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Hacker Could Keep Money from Insider Trading

Soulskill posted more than 6 years ago | from the finders-keepers dept.

The Courts 152

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."

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Fair enough (4, Interesting)

biocute (936687) | more than 6 years ago | (#22452712)

It is stock market after all, nobody can guarantee the outcome even with insider news. What if the company suddenly decided to delay the announcement?

Troll? (4, Insightful)

an.echte.trilingue (1063180) | more than 6 years ago | (#22452878)

I have some karma to burn, so I am going to go off topic / troll here.

Will whoever modded the parent a troll please share his or her logic? I will admit that it is not brilliant, so offtopic, maybe, overrated, maybe, but troll? That's just an insult. Personally, I am happy to see a first post that is not an AC "fp bitches!" and I think the effort should be rewarded.

I meta moderate about every other day, and I almost always rate the troll mods as "unfair". I don't know if this has any effect, but just so you know.

Re:Troll? (1, Redundant)

mrxak (727974) | more than 6 years ago | (#22452942)

I agree. Hopefully somebody will come along and mod it underrated. It's certainly not a troll, and I would not even call it offtopic.

Re:Troll? (4, Insightful)

Main Gauche (881147) | more than 6 years ago | (#22454126)

"Will whoever modded the parent a troll please share his or her logic?"

I did not/would not have modded him troll, but I can guess the simple logic at doing so.

He appears to have the all-too-common opinion that there is no such thing as a profitable but risky opportunity. I teach intro probability and decision making (among other things), and you would not believe how many people reason that, if there is uncertainty, it's "impossible" to make a good decision. The reasoning is "Well, since something bad might happen, you might end up regretting your decision." Ugh. Those are people for whom "probability", "expected value", etc., will forever remain magical, abstract terms with no application in the real world.

Before my rant goes too far off topic, back to the GP, who said:

"It is stock market after all, nobody can guarantee the outcome even with insider news."

So insider information should be ok?! After all, "there are no guarantees"?! Nonsense! And I can imagine there being at least a few mods who would consider it so obvious that this is nonsense, that they modded him troll, thinking there could be no other excuse.

Now I'm the one wondering how he got so many insightful mods!

Re:Troll? (3, Informative)

Miseph (979059) | more than 6 years ago | (#22454804)

See, I read it a different way altogether: the hacker was neither an employee nor a friend of an employee at the firm, and therefore [i]could not have committed insider trading[/i]. Keep in mind that the decision in question applied only to the SEC's attempt to confiscate his money for that particular crime, which he was technically unable to commit, but not to any other financial or computer crimes he may have committed. The FBI and Secret service will almost certainly find a way to confiscate everything he owns. It also does nothing to shield him from the company suing for damages related to the security breech, although they only get a crack after the agencies mentioned earlier, so there's a good chance they couldn't get anything even if they tried.

The point being that, while he clearly had solid and profitable information, he obtained it in a way that, theoretically, any outsider could have and that did not fit the definition of insider trading as currently used. He also couldn't have known if, perhaps, he had accidentally found an inaccurate draft report or if the press conference wherein the report was to be released would be delayed.

Re:Fair enough (1)

utopianfiat (774016) | more than 6 years ago | (#22453940)

I think a bigger question is:
How can every single last one of us cash the fuck in on this incredible opportunity to make millions off any and every company?

Re:Fair enough (1)

TheVoice900 (467327) | more than 6 years ago | (#22454508)

If every single one of us was cashing in on the same opportunity, then nobody would have the advantage. As a result, the profit to be made would eventually average to 0.

Re:Fair enough (1)

Danimoth (852665) | more than 6 years ago | (#22454106)

f the announcement had been delayed, then he would have waited a few more days, the price would have then plunged and he would still make money. This seems like it fits the definition of Insider Trading to me. He was in possession of "Material Non-public Information" He had information that was not avalible to the general public, and his trades should therefor be considered insider trading.

Re:Fair enough (1)

yndrd1984 (730475) | more than 6 years ago | (#22455224)

The problem is that trading on "Material Non-public Information" isn't a crime. You have to both be an insider at the company and base your trades on non-public information. The court did exactly what it's supposed to do - follow the law as it is written.

If you want the law changed, write your representatives.

Re:Fair enough (1, Insightful)

Anonymous Coward | more than 6 years ago | (#22454322)

The aim of cheating isn't always to have a 100% sure thing but to have an edge. Casinos don't make their money by having a 100% sure thing either, they do it by having an edge. But how would you like it if, while playing poker, your opponent could see the next 10 cards the dealer is about to hand out. Sure, he can't guarantee whether you want 0 cards or 3 or whether the dealer will suddenly decide to shuffle again, either one making it less than a sure thing, but he has an edge and an illegal one by the rules. At least its clear where a casino stands in the game. Never with a cheating player.

If this was a medium-sized company, he may have bought up a large % of puts for the day. His presence for puts played with market_supply/demand and made it seem more lucrative for others to join in -- only for them to be scammed. Yes, the others made their choice but they expected a fair game.

That opens the doors (5, Insightful)

Alain Williams (2972) | more than 6 years ago | (#22452714)

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!

Re:That opens the doors (1)

Z00L00K (682162) | more than 6 years ago | (#22452786)

Oh - that's the humor of the whole story - if the system used weren't secure enough then not only he could have gained from this transaction but also a lot of others that didn't float up above the average noise level.

