I wonder how much corporate espionage there is? Like if you work in a high-touch, high-dollar sales business — enterprise software, investment banking, etc. — much of your time will be spent pitching new customers who are choosing between you and your competitors, or pitching customers who currently work with your competitors, or trying to retain customers who are thinking of switching to your competitors. If you knew what your competitors were up to, that would help. If you knew a competitor was coming into your customer’s office next week to try to steal them away from you, and if you saw your competitor’s pitch deck, you could take some actions. You could get to the customer first and offer a discount. You could see the arguments in the pitch deck and try to counter them. You could see what your competitor says about the features of its own product, and try to build those features into your product. It’s not a magic cheat code — you still need a competitive product and pricing and good salespeople and all that — but it surely helps.

So, you know, find a salesperson at your competitor and recruit her. Not to quit your competitor and come work for you, but to stay at your competitor and spy for you. You give her quarterly bags of cash; she looks at your competitor’s pipeline and keeps you up to date on who it is pitching and what it is saying. Obviously this is not legal advice — it seems problematic in all sorts of ways — but surely people try it from time to time?

The downside is apparently that, if you get caught doing this, you will get a hilarious lawsuit:

Workplace software company People Center Inc.—known as Rippling—is suing its chief competitor over alleged corporate espionage.

Both companies were valued in excess of $10 billion in recent funding rounds.

Rippling, in its complaint, says Deel “cultivated a spy to systematically steal its competitor’s most sensitive business information and trade secrets,” in a deliberate attack that lasted for more than four months.

The alleged spy at Rippling—its Ireland-based Global Payroll Compliance Manager—was identified after he was observed accessing Slack channels and documents with no legitimate reason to do so, the complaint says.

On March 12, Rippling sought and obtained an order from Ireland’s High Court to seize the alleged spy’s phone. When served, the purported spy feigned compliance before “hiding in the bathroom and then fleeing the scene,” the complaint says.

A Deel spokesperson said Rippling was attempting to deflect negative attention from itself.

“Weeks after Rippling is accused of violating sanctions law in Russia and seeding falsehoods about Deel, Rippling is trying to shift the narrative with these sensationalized claims,” the spokesperson said. “We deny all legal wrongdoing and look forward to asserting our counterclaims.”

Sorry but, yes, that absolutely works: If you are ever accused of violating sanctions laws, please do bring a sensational spying lawsuit against your competitor; that will certainly distract me anyway. This is not legal or public relations advice; it’s just an expression of my own interests. Anyway here is Rippling’s complaint, which refers to the alleged spy as “D.S.,” for “Deel Spy.” The guy allegedly lurked [1] in a bunch of Slack channels devoted to Rippling’s sales process, so he could channel information back to Deel:

Guided by “Deel” as his primary search term, D.S. surreptitiously accessed Rippling Slack channels replete with its Sales and Marketing Trade Secrets and proprietary and confidential information. The channels accessed by D.S. contain highly sensitive and confidential information about existing customers and prospective customers, including details such as the customer’s name, contact information, revenue at issue, the current issues or problems the customer is facing, and details of sales and relationship conversations between Rippling and its customers or prospective customers. All of these are details that a competitor, such as Deel, could exploit to convince such customers to purchase their products rather than Rippling products.

It’s not clear how much this actually helped Deel, but there’s at least one suggestive case:

D.S. navigated to a mention of Deel in a channel focused on a particular prospective customer who was considering both Rippling and Deel (“Prospect B”).

D.S. previewed the channel, which included details for a call scheduled with Prospect B the next day and communications in which Prospect B relayed to Rippling specific concerns with the products and services offered by Deel. The channel also contained the Rippling sales team’s internal pitch strategy discussion, including confidential details about how Rippling planned to highlight certain advantages of its products to address the prospect’s pain points with Deel’s offerings. … 

On February 20, 2025, the day of the scheduled call between Rippling and Prospect B, D.S. previewed the Prospect B-related channel sixty-six (66) times.

