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Trio charged with $4m insider trading by hacking merger lawyers

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Intriguing to find out how they cottoned on to this - I would guess that the most probable answer is that the perps raised their heads on other activities related to insider trading?

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Big Data - you look for patterns, is someone luckier than the average at buying stocks just prior to a takeover? Mr BebopWeBop, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action."

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Small sample

I understand that. Although this is a small sample and any competent (OK - assumption) would spread things out. It might be that there have been multiple violations and these are the only ones they have decided to charge them with - it might come out with the trial

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Re: Small sample

Greed usually trumps competence and the temptation, having gotten away with it once, is to try it again. I would assume that the SEC gets a daily list of suspicious trades - trades that are profitable, trades that spread the takeover period, and trades are executed by a connected group of people that have shown an ability to make multiple trades under these circumstances. Add into this that there appears to be a common group of lawyers involved with the trades - the SEC probably started looking for an inside trader in the lawyers.

What I find puzzling is the relatively small amount of money involved in this bust ... If someone in the firms noticed that hackers were in the system then this would be a good time to execute some trades at a distance with the certainty that if suspicious trades were discovered, then the SEC could be directed to look elsewhere. $4m isn't really enough to get the SEC's attention.

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This post has been deleted by its author

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Facepalm

@BebopWeBop wrote: Intriguing to find out how they cottoned on to this - I would guess that the most probable answer is that the perps raised their heads on other activities related to insider trading?

Someone always talks.

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Devil

@Version 1.0 wrote: Mr BebopWeBop, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action."

I like that, it's a variation of the "three strikes you're out" rule.

This is a similar saying about if a girl blows you off: "The first time she's forgetful, second's accidental, but three means it's all intentional".

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Mr BebopWeBop, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action."

James Bond is from Chicago? I first came across this in one of Fleming's Bond novels.

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Re: Small sample

It would be interesting to see if anyone in the Trump organisation or the RNC made any big shorts on Lookheed-Martin before the tweet

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Anonymous Coward

I first came across this in one of Fleming's Bond novels.

Goldfinger.

I always think of it as "Goldfinger's Rule"

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Re: Small sample

It was $4m profit not a $4m trade. The actual trade may have been many multiples of 4m, much easier to spot. Especially if the same traders pulled off the same trick several times.

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Between March and September 2015, they attempted to cause unauthorised access on more than 100,000 occasions.

This would seem to be the most obvious cause of how they were found out. They got greedy and didn't know when to quit.

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Anonymous Coward

Re:

To be truthful, I'd be great full to be blown off just the once.

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Anonymous Coward

Re:

To be truthful, I'd be grateful to be blown off just the once.

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Rank amateurs

$4m wouldn't even pay the Christmas bonus for one executive at Goldman Sachs. Of course it's a lot easier to crack down on johnny china-man than political party donors. If they have political connections then we can expect them to pay a small fine and the case dismissed without admission of guilt.

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Re: Rank amateurs

Point of order: $4m would be a bloody big bonus even at Goldman. Senior partners might get bonuses of that order of magnitude, and possibly a handful of star traders or desk managers, IF they had an exceptional year.

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Meh

Lawyers lose small change behind the sofa

What a terrible, terrible crime /s

I'm sure the perps will feel the full weight of the law. No stone will be left unturned to squeeze them till the pips squeak.

P.S. Apologies for the mixed metaphors :)

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Re: Lawyers lose small change behind the sofa

The lawyers lost not a penny. If anyone lost anything, it was the people who chose to sell just before the mergers were announced. They'd almost certainly have been selling anyway. This is probably a textbook case of "victimless" crime. Not that it's right of course and they deserve whatever they get if found guilty. I supposes the hackers might have offered a little over the odds for the shares to entice a sale, but no one actually "stole" money in the normal sense.

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Re: Lawyers lose small change behind the sofa

I'm sure the perps will feel the full weight of the law

With the M&A partners being very obvious, very high profile targets for a bit of insider trading, you might hope the law firms themselves would have at the very least a professional obligation to make sure their systems were suitably secure (and hopefully an enforceable legal obligation to the SEC). A whole 20 seconds of searching reveals reports going back to 2011 of hackers targeting law firms for M&A data, so this isn't anything new.

