I know there are some posts on here re: this topic, but no conclusion on my specific question.
My current firm (PE) has an absurd personal trading policy. No purchases of stocks, bonds, etfs, etc. Literally none at all. You can only unwind positions that you had in your portfolio prior to employment with the firm. This IMO is complete bull. I am investing in $5MM EBITDA businesses, why can’t I buy public equity?
So my questions are the following:
1) we know you submit your brokerage account info at all banks or shops with similar trading restrictions. Great. They now link up with your brokerage account and automatically monitor your activity. Any trade at all sends a message to compliance and either physically restricts the trade or subjects you to further critique or repurcussion. But, what if you have multiple brokerage accounts and you don’t report the second account? Sure, you’re breaking the code of ethics or compliance manual or whatever policy doc you have on file with the company, and if they were to find out you’d likely be fired. But how would they know? Maybe if they’re linked to the social security which links to the SEC, etc? Is this really the case for small RIA’s?
2) how would they know you self directed an investment in any other account for that matter? Let’s say I buy bitcoin on Coinbase (I’m not planning to do this). That’s not linked to my firm’s compliance system I can guarantee that.
2b) if you wired funds to a family member, how do they know you purchased the stock through them? What kind of implications would that be if you were to be caught? The family member has no privileged information (or whoever is making the claim / bringing the suit against us would have to prove it), and it’s technically their capital. Of course some would say talk to an attorney on the damages.
Everything I read is there’s no way around it, the SEC will come after you, etc etc but why? How? I don’t think the SEC gives a crap unless you’re doing something that breaks rules, regulations, or laws for the SEC. I am not insider trading when I purchase AMZN stock. I have no priveldged information. One can not prove that I have privileged information because I really don’t have it.
Some here will likely say don’t trade, just work. I’m not even looking to trade. I just want to hold long term equity in some high quality companies that I’ve done a lot of research on and invest my personal capital without leaving my career.
The risk reward isn't really worth it in this scenario. Plus even though the companies only have ~$5M EBITDA you likely stumble across material information regarding deals done with pubcos. One of my companies with only ~$1.2M EBITDA is working on a deal with a small pubco where our product release announcement with them will 100% materially drive the stock up.
It's too hard for firms to monitor your activity so it's easier just to ban it all together.
Is this a rare case in your experience for pe firms to ban all investing. Even etfs?
I think banning the ETFs is definitely weird. With my compliance department, they have said that any ETF with at least 50 holdings can be traded without reporting/clearance. That makes index investing fair game and that's what I stick to and stay in policy. I'm surprised your company doesn't take a similar stance.
I agree with that point. I guess I’m just wondering how they actually know. It’s obvious when you sign a statement saying you’ve disclosed all your accounts, and you offer up the account and account number, but what about other accounts that aren’t listed? If someone theoretically wanted to take the risk.
Not sure. There are other ways around it too but not sure it really is worth the headache. Are you allowed to set up a blind trust?
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