Later that day, Prospect B abruptly canceled the scheduled call with Rippling in which Rippling was going to deliver its proposal — and explained that they were doing so because they had decided to select Deel for the product they were interested in, even though Rippling believes that customer would have been better served by Rippling.

If you had your competitor’s whole pitch deck for a potential customer you both wanted, that wouldn’t guarantee you a win, but it might help.

Anyway most of the fun of the lawsuit is the tradecraft. Rippling apparently discovered the alleged spy not because he was snooping on their sales information, but because “an investigative reporter at The Information contacted Rippling about a forthcoming article concerning Deel’s Russia-related sanctions activity” and asked Rippling about its dealings with Russia. The reporter included “internal Rippling Slack messages” in his email, and Rippling investigated who might have accessed those messages and quickly identified the alleged spy. [2] The possible lesson here is that tech companies are much more sensitive about leaks to journalists than they are about sharing sales information with competitors, so if you are doing corporate espionage don’t blow up your spot by trying to plant negative stories. (Not any sort of advice!)

Having identified the spy, Rippling then tried to prove that he was working for Deel:

The smoking gun came earlier this month, when Rippling set forth a test, or what is known by security professionals as a “honeypot.” ... To confirm Deel’s involvement, Rippling’s General Counsel sent a legal letter to Deel’s senior leadership identifying a recently established Slack channel called “d-defectors,” in which (the letter implied) Rippling employees were discussing information that Deel would find embarrassing if made public. In reality, the “d-defectors” channel was not used by Rippling employees and contained no discussions at all. It had never been searched for or accessed by the spy, would not have come up in any of the spy’s previous searches, and the spy had no legitimate reason to access the channel. Crucially, this legal letter was only sent to three recipients, all associated with Deel: Deel’s Chairman, Chief Financial Officer, and General Counsel (Philippe Bouaziz), Deel’s Head of U.S. Legal (Spiros Komis), and Deel’s outside counsel. Neither the letter nor the #d-defectors channel was known to anyone outside of Rippling’s investigative team and the Deel recipients. Yet, just hours after Rippling sent the letter to Deel’s executives and counsel, Deel’s spy searched for and accessed the #d-defectors channel—proving beyond any doubt that Deel’s top leadership, or someone acting on their behalf, had fed the information on the #d-defectors channel to Deel’s spy inside Rippling.

Pretty good! Good enough to get an Irish court order to seize the alleged spy’s phone, at which point he … also did tradecraft:

D.S. initially told the independent solicitor that his cell phone was in a bag on another floor. The solicitor offered to have an associate retrieve the bag, but D.S. insisted that he retrieve it himself. The solicitor informed D.S. that if he was lying, he would be breaching the court order. The solicitor accompanied D.S. downstairs and took possession of the bag, but, in fact, D.S. had lied. The bag only contained a notebook. It held no mobile device. On information and belief, D.S.’s cell phone was on his person the entire time.

After misdirecting the independent solicitor, D.S. then went into a bathroom, locking the door behind him and refusing to come out, despite the independent solicitor’s repeated warnings that these actions were in violation of the court order. Rather than comply, D.S. was heard “doing something” on his phone by the independent solicitor, who also heard D.S. flush the toilet — suggesting that D.S. may have attempted to flush his phone down the toilet rather than provide it for inspection. Later that day, Rippling had the plumbing of its Dublin offices inspected, but did not locate any mobile devices.

While in the bathroom and continuing after leaving the bathroom, D.S. was again told repeatedly that he was required to provide the device or he would be in violation of a court order. After D.S. left the bathroom, he was informed that taking another step forward rather than handing over the phone immediately would be an additional breach of the order. D.S. then replied: “I’m willing to take that risk.” D.S. then stormed out of the office and fled the scene.

When they come to raid your office, locking yourself in the bathroom until they go away probably won’t work (not legal advice!), but it will make you something of a legend. Also imagine dredging the toilets for the possible spy phone.

