suffered a 20% stock slide in the past year and,
from that group, focused on the roughly 150 where executives had used
10b5-1 plans and where significant trading–both inside and outside
plans–had taken place.

The results? BusinessWeek found a surprising amount of leeway over
preplanned trades. At nearly half the companies examined, sales were
concentrated in the months leading up to a stock’s peak or just
thereafter. Frequently, the number of shares sold increased as the
stock hit new highs, then trailed off or ended as the stock dove.

There are many possible explanations. One, says Michael Painchaud,
president of Market Profile Theorems Inc., a Seattle executive trading
tracker, is that top officials often know about a company’s prospects
long before the information is considered legally “material.” Another
explanation: Many executives pay close attention to valuation levels
and decide to cash out after they’ve seen a big rise. “Insiders know
that institutional traders can be very fickle and that money will go
elsewhere if their momentum starts to slow,” says Mark LoPresti, who
follows executive trades for Thomson Financial. In fact, sales in some
plans are automatically triggered when stocks reach certain price

Still, the words “prearranged trading plans” bring to mind a steady
pattern of trading over a long period of time. When discussing their
plans, companies tend to reinforce that perception, says LoPresti. But
in reality, many executives sell huge numbers of shares in a very
short time, and often right before a tumble.