Smartphone data can highlight when firms are under SEC investigation—and could expose insider trading
Smartphone Data Can Highlight SEC Investigations and Expose Insider Trading
Investigations by the Securities and Exchange Commission (SEC) can significantly impact the stock market, making it crucial for investors to stay informed about potential investigations. A new study has found that tracking smartphone data can provide valuable insights into which companies might soon fall under SEC investigation. The study, conducted by academics at four U.S. universities, analyzed geolocation data across 26 major U.S. metro areas to identify SEC devices based on repeated visits to SEC offices during working hours.
The researchers discovered that many visits made by whom they believe to be SEC employees occur outside formal investigations. In fact, 84% of visits are made to firms that never fall under investigation. However, they also found that firms that have a history of actions against them by the SEC are visited more frequently by the commission. Of those who were under SEC investigation during the period the paper studied, three-quarters saw an SEC visit before the investigation was formally announced.
The study also revealed that any knock on the door from the SEC is not good news, whether an investigation is opened or not. Within three months, firms visited by the SEC see stock price drops of between 1.4 and 1.94%, which the researchers posit could be because traders pick up on informal signals that a firm is under the regulatory microscope. Insiders are 16% less likely to sell stock in the week before and week after an SEC visit than they are in periods with no visits, indicating that the temptation of insider trading is outweighed by the potential threat of criminal enforcement action against such behavior.
The study’s findings have significant implications for investors and regulators alike. By tracking smartphone data, investors can gain early insight into potential SEC investigations and make informed investment decisions. Regulators, on the other hand, can use this data to identify patterns of behavior that may indicate insider trading or other nefarious activities.
“We cannot observe any one particular individual,” says Steven Irlbeck, assistant professor of finance at the University of New Hampshire and one of the study’s authors. “What we can do is kind of aggregate. We look at devices that are very commonly in the different SEC offices, the regional offices during the workday.”
Irlbeck notes that while the study’s findings are significant, it’s important to remember that they cannot definitively identify any one individual or firm that may be engaged in nefarious activities. “It’s very difficult for us to know in any one given circumstance if anything nefarious is actually going on,” he says. “But on average, what we found was quite surprising. When we do see trading following these visits, the figures are worth 1,000 words.”
The study’s findings highlight the importance of using data analytics to identify potential regulatory risks and inform investment decisions. By leveraging smartphone data, investors can gain a competitive edge in the market and avoid potential pitfalls. Regulators, too, can use this data to enhance their enforcement efforts and protect the integrity of the financial markets.
In conclusion, the study’s findings demonstrate the power of data analytics in identifying potential SEC investigations and exposing insider trading. By tracking smartphone data, investors and regulators can gain valuable insights into the behavior of firms and individuals, enabling them to make informed decisions and protect their interests. As technology continues to evolve, it’s likely that we’ll see even more innovative applications of data analytics in the financial sector.