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Hacker Could Keep Money from Insider Trading

Posted by Soulskill on from the finders-keepers dept.

Reservoir Hill brings us a New York Times story about a man who will be allowed to keep the money he gained through hacking into a computer system in order to gain early access to a company's earnings statement. From the Times: "On Oct. 17, 2007, someone hacked into a computer system that had information on an earnings announcement to be made by IMS Health a few hours later. Minutes after the breach of computer security, Mr. Dorozhko invested $41,671 in put options that would expire worthless three days later unless IMS shares plunged before that. The next morning the share price did plunge, and Mr. Dorozhko made his money by selling the puts. 'Dorozhko's alleged "stealing and trading" or "hacking and trading" does not amount to a violation' of securities laws, Judge Naomi Reice Buchwald of United States District Court ruled last month. Although he may have broken laws by stealing the information, the judge concluded, 'Dorozhko did not breach any fiduciary or similar duty "in connection with" the purchase or sale of a security.' She ordered the S.E.C. to let him have his profits."

3 of 152 comments (clear)

  1. That opens the doors by Alain+Williams · · Score: 5, Insightful
    Suppose I work for large corporate X, I know that the shares will move, so I tell my mate how to crack a machine to find something to support that view, he does so & invests appropriately and if caught just says he hacked a machine.

    If he were to say that I told him, them we would have the book thrown at us ... but if he cracks a machine then all is OK

    Stupid!

    1. Re:That opens the doors by debrain · · Score: 5, Insightful

      If he were to say that I told him, them we would have the book thrown at us ... but if he cracks a machine then all is OK Negatory - the ruling is that if you do not have insider information and hack into it, you are not in breach of any fiduciary duty, and therefore not subject to the penalties that insider traders are (whom are an especially heinous group of people, and whom we particularly want to deter by excess punishment).

      If a mate hacks a machine based on insider information, both the informant and the hacker are breaching a fiduciary duty. They're more likely to get useful information, and more likely to cause serious harm to the financial system. In my opinion, we want to deter hacking based on insider information more than random hacking.

      That's not to say the fellow should get to keep the money. That will only serve to encourage random hacking pointedly in the absence of (traceable) insider information. However, trading on insider information should result in more significant consequences.
    2. Re:That opens the doors by Anonymous Coward · · Score: 5, Insightful

      Though the cracker may be able to keep his profits, it may not be for long, depending on what other laws apply. A law may apply that prevents profiting as a result of criminal activity. He is still likely to be charged and found guilty of crimes that won't allow him to keep the money.