Here’s a little puzzle. In 2023, Chevron Corp. agreed to acquire Hess Corp. in an all-stock merger. The merger price is 1.025 Chevron shares per Hess share. About a year ago, Exxon Mobil Corp. filed for arbitration to try to stop the deal: Hess’s most important asset is a minority interest in an oil project in Guyana operated by Exxon, and Exxon claims that it has a right of first refusal to buy that stake. Hess and Chevron disagree, arguing that the right of first refusal applies to a sale by Hess of its interest, but not a merger of Hess itself. We talked about the case last year, and it is “scheduled to be heard in May with a decision by September.”

So (1) the closing of the Chevron/Hess deal is still a ways off and (2) it is not certain, because Exxon might still block it. So Hess trades at a discount to the deal price. This past Friday, Chevron closed at $157.02, implying a price of $160.95 per Hess share. Hess, however, closed at $148.13, about an 8% discount to the deal price.

I don’t know who will win the arbitration, but let’s say you do. Let’s say you are an expert in international oil project litigation and you are highly confident that Chevron is right and will win in arbitration. What should you do with that information? An obvious thing to do would be the merger arbitrage trade: Buy a share of Hess for $148.13, sell short 1.025 shares of Chevron for $160.95, pocket the $12.82 difference and close out the trade in September when the deal closes as you expect. Obviously this trade can backfire if you’re wrong, but if you’re confident in it it’s free money. [3]

And in fact I assume a lot of merger arbitrageurs have analyzed the situation and done either this trade (long Hess, short Chevron to bet on the deal closing) or else the opposite (betting on Exxon winning). (The spread being only 8% suggests mostly the former.) And you could imagine them getting new information that would change their minds: Perhaps they might read Exxon’s or Chevron’s brief in arbitration, or learn something about one of the arbitrators, that caused them to update their beliefs and become more or less confident that the deal will close. For instance, the spread widened last July when the market learned that the arbitration hearing wouldn’t happen until this May, a slower schedule than the market expected.

You know who probably has better information about the state of the arbitration than you do? Chevron. So here’s a trade:

Chevron Corp. bought nearly 5% of Hess Corp. as a show of confidence that it will win the arbitration battle with Exxon Mobil Corp. that has delayed the Hess takeover for more than a year.

Chevron bought 15,380,000 Hess shares between January and March this year, the Houston-based company said in a statement, and the stake is worth about $2.3 billion at today’s price. The purchases were made at a discount to the price implied by Chevron’s $53 billion all-stock takeover of Hess agreed in 2023.

The purchases “reflect Chevron’s continuing confidence in the consummation of the pending acquisition of Hess,” the company said. 

Here’s the announcement, which notes that Chevron bought the shares “at prevailing market prices in open market transactions.” [4]

Is that … allowed? Is it insider trading? Well, not legal advice, but a few points here:

• Chevron has, in some sense, told you everything that it knows: It has consistently said it is confident in its position and expects the merger to close. You might not believe it; you might not ascribe as high a probability to the deal closing as Chevron does. You might therefore sell Hess’s stock at a discount to the deal price. But that’s not Chevron’s problem! To the extent insider trading is about fairness, Chevron hasn’t done anything unfair: It has told everyone that the deal will close, and then it has acted accordingly. [5]  
• But let’s say that Chevron does have some material nonpublic information that merger arbitrageurs don’t know about. Let’s say Chevron knows some hard facts that make it very confident in the deal closing, and if it disclosed those facts — rather than its generic statements of confidence — Hess’s stock would go up. (Maybe Chevron went to a closed-doors confidential arbitration hearing and the arbitrators winked at Hess’s lawyers.) But insider trading law, in the US, is not exactly about fairness. The question is not just “do you know something the market doesn’t know” but also “do you have some duty to someone to keep that information confidential and not trade on it?” Here it is not clear. Companies aren’t supposed to trade their own stock while they have material nonpublic information (because they have fiduciary duties to their shareholders), but Chevron didn’t trade its stock; it traded Hess stock. [6]  Did Chevron have some duty to Hess not to trade? [7] Does it have some obligation to, like, the arbitration process not to use any information it learned? I dunno; this kind of feels like my rule of thumb that you are allowed to trade on nonpublic information about your own intentions, which in this case means Chevron’s information about its intention to close the merger. 
• On the other hand, if Chevron was shorting Hess’s stock to bet against the deal closing, that would obviously be bad! But it’s not.

