Money Stuff: Insider Trading Isn't Romantic

Every financial services firm will tell its new employees, in their first week or two of work, the same thing: “Be careful with our confidential information. Don’t tell anyone outside of the firm what you’re working on. Don’t talk carelessly in elevators. Don’t leave your laptop unlocked. Don’t even tell your spouse what you’re working on.” Every new employee will take that to heart, for a week or two; they will go home and their boyfriends or girlfriends will ask “so what did you do at work today” and they will say “I can’t tell you it’s a seeeeeeeeecret” and their boyfriends and girlfriends will be like “aww that’s cute.” And then they will work there for a few months, and some of this scrupulousness will get sanded away, and they will come home after a long day at work and be like “ugh John Smith at Amalgamated Sprockets is really getting on my nerves, he keeps demanding revisions on the model for the merger with Consolidated Widgets that they want to announce next Wednesday,” and their boyfriends or girlfriends will be like “yeah you complained about that yesterday too.”

Not quite what compliance wanted, but understandable. I feel like the actual rule — and this is extremely not legal or compliance or career advice — is more like “don’t tell your brother-in-law or your college buddy any confidential information, because they will definitely insider trade on it, but if you really feel like you have to you can probably tell your spouse, as long as you are absolutely sure that he or she will keep it secret and won’t insider trade on it.” People sometimes get this wrong. What about some guy you’re dating? Well. I dunno. Do you trust him? Here’s a US Securities and Exchange Commission case:

On June 23, 2026, the Securities and Exchange Commission charged Justin Jennings and Vortex Strategies LLC, a Wyoming limited liability company Jennings owned and controlled, with insider trading based on material nonpublic information Jennings allegedly misappropriated from his romantic partner and used to trade in advance of several corporate announcements.

According to the SEC’s complaint, between February 2022 and October 2024, Jennings misappropriated inside information from his then-romantic partner, an account executive who worked at a strategic communications and investor relations firm. As alleged, Jennings used his romantic partner’s work-issued laptop computer to access material nonpublic information, including information related to mergers and acquisitions, earnings announcements, and other significant corporate events involving several of the communication and investor relations firm’s public company clients, without her authorization. The complaint further alleges that, based on this confidential information, Jennings used his personal brokerage account and an account in the name of Vortex to purchase the securities of eight public companies ahead of significant corporate disclosures and made illicit profits of approximately $2.7 million.

Here is the SEC complaint, and here is the parallel criminal case. Bloomberg News reports that the girlfriend worked at Joele Frank, and that Jennings and Vortex “adamantly deny” the charges.

Jennings allegedly bought call options on deals his girlfriend wasn’t involved in. Instead, he allegedly used her laptop to access her firm’s internal “document management system or database that contained material nonpublic information about clients of the Communications Firm, including drafts of press releases, talking points, strategy documents, and other communications.” He had easy access to her laptop, because she trusted him:

The Account Executive’s typical practice when working from her apartment, or from Jennings’s apartment, was to leave the laptop unlocked when she stopped working and stepped away from it, whether to go into another room or to leave the apartment. When the laptop was unlocked, no additional password was needed to access the database.

The Account Executive used the laptop for personal use, in addition to using it for work. Due to the close personal nature of their relationship, the Account Executive regularly allowed Jennings to use the laptop for his personal use when she was present. The Account Executive also trusted Jennings to be alone with the laptop while she was away and it was unlocked. Additionally, because the Account Executive believed that Jennings would not misuse the laptop, she provided Jennings with the password to access the laptop when he asked for it.

Fine, sure, not best practices but I get it, and she’s not the first girlfriend of an insider trader to leave her laptop open. Less good:

The Account Executive also showed Jennings the functionality of the database because Jennings told her that he was working on coding and database projects and because the Account Executive believed that Jennings was expressing legitimate interest in her work. The Account Executive demonstrated to Jennings how she searched the database and how she used its filters to perform her work.

Okay, I mean. I cannot fault anyone for letting their romantic partner occasionally use their work laptop, though I understand how a compliance officer might. But when your boyfriend is like “please show me how to search your database of material nonpublic information about public companies, because I just find databases really interesting,” the most natural interpretation of that is not that he’s expressing legitimate interest in your work. Anyway, the SEC calls her his “then-romantic partner.”

There are at least four ways to think about prediction markets:

1. They are a “truth machine,” a way for society to harness markets to figure out the probabilities of future events.
2. They are a way for people and businesses to hedge the financial consequences of future events.
3. They are an “asset class,” a way for people to get paid for predicting future events.
4. They are gambling, an entertainment product, a way for people to pay to generate dopamine by predicting future events.