Anyway - see this as a lesson to either release your information fast enough to avoid anyone to take advantage or to improve the security of your data. Preferably both.

The catch with inside affairs is that at some point "knowledge" becomes "rumor" and it couldn't be certain that the data he gained access was the real deal or not. Too many junk mails about stock inflation/deflation are around to allow for anything to be certain.

Re:That opens the doors (5, Insightful)

debrain (29228) | more than 6 years ago | (#22452852)

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.

Re:That opens the doors (1)

john82 (68332) | more than 6 years ago | (#22452990)

I'm still trying to understand how the court arrived at the determination that this is not insider trading. The hacker achieved access to information only available to a select few within the company. Possibly not known to all employees, but certainly not the general public. With that information he then abused the stock market. It does not matter to me that this individual is not an employee, he had benefit of inside information. That should constitute insider trading.

Are there any lawyers in the audience today? How can this decision be correct?

Re:That opens the doors (1)

wilx (1065624) | more than 6 years ago | (#22453114)

insider -noun 1. a person who is a member of a group, organization, society, etc. 2. a person belonging to a limited circle of persons who understand the actual facts in a situation or share private knowledge: Insiders knew that the president would veto the bill. 3. a person who has some special advantage or influence. 4. a person in possession of corporate information not generally available to the public, as a director, an accountant, or other officer or employee of a corporation.
As far as I can tell he was not insider.

Re:That opens the doors (1)

rockout (1039072) | more than 6 years ago | (#22453558)

I dunno, seems like definition #3 is fairly wide open for interpretation. I'd put him in that category and take his profits away just to deter this type of behavior in the future.

Social hacking and other means (1)

TheLink (130905) | more than 6 years ago | (#22453732)

The problem with too loose a definition is then lots of people end up being considered insiders...

For example, say X does Y classes for the wives of big bosses, and X might be able to tell whether the various companies are doing well or not just from observing the wives ;).

Even if the husbands aren't telling the wives that their companies just had record profits, the new cars/vacation/etc they bought for their wives might reveal stuff.

Sure it's not 100%, but apparently it worked well enough for someone I know ;).

Re:That opens the doors (1)

Fjandr (66656) | more than 6 years ago | (#22454276)

Since he was not an oficer, director, or owner of 10% or more of the company stock, and did not receive information from a person fitting one of those descriptions, it was not an insider trade.

Re:That opens the doors (1)

debrain (29228) | more than 6 years ago | (#22455274)

It does not matter to me that this individual is not an employee, he had benefit of inside information. That should constitute insider trading.
An "insider" is created when someone is entrusted with a power to access information (i.e. by being appointed a director, etc.) and that person abuses that trust for their personal benefit.

In this case, the thief was not entrusted with any power to access information, but rather exploited a technological problem in order to access information and used that information for personal benefit. He didn't breach anyone's trust. He's just stealing information.

Both are wrong, but they are different crimes. The difference is semantics.

Re:That opens the doors (0)

Anonymous Coward | more than 6 years ago | (#22454102)

In the long run this will help improve security :)

Re:That opens the doors (1)

Thrip (994947) | more than 6 years ago | (#22452912)

If his relationship to you were known, I imagine you'd be as likely to get busted as if you'd just handed him the information. They're not going to take your friend's word for it that he independently cracked the computer system where his buddy works, just in time to make a huge profit. And they'll probably cut him a deal to rat you out, because he's still going down for cracking the machine. But hey, give it a shot and let us know how it works out for you, when they allow you to use a computer again.

Re:That opens the doors (5, Insightful)

Anonymous Coward | more than 6 years ago | (#22452926)

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.

Re:That opens the doors (1)

Eternauta3k (680157) | more than 6 years ago | (#22455276)

I don't know, will they take his money from a legal activity (this investment) because of another illegal activity (the hacking)?

Re:That opens the doors (4, Interesting)

ucblockhead (63650) | more than 6 years ago | (#22453706)

If you told him to crack the machine, then *that* is insider knowledge.

Re:That opens the doors (1)

adamchou (993073) | more than 6 years ago | (#22454314)

But you have to remember, even if you legally get your hands on some insider information, you would still need to make the trade. The SEC is going to be reviewing suspicious trades which means that you will inevitably get caught. Once you get caught for that, you might get off for insider trading but that doesn't mean you're going to get off for hacking.

A Very Wise Man Once Said (1, Funny)

Anonymous Coward | more than 6 years ago | (#22452722)

"I am invincible!" -Boris Grishenko

Seems reasonable to me (4, Informative)

Anonymous Brave Guy (457657) | more than 6 years ago | (#22452726)

The judge's ruling seems pretty reasonable to me. What the hacker did was not insider trading, because he was not an insider, so the various regulations governming insider trading should have been found not to apply here.

Of course, as the judge also noted, that doesn't mean he broke any other laws. A fine equal to the profit he made on the options plus the original cost of buying them in the first place plus the cost of security work to ensure the systems are no longer vulnerable, combined with a jail sentence equal to what would have been handed down to an insider who made the same deal, seem like a fair punishment for the hacking to me.

Re:Seems reasonable to me (1)

Anonymous Brave Guy (457657) | more than 6 years ago | (#22452734)

Of course, as the judge also noted, that doesn't mean he broke any other laws.

