Hackers in a ring that stole confidential information from Edwards Lifesciences (NYSE:EW), Align Technology (NSDQ:ALGN) and others could reportedly dodge insider trading charges because they hacked PR websites rather than the companies they traded in.
Although it appears to be a classic insider trading case – the 2 Ukrainian defendants allegedly used confidential information to reap $30 million in trading profits – because the hackers are charged with stealing the information, rather than as insiders who breached a duty owed to the source of the information, insider trading charges might not apply, the New York Times reports.
The question is whether the theft the hackers are accused of amounts to securities fraud, according to the newspaper.
U.S. prosecutors last week charged 9 people for their alleged roles in the hacking ring that obtained corporate press releases from BusinessWire, MarketWired and PR Newswire before they were made public. The Ukrianian hacking ring generated more than $30 million in illegal trading profits, the feds alleged.
The operation began around February 2010, as alleged Ukranian hackers began to infiltrate press release distributors to gain access to the corporate news and financial results before it was made public. News from the releases was then passed to traders, who made illegal trades in stocks and options based on the stolen information, with foreign shell companies used to share the rewards, according to U.S. Justice Dept. prosecutors.
The U.S. Securities & Exchange Commission brought a related civil suit charging many more defendants, and alleging that the thefts resulted in more than $100 million of illegal profits. The SEC seeking civil penalties and asset freezes, as well as the recoupment of illegal profits.
Although they might dodge insider trading charges, prosecutors can in turn dodge the problem by leveling wire fraud charges, which carry a maximum 20-year prison sentence. But the SEC case is bound by securities law, not federal crimninal statutes, meaning its case might be harder to press, according to the Times.
