Ukranian Stock Scam May be Fraud, But Is It Insider Trading?
"'What it really highlights is these guys were the farthest things from insiders,' saidThomas Dewey, partner with Dewey Pegno & Kramarsky who focuses on securities law. 'It’s a theft case.'
The indictments unsealed today in New Jersey and Pennsylvania accuse four Ukrainian men of hacking into the newswires using phishing attacks, malware and other strategies, and then distributing the information they obtained to U.S. traders in Georgia, Pennsylvania and New York. The U.S. traders accessed the information on servers the Ukrainians operated and even submitted “wish lists” for specific news releases. The scheme allegedly netted $30 million in profits from trading in stocks including Caterpillar, Hewlett Packard, Home Depot, Panera Bread and Verisign.
For years, prosecutors have assumed illegal insider trading includes buying or selling stock based on material, non-public information almost regardless of the source. The Newman case appealed to the Supreme Court challenges that view, limiting insider trading to situations where the tipper violated a duty of confidentiality and got an “objective, consequential” benefit for sharing the information,and tippee knew it. A key element of any criminal conviction is scienter, or guilty knowledge, and in Newman the defendants argue they didn’t know anything about the source of the information they traded on."