Damn, hit Submit in mid-edit. Obviously I meant "...that doesn't mean he didn't break any other laws". Sorry.

Re:Seems reasonable to me (3, Interesting)

vertinox (846076) | more than 6 years ago | (#22452830)

The judge's ruling seems pretty reasonable to me. What the hacker did was not insider trading, because he was not an insider, so the various regulations governming insider trading should have been found not to apply here.

I guess a good analogy would if you broke into someones home to read their wallstreet journal and then used their phone to make a call to your broker to make a trade.

Calling a broker to make the trade isn't the sticking point, but rather you broke into someone's home.

Re:Seems reasonable to me (1)

IndieKid (1061106) | more than 6 years ago | (#22454066)

I can't believe you passed up the opportunity to use "someone's car" instead of "someone's home" in that analogy! I actually think there's a bit more to this though, as using the information gained by breaking into the computer system to make a profit probably amounts to a crime as well as the actual act of hacking.

Of course, I don't know if there's a law related to profiting from a crime where this took place.

Re:Seems reasonable to me (2, Insightful)

rjhubs (929158) | more than 6 years ago | (#22452866)

I disagree. This ruling is very confusing to me. He traded with insider information which makes him guilty under a clause in US law called the Misappropriation theory [wikipedia.org]

anyone who misappropriates (steals) information from their employer and trades on that information in any stock (not just the employer's stock) is guilty of insider trading
Can anyone explain why this wasn't the case?

Re:Seems reasonable to me (4, Insightful)

PeterBrett (780946) | more than 6 years ago | (#22452900)

I disagree. This ruling is very confusing to me. He traded with insider information which makes him guilty under a clause in US law called the Misappropriation theory [wikipedia.org]

anyone who misappropriates (steals) information from their employer and trades on that information in any stock (not just the employer's stock) is guilty of insider trading
Can anyone explain why this wasn't the case?

You said it yourself, as highlighted above.

Re:Seems reasonable to me (1)

KDR_11k (778916) | more than 6 years ago | (#22452980)

So if he asked an employee and got data from there he wouldn't be in breach either?

Re:Seems reasonable to me (1)

PeterBrett (780946) | more than 6 years ago | (#22452994)

So if he asked an employee and got data from there he wouldn't be in breach either?

Not sure... go ask a lawyer.

Re:Seems reasonable to me (4, Insightful)

CajunArson (465943) | more than 6 years ago | (#22453264)

If he got the information from the employee or from any other fiduciary of the company, that would be considered insider-trading under the "tipper" - "tippee" theory. The tipper has to be some insider (usually an employee) who gives information to the tippee (an outsider who would normally not be subject to insider trading rules). The main requirements IIRC are that the tippee actually has to know that the information is insider (non-publicly known) info, and know that the tipper is breaching his fiduciary duty in disclosing the information. This is a form of classical insider trading, as opposed to misappropriation theory that the Gov. was probably trying to pin on the defendant in this case.

Re:Seems reasonable to me (1)

KDR_11k (778916) | more than 6 years ago | (#22453498)

And if there is no specific tipper, e.g. looking through a load of paper instead of talking to someone directly it would be no problem? Seems to be the case if a computer system doesn't count as a tip...

Re:Seems reasonable to me (0)

Anonymous Coward | more than 6 years ago | (#22452920)

Oh I dunno, maybe because he wasnt an employee?

Re:Seems reasonable to me (1)

mrxak (727974) | more than 6 years ago | (#22452928)

I think the key word there is employer. It doesn't sound like the guy who did the trading worked for the company.

Re:Seems reasonable to me (1)

Skater (41976) | more than 6 years ago | (#22453088)

Sounds like it's simply a loophole in the law that no one thought of before.

Re:Seems reasonable to me (1)

Wooky_linuxer (685371) | more than 6 years ago | (#22453122)

You gave the answer yourself; he wasn't an employee. He wasn't "inside". So he couldn't have inside information. The ruling is right, in my eyes, however absurd that might seem at first.

Re:Seems reasonable to me (0)

mshih (1018706) | more than 6 years ago | (#22453302)

The judge's ruling is just idiotic. The insider trading rule doesn't just apply to employee's of a corporation. The rule is there to protect against illegal gains from stock trades from information that is not public. This case does fall into those circumstances. Even a janitor working for the building owner who overhears a building tenant's company information can be charged with insider trading. Insider trading rules are very much a part of the financial industry. That's why Martha Stewart's claim that she didn't know it was insider trading was total crap. She used to work in the industry and knew the rules. In this case, the SEC needs to prove the guy did steal the insider information.

Re:Seems reasonable to me (1)

Sen.NullProcPntr (855073) | more than 6 years ago | (#22453392)

In this case, the SEC needs to prove the guy did steal the insider information.
No, that is not in question, from TFA;

"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.
This is more of a case of rigid interpretation of the law; the SEC rules don't explicitly say that you can't steal and use insider information so it's not illegal.

Also this guy lives in the Ukraine so this is probably the only punishment [blocking receipt of the money] that the US could possibly give him.

Re:Seems reasonable to me (1)

Razed By TV (730353) | more than 6 years ago | (#22453568)

A fine equal to the profit ... plus the cost of security work to ensure the systems are no longer vulnerable ...
Begin bad car analogy. If I break into your car, and get caught, do I have to pay for you to have your locks replaced with higher security locks, a higher security car alarm, more durable windows, and whatever else could conceivably prevent your car from being broken into?

