SEC looses insider trading computer hacking case 2312

  • This is a case about a hacker who stole sensitive pre-announcement information from a company with weak security controls. The hacker invested on the likelihood that the stock prices would tumble and made close to USD300,000 in the process. The courts ruled in favor of the hacker allowing him to keep the money and since he’s in the Ukraine he probably won’t be proscecuted.
    I feel the judge made an error, in evaluating the case. Most likely the ruling was based on the wording, rather than the spirit of the law. Whether sensitive stock valuation information is shared or stolen in an unauthorized manner – it still violates laws applicable for insider trading. The SEC should strengthen applicable wording to prevent re-occurrences in the future.
    SEC looses insider trading computer hacking case
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  • Dear Harry,
    This is a really important case. As I have read all the details of the case, I have to say that:

    1. The securities law used to bring insider trading charges is not Sarbanes-Oxley, but Section 10(b) of the 1934 Securities and Exchange Act . SOX is an amendment of this Act, but unfortunately SOX did not amend all sections…
    2. The securities laws define insiders as those with a fiduciary role with a company. A hacker and his ‘friends’ have not such function, so the laws cannot be used to seize the assets.
    3. The securities laws talk about ‘a deceptive device or contrivance’ and it is really difficult to prove that there is deception involved in simple theft.
    4. I agree that this law should be amended, because there is an interesting oxymoron:
      If you acquire ‘inside information’ legally, it is illegal to trade.
      If you acquire ‘inside information’ illegally, it is legal to trade…
      US Congress should amend this law.
    5. Yes, there are criminal charges for computer hacking, but there was no likelihood to arrest Dorozhko and the court perhaps thought that the case did not worth the trouble.
    6. The European SOX and the directives of the EU give a different interpretation - Any gaining of inside information by criminal activity is a violation of insider trading laws. This is a recent amendment of the EU laws.

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