How does a system created by the SEC detect that person A is a (close) friend of person B, with accuracy? Family I can understand, if you share the same last name etc, but friends?
However, I'm not sure they do have that information. I would speculate that the number of people who make large option bets before earnings correctly on the same stock over multiple quarters should be zero and if it is very small, it is worth investigating. If they see that a subset of traders is 3 people with Korean names, that would immediately suggest that something is wrong...
What’s really interesting is I believe at least one commissioner (or perhaps staff member?) has made comments hinting that it works the other way, too. It can identify “related” transactions executed by other seemingly random people and, when they look into it, they find out the person who executed the trade does indeed know the original person under investigation.
Dont really know enough about this to do anything other than wild speculation but Id lean towards something like: If a trade crosses a certain risk score threshold it would trigger some kind of preliminary investigation looking at limited information. If the preliminary investigation determines the trader has relationships with a company insider, its then added to the metrics and the risk score may ramp up to a level which would trigger a wider investigation.
But honestly, it’s much more likely that it was simply the timing of the trades and the earnings reports multiple times over a couple years raised some eyebrows.
They have lists of all your phone contacts (if you uploaded them to Apple, Google or socials), your socials friends/followers, the people you call and text (via cell service providers)... These all get shared interagency. It's not like the SEC is collecting it themselves.
However, I'm not sure they do have that information. I would speculate that the number of people who make large option bets before earnings correctly on the same stock over multiple quarters should be zero and if it is very small, it is worth investigating. If they see that a subset of traders is 3 people with Korean names, that would immediately suggest that something is wrong...