Somehow, this guy broke into the system, which evidently wasn't secure enough as it was. The burden of securing the system falls on the owners of the system. Is there evidence of him breaking into the system? It sounds like it, but the article doesn't state what exactly it is. Is there evidence of a trojan or other back door vulnerability that he installed on the system? It doesn't sound like it from the article, but then again, it isn't ruled out.

I can see fining him for security costs if there was evidence that lead them to believe that their system was now more vulnerable directly because of his actions, but if there is no evidence of that, why should he be fined in order to increase their security, which is their responsibility to begin with?

Re:Seems reasonable to me (1)

Anonymous Brave Guy (457657) | more than 6 years ago | (#22453622)

Sorry, I agree that my previous statement does sound overly generic now that I read it again. I didn't mean that the hacker should have to pay for completely new, higher-spec systems to improve security more generally; clearly that is the company's responsibility and should have been done anyway. I just mean the costs incurred as a direct result of this particular breach: after any successful attack, the business is going to incur costs checking out their IT systems to make sure no backdoors have been planted, changing any passwords and such that might have been compromised and notifying relevant staff, and the like. I don't think it's unreasonable to charge the person who caused the mess for that work.

Shortly after that (2, Funny)

GammaKitsune (826576) | more than 6 years ago | (#22452730)

Of course he was welcome, they told him, welcome to the money. And he was going to need it. Because- still smiling- they were going to make sure he never worked again.

Re:Shortly after that (2, Insightful)

pipatron (966506) | more than 6 years ago | (#22452784)

I got it! I got it! Neuromancer, William Gibson, 1984!

Where's my prize?

Re:Shortly after that (1)

roguetrick (1147853) | more than 6 years ago | (#22452816)

I knew it was cyberpunk and guessed it was Gibson, but I wasn't able to land it that well. Well played if you did it without a search.

Re:Shortly after that (1)

StarfishOne (756076) | more than 6 years ago | (#22452886)

They hacked the Gibson. ^_^ (obligatory 'Hackers' movie reference)

Unlikely (1)

mfh (56) | more than 6 years ago | (#22452826)

Most people who are caught being sneaky hackers get sixfigure jobs as analysts. In fact one of the running jokes in security is that you have to do time to break the sixfig cap! Mitnick.

Well slow down here (5, Interesting)

Sycraft-fu (314770) | more than 6 years ago | (#22452732)

He *may* get to keep it. Basically what has happened is that the courts have ruled that the SEC can't take away his money, because what he did isn't insider trading. Remember that the SEC just regulates stock trading. So since this isn't insider trading, they don't have the authority to seize his funds.

However, he still could lose them. If the government tries and convicts him of a crime for actually hacking in to the system, then the money can be taken. You aren't allowed to profit from crimes, and as such the government can seize assets you gained through crime. So, if they manage to convict him of breaking in to the systems, the money he made in the trades will be fair game since it was a result of the break in.

However at this time he's not been charged, so that isn't on the table yet. However that doesn't mean this ruling says you get to keep your money no matter what in a case like this. It just means that it doesn't quality as insider trading so the SEC can't take it.

A similar case would be something like robbing a bank and then using the money to make more in the stock market. Even though the money was stolen, it isn't a violation of securities laws, so the SEC couldn't take it from you. However if you get convicted of robbery, the court could then seize the profits you got from that crime.

Re:Well slow down here (1)

mrxak (727974) | more than 6 years ago | (#22452834)

I imagine his legal fees will cut into the profits as well.

Re:Well slow down here (1)

mabhatter654 (561290) | more than 6 years ago | (#22452858)

exactly, although if they had a case against him for hacking, it would seem they would have used that already as a slam-dunk case. I think you have a situation where they "know" you stole money from the bank, but didn't have proper guards, or even accounting to PROVE you stole the money within a reasonable time... just that it came up missing and you happen to have it. If that happened at a bank the managers would be fried... in a company SOX is supposed to ensure you implement these policies for computer security... obviously they didn't do that or they'd have the evidence to convict him.. merely having the info isn't enough if they don't have logs, ect to prove when and where he hacked from.

Re:Well slow down here (2, Interesting)

Jah-Wren Ryel (80510) | more than 6 years ago | (#22452892)

exactly, although if they had a case against him for hacking, it would seem they would have used that already as a slam-dunk case.
I would really like to hear the details of "hack" - sounds like it might have been one of those where he just twiddled the URL based on the format of already "public" URLs. IMO, that should not count as illegal hacking, its so trivial, obvious and common practice.

Re:Well slow down here (0)

Anonymous Coward | more than 6 years ago | (#22453496)

I don't see how that makes any difference. It's well known that the locks on my house are easy to bypass. I even saw them doing it on the news the other day (not my house, but the same locks). Yes, analogies suck.

Anyway, if he knew he was accessing information without authorization, I don't care how easy the hack was. I have no idea what this guy was thinking. He was pretty clueless about the investment, because it was 100% sure to cause an investigation.

Re:Well slow down here (0)

Anonymous Coward | more than 6 years ago | (#22453616)

sounds like it might have been one of those where he just twiddled the URL based on the format of already "public" URLs.

That is not hacking at all. That is just information made publicly available without an index.

