In doing so, Li profited immensely while also selling shares he already owned to avoid losses before the earnings announcements.
The “Big Short” and Hefty Penalty
According to the SEC’s order, Alliance Fiber Optic Products, Inc. specifically prohibited its employees from engaging in short selling.
A short sale is a type of trade used to make money when a stock is expected to drop in price. Therefore, the short seller makes a profit when the stock price drops, a counterintuitive, yet sophisticated, options trading methodology.
“Our agency’s ever-evolving data analytics enabled us to detect Li’s otherwise inconspicuous trading as an overall pattern to profit off multiple earnings announcements,” said Jina Choi, director of the SEC’s San Francisco Regional Office.
Li will pay a disgorgement fee of $196,000, a prejudgment interest of $23,000 and a $196,000 penalty.