I tend to be skeptical about the first three views; prediction markets, I often say, are mostly sports gambling, and their expected financial value for users is obviously negative. Mark Zuckerberg … agrees? Or something? Whatever this is?

Mr. Zuckerberg, the chief executive of Meta, recently dispatched a small team at his company to create a smartphone app similar to Polymarket and Kalshi, two employees with knowledge of the matter said. Users would not wager money, and the app would probably rely on a video-game-like points system instead, one person said, though the company had not ruled out the eventual use of real money betting.

The app is internally referred to as “Arena” and would function independently from Meta’s social networking apps, which include Facebook, Instagram, WhatsApp and Messenger, said the employees, who spoke on the condition of anonymity to discuss confidential plans. Meta aims to grow the app by leveraging its large social networking audiences and directing them toward using it, they said.

The effort, which insiders characterized as experimental but a top priority, is part of a broader push by Mr. Zuckerberg to create new types of apps based on emerging social behavior online. More than 3.56 billion people visit one or more of Meta’s apps every day, an amount that has raised questions about whether those platforms have reached a saturation point.

Sure. One question is: Are prediction markets essentially a new financial product, like stock options and commodity futures, or are they more of an “emerging social behavior online”? I feel like if you work as a Kalshi market maker at Susquehanna you probably think that your job is essentially a financial-markets job, but I do see Zuckerberg’s point that this might all be better analyzed as “addictive phone apps” than “financial instruments.”

Another question is: Do you get the dopamine hit of sports gambling if you are gambling only for, like, Facebook points, not money? I dunno; Mark Zuckerberg has built a trillion-dollar business by getting billions of people to do stuff for Facebook points so I wouldn’t bet against this.

A strange important idea about index funds is that they are indifferent among the companies: They own all of the companies, they want the aggregate value of their companies to grow, but they don’t particularly care about the allocation of value among the companies. An index fund that owns all of the drug companies doesn’t care which of them discovers a life- and economy-saving vaccine; an index fund that owns all of the airlines doesn’t care which of them dominates the Buffalo-to-Tulsa route. This theory has troubling antitrust implications which we talk about a lot, and won’t talk about here. 

Another implication of the theory involves mergers. When one public company agrees to acquire another, there will generally be a negotiation about how to divide up the value of the deal and how much premium the acquirer should pay. Every dollar that the target’s shareholders get comes out of the pockets of the acquirer’s shareholders. [1]  In a world dominated by indexed and quasi-indexed investors, arguably this is pointless: The target’s shareholders and the acquirer’s shareholders are the same shareholders, in roughly the same proportions, so there is no real reason to care about the allocation of value. Any deal that offers synergies or economies of scale is good for the overlapping shareholders.

But arguably that is a special case. When two companies that are in the S&P 500 Index merge, their shareholders will significantly overlap. Not every merger is like that. When a private equity fund buys an S&P company, index funds are only on the target side and will want a high premium; when an S&P company buys a private startup, index funds are only on the acquirer side and will want a low premium.

In the past week or two there have been a number of articles socializing the idea that the next absurd thing Elon Musk is going to do is make SpaceX merge with Tesla Inc. So mark your calendars for that. Here I want to talk about one of those articles, by Jack Ewing and Ryan Mac in the New York Times last week. In particular:

Because Mr. Musk controls SpaceX and is Tesla’s largest shareholder, he would essentially be making a deal with himself. That would raise legal issues and probably prompt lawsuits claiming that he ran roughshod over the interests of other shareholders.

But no legal action is likely to stop Mr. Musk, legal experts say. Corporate law in Texas, where Tesla and SpaceX have their corporate domiciles, makes it very difficult for unhappy investors to challenge management decisions.

Tesla moved to Texas from Delaware last year after Mr. Musk expressed dismay about a Delaware court ruling — later overturned — that challenged a 2018 pay package that helped pad the fortune of the world’s richest person. SpaceX moved to the Lone Star State, also from Delaware, in 2024.

“Basically he’s gotten to the point where he can do almost anything he wishes,” said Charles Elson, the founding director of the Weinberg Center for Corporate Governance at the University of Delaware.

In Delaware, any aggrieved shareholder can take a company to court. To file a lawsuit in Texas, shareholders must hold at least 3 percent of a company’s stock.

The only shareholders likely to come close to that threshold are large investment firms like Vanguard and Fidelity, which do not usually engage in such lawsuits.

Yes, right, all true. In SpaceX, these obstacles are insurmountable. Musk controls it absolutely, and it has only a tiny stub of outside shareholders: Its entire initial public offering was barely bigger than that 3% threshold. Also pretty much everyone who owns the stock loves Musk and would never dream of second-guessing a big Musk rollup:

Mr. Musk “has got this cheering section who will follow him to the gates of Hades or gates of heaven, wherever he leads them,” Mr. Elson said.