Sadly the list of "Big Law Firms Held to Account" is a very, very short list.

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Anonymous Coward

Re: Lawyers lose small change behind the sofa

Also how is it insider trading. They were not 'insiders' they obtained information that lead them to want to buy shares in a company. That information may have been obtained illegally, but I don't see how its insider trading. Is it considered insider trading if im out and overhear someone saying this company is just about to be bought, I then think hey, i should buy some shares in that company. If it is, then that is completely idiotic. If a merger or take over is leaked and the papers release that info, is whom ever buys stock now insider traders?

An insider trader is someone who is in a privileged position, and uses that position to gain advantage over others. These 'hackers' were not in a privileged position. They used their skills, not related to the company or trading, to obtain information which they used. The way they got that information is illegal, not how they used that information.

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Re: Lawyers lose small change behind the sofa

The way they got that information is illegal, not how they used that information.

I think you'll find it is both in most major economies, although the niceties of the actual offence of using the information does vary.

In the US it certainly is illegal to trade on the basis of non-public information, whether the trader or beneficiary is themselves an "insider" to the companies concerned or not. Across the EU it is illegal under the terms of the Market Abuse Regulation, and the definition uses the term "inside information" as well as "insider". You don't have to be an insider yourself to be illegally using inside information.

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Re: Lawyers lose small change behind the sofa

"Also how is it insider trading. They were not 'insiders' they obtained information that lead them to want to buy shares in a company."

They traded using non-public information. That is the definition of insider trading. It doesn't matter how you get the information, if you act on it, even if you lose money, you are an insider trader and breaking the law in the USA.

" These 'hackers' were not in a privileged position."

Yes they were. They had information Joe and Jane Shmoe did not have and used it to gain an advantage over them. That is pretty much the definition of being in a privileged position as far as stock trading is concerned in the USA.

"The way they got that information is illegal, not how they used that information."

Actually, both are illegal in the USA, as I have explained. It is generally all about intent when it comes to Federal Law. The intent here is pretty bloody clear to anyone. Break into someone else's computer (illegal, and well-known to be illegal after numerous very public prosecutions concerning same so intent can be inferred to a high degree of confidence) and trade in stocks based on that stolen private information (again, the intent to trade stocks based on the information stolen is pretty easy to infer on account of it being exactly what they did).

Just because we have domestic criminals at the corporate level who are gusty of much worse abuses doesn't mean everyone working at a lower reward expectation level gets a free pass, and this might just put the fear of the FTC in those other buggers for a bit.

Heads on pikes please.

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Re: Lawyers lose small change behind the sofa

>They traded using non-public information. That is the definition of insider trading.

is it? If you overhear a conversation in a lift and trade on it that famously isn't insider trading.

It is apparently a favorite game of nerds visiting law offices to chat loudly about imagined take-overs of their company by Google or Facebook whenever suits might be around

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Re: Lawyers lose small change behind the sofa

is it? If you overhear a conversation in a lift and trade on it that famously isn't insider trading.

Strawman!

A better example would be to intentionally get in the lift with a selected M&A lawyer, and pick his pockets to get any inside info. And that would certainly qualify for an insider dealing rap in any civilised part of the world.

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Black Helicopters

Re: Lawyers lose small change behind the sofa

>The way they got that information is illegal, not how they used that information.

No, the thing is, only a select few are allowed to perform insider trading, the top 1%, anybody else who is not a member of the club gets hung, quartered, and drafted for that.

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Re: Lawyers lose small change behind the sofa

No it is not a victimless crime. Just because the victims cannot be identified does not mean they do not exist. To be victimless the 4M would have to have been 'created'. Only the Federal Reserve can do that.

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WTF?

Re: Lawyers lose small change behind the sofa

No, the thing is, only a select few are allowed to perform insider trading, the top 1%, anybody else who is not a member of the club gets hung, quartered, and drafted for that.

True. The U.S. Congress is exempt from insider trading laws (Nancey Pelosi got caught big time for doing that). Seriously.