Re:Well slow down here (0)

Anonymous Coward | more than 6 years ago | (#22453936)

So I can twiddle door knobs of PUBLICALLY facing doors? woohoo

Re:Well slow down here (1)

KevinIsOwn (618900) | more than 6 years ago | (#22454412)

I'm sorry, but the equivalent is not like robbing a bank and investing the money. The equivalent is an insider placing options trades on information learned before the public knew. The only difference in this case between the CEO or CFO of a company making the options trades and Oleksandr Dorozhko is that he gained this insider information illegally.

According to TFA, the legal question raised is whether or not he "deceived" the computer when he hacked into it and downloaded the quarterly report. The spirit of the law has clearly been violated, but it appears some judges seem keen on giving this guy his illegally gained money simply due to the fact that one cannot deceive a computer, only a human. If this is truly the case, then Congress needs to reform this law ASAP, or every eastern European, Russian, and Chinese hacker is going to target quarterly reports and make a killing.

Re:Well slow down here (1)

deblau (68023) | more than 6 years ago | (#22454568)

So, if they manage to convict him of breaking in to the systems, the money he made in the trades will be fair game since it was a result of the break in.
Not exactly. The money he made in the trades was a result of his making an independent act based on information he learned during the break in. There's no direct cause and effect there, since there's an intervening act of free will (he made a stock trade). This is entirely different from a bank robbery, where the money is stolen without an intervening act.

You could extend forfeiture to "anything he learned while digging around in there", but then how do you prove that in court?

  • Suppose someone else who didn't break into the computer system made the same 3-day put by sheer dumb luck? Is their profit forfeit?
  • Suppose someone else broke in, installed a botnet but didn't dig around for financial data, and made the same 3-day put? Is their profit forfeit?
  • Suppose someone made the 3-day put, THEN broke in after making the trade, etc.
In order to have a workable rule, you'd need to say something like: if someone
  1. Broke into a computer system having financial data
  2. Actually found financial data
  3. That couldn't be located from a public source
  4. Later made a financial transaction based on that data, and
  5. Profited from the financial transaction
Then the profits from the transaction (gains minus losses) are subject to forfeit. I haven't looked at the SEC laws, but I imagine they're worded similarly.

Re:Well slow down here (2, Insightful)

Anonymous Coward | more than 6 years ago | (#22454730)

Umm... except that he's UKRAINIAN. Did anyone read the whole article? The DoJ isn't pursuing him because they perceive it to be fairly difficult to extradite from ex-Soviet bloc nations, especially on a hacking charge. Russian & Ukrainian crackers are frequently ID's violating US electronic theft and data tampering laws (mostly because we make it so easy for them, but, I suspect also because they make so much money doing it), and have been notoriously hard to prosecute. So, good luck on that one.

I'm thinking the guy's hard day doesn't come when we haul him off to an American jail. Rather, it happens real soon, now that the Ukrainian mafia knows he has nearly $300 grand...

Use the right laws (1)

EsonLinji (723693) | more than 6 years ago | (#22452752)

While not insider trading, this person has presumably broken other laws. The government should have prosecuted him under the laws that covered his actions, and not the laws they would like to cover his actions. If those laws are insufficient they should try and fix the laws, not prosecute him for breaking laws he hasn't.

Re:Use the right laws (1)

mabhatter654 (561290) | more than 6 years ago | (#22452884)

I'd venture the company he stole info from didn't have proper security logs, didn't maintain them, etc. so they aren't presentable in court or they'd have thrown the book at him already. Like a bank that erased the security footage and let the cleaning crew polish away the fingerprints before counting the money to find it missing.... if the wronged party destroyed the evidence, however unknowingly, they just lost their own case.

why buy shares unless you know something ... (1, Interesting)

petes_PoV (912422) | more than 6 years ago | (#22452782)

... that others don't?

Seriously, all share trading works on the basis of one party thinking they know something that either makes a stock worth selling or worth buying. When they are right they make a profit and when wrong they make a loss.

If you don't have any privileged (either by insider or through your own analysis) information, you're effectively just making a bet - you might as well buy a lottery ticket.

Re:why buy shares unless you know something ... (1)

Shohat (959481) | more than 6 years ago | (#22452876)

You are wrong.
You do not have to be different or have different knowledge from others. Buying GOOG stock early or investing in stocks that pay good dividends are examples of decisions that are made based on public info- there is plenty of money that can be made using normal, publicly available information. Investing in penny stocks and day-trading are completely different issues of course.

Re:why buy shares unless you know something ... (2, Informative)

pla (258480) | more than 6 years ago | (#22452922)

why buy shares unless you know something ... that others don't?

Well, dividend-paying stocks give you a regular return - As long as you feel fairly confident that the company won't go under, you'll make a hell of a lot more than you would leaving the money in your savings account (and if you chose well and occasionally reallocate your portfolio, without requiring otherwise-unknown data, you can do a good bit better than a CD or even investment-grade bonds.



you're effectively just making a bet - you might as well buy a lottery ticket.

In many cases, you have it correct - With two (obvious) exceptions.

First, the market as a whole tends to go up or down for long periods at a time. If, in a bull market, you buy something reasonably big and safe (or better, ETFs covering the most bullish segments), your investment will tend to grow; If, in a recession, you short the same (and again, ETFs exist that will let you do that without the hassle and risk of actually holding a short position), you will make money, on average.