Tesla is slightly different: It has a much bigger free float, for one thing, and that free float is partly owned by index funds, for another. Tesla is in the S&P 500, and Bloomberg tells me that Vanguard, BlackRock and State Street are each above 3% of the stock. Those firms have some fiduciary duties to their own investors. Tesla, currently, has some shareholder rights; SpaceX has virtually none.  If they were to merge, that would be good for Tesla shareholders in some ways (more AI, etc.) and bad in other ways (no shareholder rights). There’s some price that would make it okay, some exchange ratio between SpaceX and Tesla. What is the right ratio? There is a wide range of possibilities. (You start from the relative market caps of the companies, and then you make arguments about whether SpaceX is overvalued because of its low float, what premium Tesla should demand, etc. etc. etc.) There might be some number that is too low even for Vanguard. Ewing and Mac write:

If the terms of an acquisition are too favorable to SpaceX, Tesla shareholders could balk, Eric Talley, a professor at Columbia Law School, said.

“There is going to be a limit to how much he can lowball the Tesla shareholders before he starts to lose the room,” Mr. Talley said, referring to Mr. Musk.

Could enough Tesla shareholders vote against a deal to prevent it? Between Musk’s own ownership and his cheering section, that seems unlikely, though not mathematically impossible. If not, could they sue? As Ewing and Mac write, Vanguard is not going around looking to sue Elon Musk, feh. But it could. 

Because Tesla is in the S&P 500 and SpaceX is not, the big index fund managers have reason to care about Tesla (they own it) and less reason to care about SpaceX. [2] Most of the shareholders in SpaceX and in Tesla are essentially in it for Elon Musk, and relatively indifferent to the allocation of value between Tesla and SpaceX. But the big index fund managers are not: They’re not in Musk’s cheering section, and they will want to get fair value for their Tesla stock in a merger. That doesn’t mean that they will be able to do anything about it, or even that they’ll try. But they might?

One other thing about a Tesla/SpaceX merger. Each of those companies has one thing that the other one wants:

• SpaceX has a dual-class share structure that gives Elon Musk permanent voting control of the company even if he is a minority shareholder. Tesla doesn’t, and it can’t add that structure; stock exchange rules prohibit it. But if SpaceX acquired Tesla, the combined company would presumably inherit SpaceX’s dual-class structure.
• Tesla is a member of the S&P 500 index, which creates permanent demand for its stock; SpaceX isn’t, and can’t be added for at least a year. But if Tesla acquired SpaceX, the combined company would presumably inherit Tesla’s index membership.

I guess the question is, can you structure a merger to accomplish both things?

Oh man, remember SPACs?

Agility Robotics, a startup that makes humanlike robots used in manufacturing facilities and warehouses, is set to go public in a deal valuing it at about $2.5 billion, its executives told The Wall Street Journal. 

Agility is set to merge with dealmaker Michael Klein’s special-purpose acquisition company, Churchill Capital Corp. XI and list under the ticker symbol AGLT. 

The companies expect gross proceeds of over $600 million from the deal, including $420 million cash from Churchill XI and over $200 million via a common-stock private investment in public equity, or PIPE investment, led by Foxconn, the Taiwan based electronics-contract manufacturer that is an existing Agility backer, the executives said. 

Here are the press release and investor presentation, which has lots of pictures of the robots. We talked last week about Smartbird Inc., the inchoate AI infrastructure company that has risen from the ashes of sneaker company Allbirds, and I wrote:

Retail investors in the public market seem interested in AI. You can’t necessarily start a company, raise no venture capital, and do an immediate initial public offering with a proposal like “ehhhh gonna do some AI stuff, trust me.” But there are plenty of existing small US public companies that don’t have much going on. You could take control of one, announce “ehhhh gonna do some AI stuff,” and the stock will pop: Before, the company was mostly an empty shell, or a deli, but now it is a speculative bet on your AI plans and talents. It’s an AI lottery ticket, and a lot of people are in the market for AI lottery tickets. …

Every day, institutional venture capitalists are throwing millions of dollars at vague AI companies run by former Google AI employees with PhDs. Regular retail investors don’t have access to those startups. But they have access to this! The public stock market, for reasons of its own, has created a version of AI startup investing. That’s neat.

Now, there are some public companies — that deli, Allbirds — lying around not doing much, so pivoting them to AI is a good trade. But of course there is a whole technology that is purpose-built to create new public shell companies to pivot to AI: A special purpose acquisition company is a shell company that raises some money from public investors so that it can eventually merge with whatever the current cool thing is. Previous cool things were electric vehicles and then digital asset treasury companies, but now of course the cool thing is AI.