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Re: Lawyers lose small change behind the sofa

With the M&A partners being very obvious, very high profile targets for a bit of insider trading, you might hope the law firms themselves would have at the very least a professional obligation to make sure their systems were suitably secure

You might hope, yes. If you haven't worked in the security industry. (See these white hairs? I'm 27*, you know!)

*Not really

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Re: Lawyers lose small change behind the sofa

The expression you're searching for is MNPI: "material non-public information". If you work at a bank, legal firm, investment manager or whatever and have access to MNPI, you're committing an offence to trade any instruments affected by it. (IANALATINLA)

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Re: Lawyers lose small change behind the sofa

That's not what I was taught in compliance training at a well-known US-based megabank.

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Re: Lawyers lose small change behind the sofa

While its true that your (somewhat contrived) scenario would not result in insider trading, neither is it likely to happen...if there is an M&A agreement, anyone with real knowledge signs non-disclosure agreements that spell out severe financial penalties if the proverbial feline is released from the cloth enclosure prematurely, so nobody with true inside knowledge would endanger their personal money by blathering on about such things in public. Yes, one does see the occasional blip story, but its far more likely to be those "nerds" you speak of actually being right once in a while than a legit instance of "in the know" people blabbing about. The NDA is to protect against the partner telling his wife, who tells her best friend, who calls her brother, who calls his friend, who calls 8 more friends who all buy the stock. At SOME point along that chain, one can argue that insider trading doesn't apply anymore - but which point? So, the NDA prohibits any discussion about the arrangements in any setting where there is anyone present who hasn't signed the NDA.

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Anonymous Coward

After Fanzy Bear and Cozy Bear

...Panda Bear?

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Childcatcher

Naughty, naughty!

Oh you bad, bad, busy, buzzy bees, don't you know that counting cards at The Grand Casino is a no-no? It's particularly inadvisable if you get caught and don't have a VIP membership.

We can only hope that these misguided, misanthropic miscreants use their time behind bars to learn skills that are useful to society. Skills like front-running with high frequency trading, brokering million dollar mortgages to people making minimum wage, purchasing "alternatively attractive" mortgages in bulk and then turning them into tripple-A rated securities or lobbying congress.

I sure hope those silly-billies end up boarding courtesy of Uncle Sam. The good ol' US of A has the finest, most humane and most cost-effective correctional system in the world. Yessir, in the US penal system rehabilitation is job #1 and recidivism is a four letter word.

Yup, everything's going to turn out sunny-side-up. With a little time and elbow grease we will surely gain three outstanding members of society.

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Re: Naughty, naughty!

I would very much like to know how one can play any casino card game WITHOUT 'counting cards'. Yo see what's in your hand, you see what's on the table, and you estimate the likelyhood of the things you can NOT see by using your brain. How, exactly, is this 'illegal' ?

Equally, lending your money to someone who may not be able to repay you is your business and yours alone. If you want to bundle your outstanding loans and raise more money by selling bits of future earnings on the basis of a share in the debt there is also nothing wrong with it.

It only becomes a problem when you KNOW somethings is wrong and you try to hide it. And even then, it's not really an issue. It DOES become a problem when people that need their fingers to count their toes are blinded by greed and give their money to people they don't know to 'invest' in stuff they don't understand.

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Picked up by the exchange's market surveilance system

"Front running" (IIRC from when I worked on such a thing (front end))

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Unhappy

I am depressed. For one wonderful moment I misread the headline as:

"Up to seven New York law firms targeted by Manhattan prosecutors".

What a bummer when I realised it was just my little dream. See icon.

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Linux

Successfully hacked networks and servers

"The men are alleged to have successfully obtained inside information from at least two firms by hacking their networks and servers"

What were the names of the software and the hardware that these networks and servers ran on?

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"The defendants are charged with targeting at least seven top international law firms with offices in New York, which advised companies on corporate mergers and acquisitions."

That mass spying is working well I see. Can't even allocate money to build up defences it all goes to spying on civilians.

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Presumption of innocence

These guys aren't judged yet, so they should be still be considered as innocent if one believe in basic human rights . Should then their names be published? By pilloring them they are publicly ashamed and may suffer from that, when they are maybe totally innocent and being unfairly named.

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