Second, unlike a lottery ticket, playing the market very rarely counts as an all-or-nothing bet. You may lose money on a given trade, but with some care (and the magic of trailing stops) you can limit your losses while allowing your gains to grow unbounded - Kinda like a $1 lottery ticket with a minimum payment of $0.95.

If not for those two facts, your 401k would also amount to nothing more than a lottery ticket - Though since July, some people might have started considering it just that. ;-)

Re:why buy shares unless you know something ... (1)

rfunches (800928) | more than 6 years ago | (#22453382)

If, in a recession, you short the same (and again, ETFs exist that will let you do that without the hassle and risk of actually holding a short position), you will make money, on average.

It's slightly OT but by mentioning the ability to "short" via ETFs, you should also point out to /. readers that these ETFs do not necessarily give you the equivalent of a short position, especially the "ultra-short" ETFs. For instance, SDS (Proshares Ultrashort S&P 500) gained 2.49% this past month versus a 1.69% loss in the S&P 500; SDS should "correspond to twice the inverse daily performance of the S&P 500" (finance.google.com). SH (Proshares Short S&P 500) gained 0.88% on Friday versus a 0.08% increase in the S&P 500, even though SH is supposed to equal the inverse daily performance of the S&P (finance.google.com). Short ETFs do not give true short performance.

Re:why buy shares unless you know something ... (1)

ClassMyAss (976281) | more than 6 years ago | (#22454258)

For instance, SDS (Proshares Ultrashort S&P 500) gained 2.49% this past month versus a 1.69% loss in the S&P 500; SDS should "correspond to twice the inverse daily performance of the S&P 500" (finance.google.com).

Watch out, though - "twice the inverse daily performance" does not translate to "twice the inverse monthly performance" due to the magic of compounding.
 
For example, suppose the S&P gained 10% one day, and lost 10% the next. That would make for a two-day loss of 1%. But the SDS would have lost 20% the first day and gained 20% the second day, making for a two day loss of 4%! So even though the S&P has gone down over two days, the inverse tracking ETF has also gone down! Interestingly enough, in that situation both the leveraged inverse and the leveraged normal ETFs would end up at the same price.
 
Lesson: know exactly what you're doing when you buy an ultra, because the risk profile is totally different from an unleveraged ETF. Don't expect it to match over more than a day or two.

Re:why buy shares unless you know something ... (1)

cfulmer (3166) | more than 6 years ago | (#22453080)

Stocks have historically earned an average annual return of somewhere around 9%. Lotteries, on average, have a return around negative 50%.

It's a risk/reward thing. You could put it in a savings account or a U.S. Government Bond with near-absolute safety (you will never lose anything) and get, say 3%. Or, you can boost your expected return over time by taking on some risk. With rational investments, the more risk you take, the greater the expected return over time.

Re:why buy shares unless you know something ... (1)

TheLink (130905) | more than 6 years ago | (#22453800)

Why is there trade in the first place?

You trade A to someone for B because you value B more than A, and that someone thinks the other way.

Why? Maybe that person needs "A" _now_.

That person might still think it's a crap time to sell the share, but might need the cash to keep the house/car.

The other thing is lots of people are stupid. And sometimes the stock market has a way of making the "smart" look stupid.

There were a lot of people who figured some bubbles should have burst a long time ago, but they just kept going for a few more years (irrational exuberance? What's that? :) )... Those that bet big on the bubbles bursting "real soon now", lost. The rest who just pulled out, didn't make as much.

Hack'n'Trade (1)

pipatron (966506) | more than 6 years ago | (#22452792)

Reminds me about a Swedish group called Hack'n'Trade...

I think they meant some other kind of trading though.

Buying high, selling low, making money how? (1)

atlep (36041) | more than 6 years ago | (#22452888)

"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."

I don't understand this. He was buying, waiting for the share price to plunge, and then selling. Doesn't that mean he was selling lower than he bought? How did he make money?

Re:Buying high, selling low, making money how? (1)

Kickasso (210195) | more than 6 years ago | (#22452978)

You don't know what a "put option" is, do you? Look it up then.

Re:Buying high, selling low, making money how? (2, Informative)

Anonymous Coward | more than 6 years ago | (#22452982)

He bought options, specifically puts, which are options to sell at a specified price called the strike. Suppose a stock is trading around $10. If I buy puts with a stike of $7.50, and the stock falls to $5, then I can buy stock at $5 and exercise my puts to sell at $7.50, netting a profit of $2.50/share.

Re:Buying high, selling low, making money how? (2, Informative)

Ihlosi (895663) | more than 6 years ago | (#22453002)

He was buying,



He was not buying the shares, he way buying put options, which basically give you the right to sell ("put") the shares at a predetermined price. If the share price suddenly drops, you can make money by just buying the shares on the open market and exercising your put options (which give you a fixed selling price that is now higher than what you're paying for the shares on the stock market). Alternatively, you can just sell the options themselves, which is less of a hassle.



Welcome to securities 101.

Re:Buying high, selling low, making money how? (1)

atlep (36041) | more than 6 years ago | (#22453532)

Thanks for the information. There's obviously a lot about stock trading I don't know about.

But that's what you get for complexity, more possibilities to exploit the system.