Back at the height of the SPAC boom, people regularly went around saying that SPACs were a way to democratize venture capital: They gave regular retail investors access to early-stage-ish, pre-revenue-ish, venture-capital-ish companies in whatever the cool private investing sector was. You could, of course, quibble with this pitch: The particular companies that raised money from the public via SPACs were different from the companies that raised money privately from venture capitalists. Also, while Smartbird is in some obvious sense a very early-stage AI company — it doesn’t even do anything AI yet! — most SPACs are a bit further along; Agility says it has already raised more than $390 million from investors including Nvidia, SoftBank and Amazon, and the SPAC deal involves a further private investment from institutions. Still, the basic promise of SPACs was that they were a way for reasonably early-stage companies to raise money from the public markets, particularly if they are doing the cool thing.

Anyway I had kind of forgotten about SPACs but apparently they’re back:

They ⁠had been written off after a pandemic-era boom during which hundreds of blank-check companies rushed to market. Many of those companies later struggled to find acquisition targets or delivered poor returns after completing mergers.

More SPAC deals are getting done. Globally, 44 SPAC mergers have been announced this year, worth $36.9 billion, up from 33 deals worth $15 billion at this point last year, Dealogic data showed.

And there is plenty of dry powder. As of June 17, some 359 SPACs are sitting on $56.8 billion in capital that has already been raised, and is just waiting to be deployed, according to data compiled by SPAC Research.

Just in time for AI. It’s good to keep some SPAC dry powder around for the next cool thing.

Two weeks ago, SpaceX was a huge artificial-intelligence-and-rockets company with a valuation of more than $1 trillion and a track record of raising tens of billions of dollars of debt and equity to fund its business. [3]  Its stock was not publicly traded on a US stock exchange, but as I often write, “private markets are the new public markets,” and the lack of a public listing did not stop SpaceX from getting huge and raising lots of money. But SpaceX needed lots and lots and lots of money; it could get a trillion-dollar valuation and raise tens of billions of dollars in the private markets, but that wasn’t enough. To get a two trillion-dollar valuation, and sell $86 billion of stock, and sell $25 billion of investment-grade bonds, all in the space of two weeks, SpaceX needed to go public, so it did. Private markets offer the sort of capacity that public markets did 10 years ago, but the big AI companies need much more capacity than that. The only place to get it is in the US public markets.

Similarly:

SK Hynix Inc. is seeking 45.45 trillion won ($29.4 billion) in a US listing, tapping investor demand for high-flying memory-chip stocks even after a major selloff shook the group this week.

The offering of American depositary receipts comes after SK Hynix’s Seoul-traded stock climbed about 850% in the past 12 months, lifting the company’s market value above $1 trillion. Investor sentiment around semiconductor companies linked to AI has been volatile, with their overall rise punctuated with sharp swings in both directions.

Companies have been raising record amounts to fund the buildout of AI infrastructure in recent months. SpaceX held the largest initial public offering in history earlier this month, while Alphabet Inc. plans to raise $85 billion to fund its AI plans. …

A US listing would give the company access to a fresh pool of investors and could help SK Hynix narrow a gap in its valuation compared with its competitors. Asian issuers that have already been listed in the US include Taiwanese chipmaker Taiwan Semiconductor Manufacturing Co. TSMC’s US listing enabled it to tap into foreign investor flows, cementing its status as a US investor favorite — particularly as part of the AI-driven rally.

“A large part of the motivation behind this is no doubt the success of TSMC ADR which is very liquid, trades at a persistent premium to the Taiwan line and is accessed readily by global investors,” said Jon Withaar, a portfolio manager at Pictet Asset Management in Singapore.

You can become a trillion-dollar AI company in the private markets, or in South Korea, or probably other places. But if you want even more, eventually you might have to list in the US.

I suppose one thing you could say about this is, like, “it is cool for the US that it has the deepest and most liquid capital markets, the ones that are ‘accessed readily by global investors,’ the ones that foreign AI companies hope to graduate into.” Conversely you might say: “It is a bummer for US public investors that they only get access to the best companies after their first trillion dollars of growth.”

China Is Luring the World to the Yuan—and Hobbling Western Sanctions. New Hedge Funds Are Using AI Bots to Rival Industry Giants. Venezuela to reveal $240bn debt pile in world’s largest restructuring. The red flags at HSBC over funds linked to Lebanese central bank scandal. How a $45 Million Donation Brought Larry Ellison Deeper Into Trump’s Circle. Canada’s Lobster Capital Is Trying to Become an Oil and Gas Giant Too. “Professional colleagues in finance have recently started putting ‘what to wear’ back into onboarding sessions for new employees—a sign that the casualization has gone far enough to warrant a correction.” Wendy’s is a meme stock now I guess.

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