There are two basic ways for financial assets to trade.

1. There is the exchange model: There’s a central electronic platform where everyone can send their orders to buy or sell assets, and if you want to buy you send your order to the platform, which matches you with someone who wants to sell.  
2. There is the dealer model: There are some firms that are in the business of buying and selling assets for their customers, and if you want to buy you call up your dealer, who sells you the asset.

Broadly speaking, some markets are pretty exchange-y (most stock trades), and some markets are pretty dealer-y (many types of bonds), and many are mixed. And my anecdotal impression is that in every dealer-driven market, there are a lot of people who want it to become more exchange-based: Bond investors spent a long time dreaming about “all-to-all” electronic trading platforms where they could trade with each other directly rather than calling up dealers, and those platforms have gradually become real.

And then in every market that is very exchange-driven, there is an offsetting desire for a dealer model, where you just call one dealer and trade with it directly. Bloomberg’s Katherine Doherty reports:

Wall Street’s infamous dark pools are getting even darker.

They’re offering what are dubbed private rooms, gated venues that take the core benefit of a dark pool — the ability to hide big equity deals so they won't impact prices — and add exclusivity, specifying exactly who can partake in any trade.

Created within the dark pools themselves, the rooms are independent from one another and each is invisible to anyone not invited, raising questions about both market transparency and fragmentation. But with more than half of all US stock trading now happening away from public exchanges, they’re in high demand from firms eager to choose whom they do business with, often to help them carry out individual orders more efficiently.

There are various use cases — she mentions one private room where “the participants are all minority-operated brokerage firms” — but a big one appears to be that smaller dealers want to have a place where they can trade with customers:

Private rooms are not generally needed by big banks or brokers who have the resources to create their own ATS or what are called single-dealer platforms. That’s another breed of off-exchange trading venue where the operator is always the counterparty to any trade.

But for smaller players, it's too expensive and cumbersome to build and manage an ATS or SDP, meet the associated regulatory reporting requirements and set up the necessary connections. Arranging a private room at an established ATS is a solution. ...

At IntelligentCross, the majority of rooms currently offered serve institutional brokers that don’t have capacity to conduct similar activities internally. Jefferies trades in a private room provided by the firm where it interacts with seven other brokers who don’t have their own ATS, but have institutional orders, according to [Jefferies head of quant strategy Jatin] Suryawanshi.

Bloomberg Intelligence’s Larry Tabb and Jackson Gutenplan wrote about private rooms last year:

Historically, traditional asset managers have been loath to route orders to a single market maker. This is changing. Though routing orders directly to market makers gives them sensitive information, their performance can also be measured. If the experience is determined to be poor, the fund can terminate the relationship. Using a third-party ATS also provides both the client and provider easier access, there's less maintenance and communications lines don't need to be installed or supported.

If you are a bond investor, and you want to trade with a single dealer, it’s easy enough: You call your dealer on the telephone and ask for a price on a bond. If you are a stock investor, and you want to trade with a single dealer, you could do that too — some big blocks of stock still trade on the phone — but things are increasingly electronic and no one is going to answer the phone for 100 shares of stock. If you send your order to the stock exchange, or even to a dark pool, you have no idea who you’ll be trading with. If you send your order to the Jefferies room at IntelligentCross, you do. (It’s Jefferies.)

Jefferies, meanwhile, will be hesitant to post good prices on the stock exchange, because everyone trading on the stock exchange at this point is a predatory high-frequency trader and Jefferies is properly scared of them. But it can offer good prices in its private room, because the only other people there are “seven other brokers who … have institutional orders.” (“Brokers who take orders to private rooms typically expect to fill the order at the midpoint of the national-best-bid and offer, or NBBO,” writes Doherty, so, good prices.) The problem with an all-to-all electronic market is that everyone can trade on it, and sometimes you just want to trade with people you know. 

