Today on Compliance Week, columnist John Stark wrote about what he calls "outsider trading" -- the "next wave for both hackers and securities swindlers." Outsider trading, Stark explains, is when an insider trader obtains valuable inside information through "virtual" tactics (i.e., hacking) and then engages in securities trades to profit from that information.
Right on cue, the DOJ and SEC both announced high-profile cases today against a large group of hackers and traders who carried out an outrageously brazen scheme. According to the DOJ, over a five year period going back to February 2015, five defendants engaged in an international computer hacking and trading scheme in which they hacked into the computer networks of Marketwired, PR Newswire Association, and Business Wire. The defendants allegedly stole more than 150,000 confidential press releases from these newswires' networks and executed trades based on this stolen information that generated more than $30 million in illegal profits.
In its own civil case, the SEC alleged that the hackers worked with a network of other traders that increased the amount of the unlawful profits to over $100 million.
Stark, who is president of John Reed Stark Consulting, confirmed to me today that today's case falls squarely into that "next wave" of cybersecurity/insider trading cases that he calls "outsider trading" -- a scheme that he believes could "dramatically affect the integrity of the global financial marketplace" if it is allowed to swell.
Craig A. Newman, chair of the Privacy and Data Security practice at Patterson Belknap Webb & Tyler LLP, agrees that this type of scheme is a new dimension and a "teachable moment" in cybercrime. Newman says that
We’ve seen an evolution in cybercrime from hacking retailers to steal credit card information, to outright attacks on government databases to steal intelligence information. Now, the line has been crossed into insider trading, and the alleged use of non-public, material information to game the financial markets. It's becoming much more about stealing competitive business information and at any cost and by any means.