
Nine Charged in Insider Trading Case Tied to Hackers - jackgavigan
http://www.nytimes.com/2015/08/12/business/dealbook/insider-trading-sec-hacking-case.html
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tptacek
Two more great links:

The, like, inimitable Matt Levine (I know, right?):

[http://www.bloombergview.com/articles/2015-08-11/why-not-
ins...](http://www.bloombergview.com/articles/2015-08-11/why-not-insider-
trade-on-every-company-)

The SEC complaint, which is chock full o' details:

[http://www.nytimes.com/interactive/2015/08/11/business/dealb...](http://www.nytimes.com/interactive/2015/08/11/business/dealbook/document-
complaint-from-sec-in-hacker-insider-trading-case.html)

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dublinben
Is this really insider trading, if none of the alleged perpetrators were
insiders, nor was there anyone breaching a duty to protect the information. It
seems like they'll have a pretty strong defense on this point.

~~~
RockyMcNuts
Well, I'm not a lawyer but sounds kind of illegal to hack companies to acquire
non-public material information and profit from it.

If it's legal, sounds like a promising startup for YC, smart hackers changing
the world, they should apply to the next cycle!

~~~
andrewchambers
Of course the hacks are illegal, he was asking whether using the data should
be classified as insider trading.

~~~
RockyMcNuts
'Of course hacks are illegal', but paying someone to hack and profit from the
inside information is OK?

[http://www.bloomberg.com/news/articles/2015-08-11/hackers-10...](http://www.bloomberg.com/news/articles/2015-08-11/hackers-100-million-
insider-trading-shop-sold-data-on-demand)

'Insider trading' is trading on material nonpublic information that was
inappropriately acquired from an 'insider'.

There are situations that are gray areas but this does not appear to be one of
them.

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chollida1
The worst part about this is that I've heard they wouldn't have been captured
if they didn't get greedy and increase the size of their trades and continue
to reuse the same trading accounts.

Allegedly they were hacking into news services and reading news before it was
publicly released, which means their investing time frame was measured in
hours and minutes.

This makes it much easier for the SEC to find this type of behavior as these
types of trades, especially in the options markets stand out, when done at
large sizes.

The SEC takes alot of grief, some well earned, but you should assume that when
a stock moves, they'll run an automated scan of every trade that profited from
that in the days/hours leading up to that move and over time they'll cross
reference those trades to watch for accounts that continue to do this over
time when they have reason to suspect illegal activity.

Think of it like athletes blood samples being held for years after
competition. They won't test all the samples held but they have the data there
to look back on if they find a reason to.

~~~
ConfuciusSay
If these trades were being done by DB or Citadel, there'd be a slap on the
wrist. But if you're a rogue trader, or god forbid a lone 30 year old in your
parents basement, off to the big house for you.

If anything this just shows that the SEC has all the tools in the world to
stop illegal activity, yet it does nothing, so long as you're part of the Wall
street establishment.

~~~
mark212
really? so Steve Cohen isn't part of the Wall Street establishment? How about
Raj Rajaratnam and Rajat Gupta -- the last a board member at Goldman. Just
started his two year stretch in the federal pen.

~~~
PhantomGremlin
I agree with you in general. There have been successful prosecutions which
have resulted in significant jail time. Although the Supremes have yet to
weigh in on the latest batch[1], and right now it's not looking good for the
Feds.

But I disagree with you about Stevie Cohen. Quite a few of his underlings took
a fall, but he personally emerged scot free. He simply wrote a very big check
and made his problems go away. He's busy managing his remaining billions in a
"family office".

[1] [http://www.nytimes.com/2015/07/31/business/dealbook/us-
asks-...](http://www.nytimes.com/2015/07/31/business/dealbook/us-asks-supreme-
court-to-review-insider-trading-ruling.html)

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lectrick
You can theoretically succeed at this as long as you stay within a statistical
random probability and can maintain absolute secrecy.

This is essentially what Alan Turing realized he had to do with the
information decrypted from Enigma... He had to let enough bad things happen so
that German analysts wouldn't see a statistical red flag, signifying an
information leak, but he had to divulge enough to steer the war to victory for
the Allies.

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nosuchthing
Might not be the same group, but never heard whatever happened to the "faster
than light speed" trade (OP article didn't mention this incident):
[http://www.washingtonpost.com/news/wonkblog/wp/2013/09/24/tr...](http://www.washingtonpost.com/news/wonkblog/wp/2013/09/24/traders-
may-have-gotten-last-weeks-fed-news-7-milliseconds-early/)

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dev1n
I still don't understand the difference between insider trading and HFT firms
that get data before other firms.

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tptacek
Which particular instance of HFT firms getting early data are you referring
to? Different people might be talking about wildly different things when they
say that.

The general answer is going to be: the HFT's early access doesn't implicate a
principal/agent problem. The people generating the data HFTs act on don't have
a fiduciary duty to the shareholders of the companies they report on.

~~~
dev1n
Ah okay this makes sense. I didn't think about the problem as a
principal/agent problem, which is how insider trading is framed. Got it. Thank
you.

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natch
I wonder, how many cases of insider trading by NSA employees and their
extended families have been prosecuted much less investigated?

~~~
nerfhammer
Why would the NSA monitor everyone in the world but not its employees'
activities on their internal databases? Security within the NSA would have to
be pretty terrible if employees were running their own hedge funds on the
NSA's data without the NSA noticing. That said if it did somehow happen they
might be prosecuted against intelligence laws rather than financial law so
they wouldn't have to reveal aspects of their internal data into public
evidence in an insider trading trial.

~~~
stephengillie
> _Security within the NSA would have to be pretty terrible if employees were
> running their own hedge funds on the NSA 's data without the NSA noticing._

I believe this is one of the points that Edward Snowden was trying to make. He
himself could have had a hedge fund, and he could have used private
information he gained in his NSA contracting before that information became
public knowledge.

Hell, his coworkers were getting in minor trouble for stalking their exes.

~~~
influx
Be real, Top Secret clearance checks routinely look at finances, and employees
are told to report colleagues purchases that seem out of place. Not
necessarily because they are running a hedge fund, but more likely are
receiving money from the "KGB" to steal secrets.