I wrote last week about luxury watches and their correlation to the stock market. What I said was:

One of my toy theories about alternative investments is that stocks trade every day and you can observe their prices instantly, while less liquid alternatives tend to trade less frequently, particularly during equity-market crashes. (If your hedge fund implodes, you stop buying new watches, but you probably don’t go sell your AP that week.) So when some general economic effect causes a broad decline in asset values, stock prices go down instantly, but various illiquid alternative prices go down six months or a year later. Which, depending how you measure it, looks like low correlation.

A famous stylized fact about finance is that “in a crisis all correlations go to one.” Part of this is psychological — if you are very worried, you’ll be worried about everything, so you’ll sell all your risky assets — but a lot of it has to do with leverage: If you are a levered investor and some assets go down, you will get margin calls requiring you to repay some of your loans, and you will sell your other, better assets to raise cash to meet the margin calls, and that will drag down the prices of the good assets too.

And one reason to think that a lot of illiquid alternative investments aren’t correlated to the stock market is that they are less susceptible to that dynamic. If your stocks go down and you get margin calls, you probably don’t sell your watch to meet them. (In part because the watch market is less liquid.) Also your watch isn’t itself margined: Many public financial assets (stocks, bonds, etc.) are held by highly levered players with short-term loans who will get margin calls if stocks decline, but illiquid alternative assets tend to be either owned outright or at least financed with long-term debt with no margin calls. This is in part because there is no liquid public market for the assets: If your lender can’t get a daily mark-to-market value on your watch portfolio, it can’t know when to send you a margin call.

Naively I would have thought this was all pretty true about the fine art market but, nope, margin calls. The Financial Times reports:

Top art lenders have asked borrowers for more pictures as security for their loans because the value of their collateral has tumbled in an art market slowdown.

Specialist lenders in the $40bn sector have issued margin calls as the value of paintings pledged against loans has fallen, asking borrowers to make up for the decline by handing over cash or swapping in more expensive artworks. …

Sotheby’s, which has a loan book of $1.6bn and launched a bond backed by its art loans last year, had made margin calls because “there are very few categories where the value of art has gone up in the last 24 months”, said Sotheby’s Financial Services global head of lending, Scott Milleisen.  …

Lenders said margin calls in the art finance sector were relatively rare. Banks ideally tried to prevent triggering margin calls on their clients by making them aware of any gap in advance, said Adam Russ, global head of wealth management and business lending at Deutsche Bank.

“Whether it be particular artists not performing or a glut of paintings from any artist coming to market, that might lead to a conversation,” he said. 

I suppose the way to read this is that there actually is a pretty liquid transparent market in certain categories of art (“Lenders generally … prefer Impressionist and Modern works over those of emerging artists without a proven auction record”), so you really can get a decent mark-to-market on a piece of art (“Even in strong markets you sometimes see some artists going down in value because of the trends and whims of some artists’ markets,” says a Christie’s executive), so you can sensibly do margin calls.

Elsewhere in art and correlation, the Wall Street Journal reports:

When the Swiss banking giant UBS bought its rival Credit Suisse in 2023, it got roughly a half of a trillion dollars in assets as well as customers and offices around the world. It also took on a fleet of model ships, and more than 13,500 artworks, including pieces by Swiss artists Ferdinand Hodler and Félix Vallotton, as well as piles of decorative posters. …

Still outstanding is the thorny integration of all of that Credit Suisse art. The key questions for UBS’s department are whether to store, display, sell or donate it.

There were some fire sales:

Take the hundreds of decorative posters that UBS found within Credit Suisse. Framed depictions of everything from landscapes to the abstract, the posters weren’t UBS collection material. The bank decided to sell the posters to employees, who jumped at the chance to buy them. The sale was so popular it ended a day early. 

“When a global bank fails that can lead to a massive liquidation of assets” is pretty uncontroversial when you are talking about, like, bonds, but it might also be roughly true — with a lag — about art.

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