What is Insider Trading?
Was it legal for Sauron to dump his shares after the they learned of the plot to destroy the Ring?
The Frontier Psychiatrists is a newsletter. It is also a way for me to learn and explore my world. Today, I’m exploring a world of actions that will send one to jail. To avoid offense to real humans, I will use my time-tested example of Sauron, the Dark Lord of Mordor, and his Board of Directors. I imagine the board is crony-laden, and comprises the senior leadership team of the Nine Riders of the Nazgûl—and maybe that bottom-feeder Saruman, as well. Now, imagine that Mordor, Inc. was a publicly traded company on the US stock exchange. All securities laws would apply.
If this educational and satirical material ends up deemed “too close” to real-world entities? Any similarities to real people or events are unintentional and, crucially, a hilarious and excellent point you can make to your friends at conferences— but leave me out of it.
What Did Sauron Know and When Did He Know It?
The senior leadership of Mordor was served with a notice that a council of Elves, Dwarves, and Men had found the one ring, and planned to destroy this crucial intellectual property. A notice of a probe into this council meeting was served to senior leadership in October 2023, which is, of course, called the Third Age by some, by the DOJ.
I tried my damnedest to get DALL-E to generate an SEC disclosure, for an illustration, and it fell short. The following is the best it could do:
It has subsequently been reported by OrlandoBloomberg that senior executives, including Chairman of the Board, Sauron; Chief Nazgûl Officer, The Witch King of Angmar; and Chief Wizard, Saruman the White, collectively sold over $105m in shares before the probe became public.
“How is This Legal?” Elves, Dwarves, and Men Demand Answers.
“What is insider trading?”, is a common question from my readers.
It’s when investors, including executives at public companies, buy or sell shares based on information that is not available to the public. Martha Stewart, famously, got hit with a lawsuit based on non-public information, and spent time in prison for it:
The Commission's complaint, filed in June 2003, charges Stewart and Bacanovic with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint alleges that on December 27, 2001, Bacanovic… illegally tipped his client, Stewart, with the nonpublic information that the then CEO of ImClone Systems, Samuel D. Waksal, and his daughter were selling their ImClone stock. Based on this information, Stewart sold all of her ImClone stock. The next day, ImClone announced that the FDA had refused to file ImClone's license application for a new cancer drug….and the stock price dropped 16%.
There needs to be information that is non-public, like the discovery of a serious plot to destroy the key to your corporate strategy of iron fisted domination over all living things. The executives would then have a choice: either they could file a form 8-K with the SEC, which would disclose publicly the theft of the Ring and the planned attack on shareholder value that was the Fellowship of the Ring, thusly1:
Had Sauron and his leadership team filed an 8-K, they would have been allowed to sell off all the shares they wanted thereafter. This might indicate they believed the threat was more serious, to public markets? The point is, of course, that the public would know. The Mordor executives could also make the choice to not sell shares before any such filing was made. They could wait to dump their shares till after the news of the Council was published by the lighting of the Beacons of Gondor. That would risk their share price going down prior to sale.
OR, they could have done what they did. That, per reporting, is exercise options and sell a bunch of shares prior to Fellowship setting forth for Mordor, much less before the subsequent Beacon Lighting:
The stock sales by key figures of Mordor, Inc. took place between Oct. 16 — the week following the company's alleged receipt of the Justice Department's Fellowship notice — and Feb. 26, which was the day OrlandoBloomberg, The Moria Deep Journal, and other media reported on the Conclave. On Feb. 27 and 28, after the Fellowship’s Quest became public knowledge, the company's shares dropped by 5.2% over two trading sessions.
According to OrlandoBloomberg, there was no sign that these trades were pre-scheduled as per trading plans in the filings related to the sales. Mordor, Inc. specified that its officers and directors are required to obtain authorization for stock transactions, and such trading is restricted to designated windows that open post-earnings announcements. The third-quarter earnings report for the year 2023 was disclosed on Oct. 13.
The Voice of Sauron conveyed to OrlandoBloomberg that "the directors and officers in question adhered to our established protocols and secured approval from the company for their trades." Beyond the company's official statement, the Voice of Sauron fell silent, while the Giant Eye Continued to scan for Opportunities to prop up their share price. In a regulatory filing, Mordor, Inc. acknowledged that it is routinely subject to various inspections, audits, and reviews by state and federal entities, including the Justice Department and Councils of Elves, Dwarves, and Men.
Unsettlingly, some nasty whistle blower (suspected by this author to be former ring-bearer Gollum) provide the following information:
Sauron, the Chairman of Mordor, Inc., who has been in his current role since 2017 after a tenure as the company's CEO, acted on a portion of his stock options on Oct. 17, options that were on the books to expire in 2024, according to company reports. He promptly sold the acquired shares the very same day, with the transactions netting him $84.9 million.
This is disturbing profiteering. It seems at odds with the public statements made by the Voice of Sauron. Further, other executives took steps to exercise their options before any more public disclosure of the finding of the ring and the plot to destroy it:
Meanwhile, the CNO of Mordor, Inc., the Witch King of Angmar, capitalized on vested options and executed share sales on Feb. 16, which resulted in earnings of $15.1 million, as the report details.
Disturbingly, other senior leadership, including rising-star Gothmog, executed similar trades:
In the days following, other executive members, including a number at Strategic Subsidiary Orctum, similarly engaged in share sales; these transactions are highlighted within the corporate filings.
In the coming days, the share price continued to tumble over 15%. Questions are being asked, beacons are being lit, and many now are demanding answers. Was the attempt to shroud all of middle earth in darkness under the thrall of Mordor less financially viable than earnings calls depicted? Was the threat posed by the Fellowship material information that should have been disclosed?
We await answers, before these executives flee to the Grey Havens, in which Sauron-controlled hedge fund “GreyHome Partners LLC” recently announced an $83m investment.
If you have enjoyed this satire article please feel free to review prior articles on the topic of corporate malfeasance among the senior leadership of Mordor in the following articles:
The Balrog Associate Agreement
Gollum’s Complaints About Luminello’s Untimely Demise
Does Sauron Feel Bad About His Job?
9 Shocking AI Prompts You Won’t Believe—The King of Rohan Swears By Them
The One Ring Should Not Be Destroyed
The YC24 Company That Ripped Off Sauron
Sauron’s Darkest Moments as a Founder
Discovery in the Matter of Isengard’s Half-Orc Breeding Program
Defamation Law Double Header!
Incident Report: Nazgul Team Concerns
Incident Report: Nazgûl Team Not Utilizing 15Five or OKRs
Incident Report: Concerning Emails Re: Mr. Of Angmar
Risk Memo: Mordor Humanoid Resources and Part II
Mordor PR Has Some Suggestions
Frank Feedback to OneRing Search Leadership (plus it’s a podcast)
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I based this image on a similar filing made to the SEC from a completely unrelated company, chosen entirely at random, in this case UHG’s completely appropriate 8-K related to the Change Healthcare Cyberattack: