By Ann C. Logue
Front-running is an easy way to make a lot of money. The only risk is getting caught. It’s unclear if the SEC catches every case of front-running. More likely, it cracks down when it does catch it as a message to those who are evading detection.
This week the SEC charged another trader with front-running. Sergei Polevikov, a quantitative analyst at OppenheimerFunds was accused of front-running some of the firm’s trades through his wife’s personal account. He is said to have made $8.5 million by purchasing stocks in advance of his employer on approximately 3,000 occasions between January 2014 and October 2019. Polevikov’s lawyer says that he is not guilty; representatives from OppenheimerFunds have not commented.
This isn’t something that happens only in the US. This week in Frankfurt, an unnamed German national pleaded guilty to insider trading based on front-running activities. He was employed by Union Investment GmbH when he was arrested a year ago. He was charged with front-running to the tune of €8.1 million in profits, justifying it to offset losses he had made investing in Wirecard. (In the US, front-running is treated as a trading violation, but it involves material non-public information about customer orders. Hence, it is considered to be insider trading in other jurisdictions. Of course, the Feds will use whatever charge they think will stick.)
Front-running is an ongoing problem in less-regulated crypto markets. Last week, NFT exchange start-up OpenSea admitted that an employee traded in tokens before they were listed on the firm’s site. It was detected by other crypto traders who analyzed the blockchains. Although front-running is not—yet—illegal in crypto markets, customers don’t like their exchanges doing it.
Actually, like all crypto trading, front-running crypto is now illegal in China. It is the type of abuse of customer interests that gives capitalism a bad name. As tempting as front-running may be, don’t do the crime if you can’t get a job at an NFT exchange outside of China. If you’re placing personal trades through an outside account so that your employer doesn’t know, you’re doing it wrong.