Re:Buying high, selling low, making money how? (1, Informative)

snkline (542610) | more than 6 years ago | (#22453022)

He bought put options. That means he essentially bought a contract to sell someone stock at a certain price at a later date. Say that the price of the stock was $100, he buys a put option to sell 100 shares at $90 apiece. If the put option expires and the price is >= $90, then he loses money, because he now has to buy the stock for the "seller" of the put option for more than he payed for the contract. If the price goes down to say $50 a share though, he received $9000 for the contract, and only has to pay $5000 for the stock, making a profit of $4000 dollars. Hope that makes sense.

Re:Buying high, selling low, making money how? (2, Insightful)

Flavio (12072) | more than 6 years ago | (#22453792)

If the put option expires and the price is >= $90, then he loses money, because he now has to buy the stock for the "seller" of the put option for more than he payed for the contract.

He only loses the money he paid for the contract. In this case he'll just let the option expire and not exercise it. This is an OPTION, so he's not obligated to sell for $90.

Re:Buying high, selling low, making money how? (1)

CBravo (35450) | more than 6 years ago | (#22453062)

From wikipedia: A put option (sometimes simply called a "put") is a financial contract between two parties, the buyer and the writer (seller) of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer (seller) of the option at a certain time for a certain price (the strike price). The writer (seller) has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option.

He bought the right/contract to sell a share high. When the share price is low, you profit.

Re:Buying high, selling low, making money how? (5, Informative)

blasterz (803626) | more than 6 years ago | (#22453258)

He didn't buy stock, he bought put options and exercised them.

Here's how they work, more or less:

Stock A is currently selling for $100 per share. A trader a couple of months ago felt confident that the stock would never drop below $80 per share, so he sold put options - guarantees that he would buy the stock from you at a given price - in this case $80 - for a given date. If the price of the stock remains at $100/share, the options will be worthless, because owning shares valued at $100 there's no way I will sell them for $80. However, if the stock price drops to $60, I'd be more than happy to sell for $80/share. The person selling the options has no choice - if I come to him with the contract, he has to buy them at $80/share.

Those options can be traded up to the exercise date. So I buy them three days before the exercise date at a low price, as no one expects the stock to drop that much - the options themselves are worthless. I know the stock will plummet; I buy up all the options I can afford - let's say a buck a pop. Stock price is $60, suddenly those options are worth $20 apiece - difference between the market price and what the trader is obligated to pay.

Yes Dammit! (1)

woolio (927141) | more than 6 years ago | (#22453478)

He was buying, waiting for the share price to plunge, and then selling. Doesn't that mean he was selling lower than he bought? How did he make money?

They're called PUTS dammit!

I'm inclined to say (4, Insightful)

evanbd (210358) | more than 6 years ago | (#22452908)

That this is actually quite appropriate. Since he didn't have any fiduciary duty, the SEC shouldn't take his money away. That said, since it's profit from an illegal act, I would hope that the money would be taken away -- if and when he is convicted for the crime of stealing the data.

Too often in this country we seem to be throwing every law available at people and making up new ones to go with them, when the acts we're trying to punish are already illegal. If he didn't break securities laws, he shouldn't be punished under them. Since he did (we assume, but it hasn't yet been proven) break unauthorized access laws, he should be punished under those.

We don't need more laws against things that are already illegal, and we don't need to make a mockery of existing laws by applying them to things they don't apply to. On a related note, why do we need separate "identity theft" and "atm card fraud" laws, when anyone being charged with them is already also being charged with uttering false instruments and fraud? Our legal code needs to be smaller and simpler; making it so would make it more effective and efficient, not less.

Re:I'm inclined to say (1)

Mr Stubby (1122233) | more than 6 years ago | (#22453036)

you speak too much sense per sentance sir :)

Re:I'm inclined to say (0)

Anonymous Coward | more than 6 years ago | (#22453294)

what are you saying? How're our fine pubic servants going to justify their pay if they don't show any work done?

Re:I'm inclined to say (2, Interesting)

kpansky (577361) | more than 6 years ago | (#22453370)

The more corrupt the republic, the more numerous the laws. ~Tacitus, Annals

Fairness? (1)

rajats (891347) | more than 6 years ago | (#22453380)

Well...he got the money from a by-product of a fringe benefit of the hack (Hack->useful information (insider info)->steal). Would a similar argument be applicable if he was able to siphon money from individuals' accounts had he gained some passwords (Hack ->useful information(passez) -> steal). I wouldn't think so.
Agreed, that he was not an insider so he can't be convicted for insider trading...but there should have been at least one more lawsuit going against him!

Different standards of proof are probably a factor (1)

EdwinFreed (1084059) | more than 6 years ago | (#22453644)

The fact that he hasn't already been charged with criminal trespass or breaking into a computer system or whatever likely means the evidence they have isn't sufficient to sustain a criminal charge where the standard of proof is "beyond a reasonable doubt". So the government went after him for violating rules where the standard is far weaker - possibly the same if not weaker than the "preponderance of evidence" standard in a civil case.

Now that the judge has shot that down (I have no idea whether this was a good decision since I have no knowledge of precedent-setting cases in this general area) they'll have to try something else. My offhand guess is they'll now try for asset forfeiture, because that way once again they can get civil rather than criminal standards of proof. (For those that are unaware, the way civil forfeiture works is the government sues the property itself, not the person. In fact once the government shows probably cause that the asset should be forfeited it then up to the owner to prove under the preponderance of evidence standard that it is not.)

