Guy Accused Of Insider Trading Fights Back On His Tumblr

Toby Scammell

Toby Scammell, a former consultant who the SEC charged with insider trading before the Disney/Marvel acquisition last week, is fighting back with a quasi online campaign against the SEC.The SEC alleges that the insider trade happened like this: his “best friend” and girlfriend told him that she was working on a confidential mergers/acquisition project at Disney, and he knew the timing of the deal because it coincided with a friend’s wedding, so he looked up call options on the internet (the SEC cites a losing trade involving his purchase of call options before), bought call options, googled “insider trading,” and then bought some more. (More details here).

Scammell now has explanations for all of this and more on his Tumblr website.

To prove his point, he cites numerous online searches, a consulting job with Disney, and chatter about the deal. And to explain why the SEC is charging him with insider trading despite all of this evidence, he suggests that it’s because they’re idiots.

He says:

  • “The SEC [doesn’t understand] how to read a bank statement or how call options [work]”
  • The SEC is “an incompetent government agency filled with bumbling lawyers who don’t understand the first thing about the markets they’re charged with regulating”
  • “They’re the financial regulatory equivalent of the DMV”
  • A random selection of TSA screeners and postal workers would do a better job if their only training involved watching an hour of CNBC.

While making the case for his innocence, he slams the SEC with insults, including this entertaining jab at the SEC for alleging that he had only “limited funds.”

The SEC said in their lawsuit that the trade was “highly risky” for Scammell because he used a large portion of his “limited funds” in order to purchase the call options.

Scammell writes:

I didn’t have “limited funds” at any time while trading Marvel. I personally had at least $7500 in cash on hand at all times throughout August. At no point in August did I have less than $120k in buying power at my disposal—enough to repeat my Marvel trades 20 times. And based on my compensation at work, I earned $5500 every eight days. If that qualifies as “limited funds” then the SEC must consider Warren Buffet to be middle class.

One thing that’s clear from the SEC’s lawsuit is that the SEC has no clue how Toby Scammell got the name of the Disney acquisition target, Marvel, from his girlfriend.

Writing in its lawsuit that he had access to his girlfriend’s Blackberry password without an explanation of the importance of his access, the SEC leaves the reader to make the obvious assumption.

But conclusively, the SEC says only that it was one of three ways: overhearing her conversations, seeing documents in their home or on her computer or Blackberry, or speaking with her.

Regardless, juries need less than that to convict. And writing about how rich you actually are is not a way to win them over.

Is this a funny campaign against the SEC?

Let’s see. Here are some more of his criticisms of the SEC:

  • SEC doesn’t realise you can experience higher percentage gains on a call option than you can on the underlying stock
  • SEC doesn’t realise that companies can report negative earnings and still beat expectations
  • SEC believes options always trade at the their theoretical value
  • SEC can’t figure out where I live so they guess randomly

Of course, you might be angry, too, if the SEC had been investigating you up the arse for the past two years. Scammell describes what that was like below.

In case you needed any more incentive not to insider trade, this is it:

  • The SEC looked over every email, text message, and instant message he sent or received for months before and after his trades
  • They examined every bank statement, pay stub, trade confirmation, and tax document going back as many years as possible
  • They got every phone record from months before and after his trades
  • They read every piece of communication between him and his girlfriend for a period of a year or more
  • Every website he visited and every search term he entered over an approximately two year period (as captured by my Google Web History)
  • Tons of people and companies were subpoenaed for the investigation

Unfortunately none of Scammell’s evidence is specific enough to tie his research to the trades that the SEC has records of Scammell making soon after. The SEC, by contrast, cites evidence that Scammell bought options soon after his girlfriend learned that the announcement would be made before labour Day. The SEC’s case might be weak enough to get him off based on its not knowing how he got the info. But the internet campaign he’s launched might compromise his chances of appealing to a jury, if the case comes to that.