August 11th, 2015
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: firstname.lastname@example.org
Today’s big hacker insider trading charges are utterly amazing. Here are the news release and criminal complaint from New Jersey federal prosecutors, the Brooklyn federal criminal complaint, and the SEC news release and civil complaint. The gist is that some guys in Ukraine allegedly hacked into the servers of the big newswire companies (Marketwired, PR Newswire and Business Wire) and stole press releases, and then gave them to some other people to trade on. That right there: That is the way to do it! Why limit yourself to the inside information of one company, or even to the clients of one bank or law firm? If you can see the newswires before they’re published, you have all the inside information. “The defendants allegedly stole approximately 150,000 confidential press releases from the servers of the newswire companies,” say prosecutors. “These hackers and traders are charged with reaping more than $100 million in illicit profits,” says the SEC. One hundred fifty thousand press releases! One hundred million dollars! Imagine how long it would take to get that much inside information on the golf course.
But that’s just, like, good insider trading. Don’t get me wrong, I appreciate good insider trading, and this was some very good insider trading. But what I really love about this case is how it re-enchants the financial world. There I was, thinking that the financial system more or less made sense, that it could be explained by the voluntary acts of rational actors, that most market participants were basically honest hardworking people and their algorithms, and that criminality was a relatively minor exception. Like everyone, I was aware of various conspiracy theories about shadowy forces controlling the market, but I did not give them much credence. Occam and Hayek and the rest all provided reasons to doubt a massive overarching conspiracy.
And then today I learned that a shadowy foreign syndicate had access to basically every piece of corporate news before it was made public! (Allegedly! But, you know, according to the U.S. government.) And that it ran, like, a parallel criminal financial system with it. The hackers didn’t trade. Instead, they allegedly sold the information to traders, in exchange for a cut of the profits. They ran this like a business. They provided customer support: The hackers allegedly set up servers for their customers to access their information, and “created a video tutorial on how to access and use one of the servers they used to share the Stolen Releases.” They responded to customer feedback: The traders would send a “shopping list of desired upcoming press releases for publicly traded companies,” and the hackers would then go get those press releases. They got paid through wire transfers to offshore bank accounts of shell companies. Their fees were performance-based, and the performance was audited:
At times, the hacker defendants received a flat fee and, at other times, a percentage of the profits obtained from trading on the material nonpublic information stolen by the hacker defendants. The hacker defendants ensured they were receiving the agreed-upon percentage by monitoring the trader defendants’ trading, either through reports from the traders or direct access to the accounts used to make unlawful trades.