Now we know what that third step is... (1)

MrKaos (858439) | more than 6 years ago | (#22453158)

1. Hack the servers...

2. Get the necessary information...

3. goto court and...

4. Profit.

like most answers, it's been right under our noses all along, I guess that goto's are not so bad after all :-)

He's no more crooked than what goes on every day. (2, Interesting)

stratjakt (596332) | more than 6 years ago | (#22453198)

My company was publically traded for two years, and was recently bought by a large multi-national. Somehow, magically, mysteriously, the week before the announcement of the buyout offer was made, our stock jumped 2.50 out of nowhere, which is pretty big for a 5 dollar stock.

I asked the CFO about it at the company meeting, in front of a sea of shocked faces, and smirked at his "uhh some guys were shorting the stock its a coinkydink" answer.

Why regular folks would even invest is beyond me. The whole stupid fucking system is rigged to take from the poor, and give to the rich.

On insider trading (0)

Anonymous Coward | more than 6 years ago | (#22453438)


Insider trading will loosely be seen by most people as trading with information that only insiders would have.

In a long series of situations this is illegal:

- Any employee of the company does it
- Anyone who has gained access to it as part of their job
- Professional organisations will typically have strict rules against insider trading (the CFA institute for example) and while they don't put you in jail they will kick you out for disgraceful conduct

For some reason however the following will NOT land you in jail:

- You stand on a street corner, a drunken guy comes up to you and identifies himself as the CEO of a company and tells you his company will announce fantastic earnings tomorrow. You trade on it and make a dime. In this case HE will be deemed to have broken the law - YOU will not. Probably out of purely pragmatic concerns - most people would be very surprised if they acted on a tip from someone to buy share X and this happened to land them in prison for five years.

Apparently the judge rightfully recognised that the law at the moment does not appear to (IANAL) distinguish between non-professionals who get that kind of tip from legal means and from illegal means.

heh (-1, Offtopic)

Anonymous Coward | more than 6 years ago | (#22453618)

bleck

Not keeping the money (1)

EdIII (1114411) | more than 6 years ago | (#22453840)

I know the article makes it seem like he got away with it. Far from it.

There are only 2 situations here:

1) He had legal access to the documents. If true, that is insider trading. The SEC is the proper governing body and they will punish him.
2) He did not have legal access to the documents and stole them through whatever means he used to do so. If true, then he will also be punished, but by prosecution in a criminal court. Upon conviction, the money will be confiscated.

All the article really says is that the SEC determined that it is not proper for them to make a decision since he did not have legal access to the documents. That's it.

Now if the criminal court let's him go, then maybe people can get upset about that.

P.S - The company can also file a civil suit against him.

Nice (0)

Anonymous Coward | more than 6 years ago | (#22453910)

Wow hacking really does pay off!

It's just a bungled prosecution (1)

Animats (122034) | more than 6 years ago | (#22453948)

This is just a botched prosecution, not a decision with major implications. The attacker is a Ukrainian resident. He could have been prosecuted under some computer crime statute, but that would require investigative resources and cooperation from the State Department and the government of Ukraine. An "insider trading" case probably looked easier to some lawyer at Justice, even though this is clearly "outsider trading". They didn't expect that an admitted criminal would actively contest a seizure of the money.

Profits, yes, however: (2, Interesting)

Duncan Blackthorne (1095849) | more than 6 years ago | (#22454150)

So a judge let him have his ill-gotten gains. He still broke into computer systems to gain the information he used in this exploit. What's to stop a criminal judge from prosecuting him for that, sending him to jail, and fining him all the profits he made on this plus what he invested in the first place plus some on top of that to drive the point home?

Re:Profits, yes, however: (2)

Lehk228 (705449) | more than 6 years ago | (#22454640)

because judges don't usually just get to pull numbers out of their ass when fining or pull convictions out of their ass without a jury decision.

Re:Profits, yes, however: (1, Informative)

Anonymous Coward | more than 6 years ago | (#22455226)

Well, wouldn't the fact that he in the Ukraine be the reason? The current issue was the SEC freezing the money before it leaves the states, where it's in our courts jurisdiction. They can't very well arrest, charge, and try him while he's sitting in the Ukraine twiddling his thumbs...not to mention paying off local officials. 200k US DOLLARS in the Ukraine has got to be more than a small fortune...

Proceeds of crime bill ?! (1)

sudog (101964) | more than 6 years ago | (#22454186)

What the heck? It was a specific gain as a result of a crime. Is that still legal in the U.S.?

Re:Proceeds of crime bill ?! (2, Insightful)

dq5 studios (682179) | more than 6 years ago | (#22455242)

Probably, but he's in the Ukraine. The SEC not releasing his money for insider trading wouldn't require the support of the Ukraine government, prosecuting him for hacking would.

By definition, you are an insider if you have... (2, Interesting)

mexicanpizza (1151143) | more than 6 years ago | (#22454582)

...any "material, non-public information".

As soon as he has the info, he cannot trade on it as he is an insider. Simple.

The judge is an idiot.

Fruit of a poisoned tree? (1)

JavaManJim (946878) | more than 6 years ago | (#22455148)

The legal system messed up here. Was it the prosecutors going for the wrong crime? Did the judge also have blinders on?

If I cheat and steal something then all derivatives of that something are tainted.

Thanks,
Jim

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