By Khanya Swana
The Justice Department filed indictments in Brooklyn and in New Jersey charging defendants with securities fraud.
Two defendants operating out of Ukraine where accused of breaking into servers of three companies – Business Wire, PR Newswire and Marketwired to obtain news releases about publicity traded company before they were issued. They provided the information to the other defendants who traded on it in exchange for a cut of the trading profits.
The scope of the securities laws, relying on the Federal Wire Fraud Statute shows that it carried a maximum penalty of twenty years. The difficulty if this was that Wire Fraud required only proof that the defendants obtained valuable property by means of fraud or misrepresentation.
Securities Fraud in violation of Section 10 (b) of the Securities Exchange Act requires proving a manipulative device was used in connection with the purchase or sale of a security. This means that insider trading fits into that provision because confidential information is used to tip others.
Stealing confidential information to trade it before publication is nothing new, although the cases now seem unusual because they involved getting advanced WORD before print editions were delivered to subscribers.
The hacking is not at all that different from past cases, except that these defendants did not owe a duty of trust and confidence to the news services or companies whose information they stole eg. (the JSE), unlike the reporter and the editor.
The defendants have even accused of violating the securities laws by trading on stolen information in advance be for its release.
The appeals court essentially found the following equation sufficient: stealing information+trading=securities fraud.
It is obvious that the people who encourage this securities fraud are “some” of the shareholders, just as the people who encourage piracy are the people who actually buy CD’s of artists from the people at a cheaper price. It creates an incentive for “some” shareholders to make more money.