Hacker May Get To Keep Insider Trading Windfall -- Because He Obtained Info Illegally

from the say-that-again dept

Mon, Feb 18th 2008 11:52pm — Mike Masnick

The NY Times is covering a bizarre anomaly associated with "insider trading laws" in the US that may allowed a guy to keep the nearly $300k he scammed by hacking into computers to learn of earnings info before it was actually released. Apparently, the way US securities laws work, if you legally obtain the insider info, you can't trade on it. However, if you illegally obtain the info, you can trade on it, though you're certainly potentially liable for the illegal actions that allowed you to get the info. In this case, the illegal actions were breaking into this computer. However, rather than being charged with computer fraud, he was charged with insider trading. In other words, he was basically charged with the wrong crime, and that may mean that he gets to keep the $300k and go on his merry way.

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Filed Under: hacking, insider trading

38 Comments

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Rob, 19 Feb 2008 @ 12:52am

Haha
That's hilarious!!!!!!
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Anonymous Coward, 19 Feb 2008 @ 1:28am

ummm
he didn't hack anything. he cracked into a computer system. hackers are good people who write awesome software like linux. crackers are douchebags who steal via computers. "hacker=bad" is a common misconception. please don't propagate it.
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DisGuysed, 19 Feb 2008 @ 1:35am

Re: ummm
Yea umm, cracker refers to someone who cracks copy protection on software. Or a code cracker. This guy is still hacking. What you are trying to refer to is the good side of hacking vs the bad side. An analogy would be a sword master using his hacking to save the day and get the bitch or a sword master hacking into someone's private chambers to kill their ass. Actually thats a bad analogy but you get the idea.
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Mike (profile), 19 Feb 2008 @ 1:46am

Re: ummm
he didn't hack anything. he cracked into a computer system. hackers are good people who write awesome software like linux. crackers are douchebags who steal via computers. "hacker=bad" is a common misconception. please don't propagate it.

I'm quite aware of the difference between "hacking" and "cracking" but that's an old and very dead argument. I used to make the same sort of statements here, but we've gone long past the era when the word "hacking" is now used for both good and bad activities. It, by itself, is a neutral word. To say someone "hacked into" a system is an accurate description and I won't apologize for using the word that way.
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Anonymous Coward, 19 Feb 2008 @ 2:16am

Re: ummm
Language evolves. Hacker now means a person who illegally manipulates computer systems. Does it really matter? I prefer the term "programmer" myself for people who write software.
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Eric, 19 Feb 2008 @ 2:22am

once again
once again it just goes to show u how fucked up the American judicial system is
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andy, 19 Feb 2008 @ 2:55am

wow
i thought the article is about a man charged with the wrong crime and gets to walk , maybe has to pay court fees . its just funny to see people are more concerned about if hacking is good or bad .. in this case it worked for this guy and not the Gov.. the Gov. is at fault for not crossing its t's and dotting it's i's.
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common_sense, 19 Feb 2008 @ 3:26am

mischaracterized, as usual
again, mike doesn't tell the facts in the story - a ukranian resident committed the crime and authorities may have thought it would be difficult if unlikely to actually apprehend him or recover the loss. but don't cast your doubts yet, the asset freeze still stands and a ruling is several months away. do yourself a favor if this case interests you and take mike's gossip rag-like blurb with a grain of salt and go read the article for yourself.
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Liam, 19 Feb 2008 @ 4:12am

Hilarity In Shoes
well...worse things have happened, I know I prefer hacking over basically having slaves working for you to save about $300,000.
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bstark, 19 Feb 2008 @ 4:51am

Hack vs. Crack
The term cracker is actually a form of the word criminal hacker. The two are formed together to form cr-acker. The words are now useless because the public misconception is that a hacker is a bad guy. But that is the basis of the word cracker.
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Liquid, 19 Feb 2008 @ 5:00am

Re: Haha
That is hilarious... ohhh how well our legal system works lol... Can't keep up with technology hahaha...
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Liquid, 19 Feb 2008 @ 5:00am

Re: Haha
That is hilarious... ohhh how well our legal system works lol... Can't keep up with technology hahaha...
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Ferin, 19 Feb 2008 @ 5:01am

Odd
I would think that the money could be treated as the proceeds of a criminal action when they go after him for hacking(one would assume they would do so). If he's convicted, couldn't they impose a financial penalty in the amount of the profit?
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rbb, 19 Feb 2008 @ 5:02am

And the government still gets its cut...
And of course, the government gets its cut either way. A person still has to pay taxes on the gains whether they were legally acquired or not.
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jw, 19 Feb 2008 @ 5:41am

Re: And the government still gets its cut...
Not true. The government gets its cut on all reported income. Pimps and drug dealers aren't known to regularly state their annual income with the IRS. For the government to get its share of that action, it would have to do something like the fairtax initiative is proposing.
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Anonymous Coward, 19 Feb 2008 @ 5:46am

What if?
your an Hacker on Crack, what's that called?
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Anonymous Coward, 19 Feb 2008 @ 6:14am

I thought cracker meant "white dude"
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Anonymous Coward, 19 Feb 2008 @ 6:14am

Hackhead?
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Legally Clueless, 19 Feb 2008 @ 6:28am

Loophole closed?
I realize that you can't be tried twice for the same crime, but hasn't this person committed 2 crimes revolving around the same data? 1) Stealing it 2) Using it for insider trading. Even if they found a loophole for the second crime can't he still be tried for the first crime?
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y8, 19 Feb 2008 @ 6:51am

hacker or cracker?
I thought a cracker was a white guy?
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TriZz, 19 Feb 2008 @ 7:26am

Re: Loophole closed?
Nope. If I punch someone in the face...and they charge me for stealing his wallet, even though I didn't. They can't come back and say "well, you didn't steal his wallet, so we're gonna charge you now for punching him in the face". THAT is the definition of being charge for the same crime twice.
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jhunter, 19 Feb 2008 @ 7:27am

Re: Loophole closed?
It was an ongoing crime.
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R.H., 19 Feb 2008 @ 7:32am

Re: Re: And the government still gets its cut...
And this is why the prosecution can't use a tax return against you in a court of law. I could say that I was a pimp earning $45,000 a year from my 'business' and they couldn't use it as evidence since otherwise by making it illegal to not file a return the government would be violating my right to not self-incriminate. However, I haven't seen anything in the law prohibiting the government from using a tax return as 'probable cause' for a warrant or as a reason to just follow you around and wait for you to break the law.
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Fushta, 19 Feb 2008 @ 7:35am

Hacker: Good or Bad?
Hacker (Bad): an individual that bypasses a security feature in a computer system to illegally obtain electronic information without authorization.

Hacker (Good): a security expert.
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inc, 19 Feb 2008 @ 7:37am

black hat vs white hat hacker? or is that too geeky?
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Georgia Cracker, 19 Feb 2008 @ 7:48am

Re:
Then what do you call a Linux Hacker...Oh, Red Hat Hacker.
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NunYa, 19 Feb 2008 @ 8:05am

Re: Re: Re: And the government still gets its cut.
Try to find a law that states the legality of the "federal income tax". Why do I have to pay to a privately held company a "tax" on the money I earn simply because they print it and tell the true Federal Government what it is worth and how much they too will pay to have the right to the gold that backs it.
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Overcast, 19 Feb 2008 @ 8:34am

Apparently, the way US securities laws work, if you legally obtain the insider info, you can't trade on it. However, if you illegally obtain the info, you can trade on it,

That must be the 'Politician Protection Clause' - to keep politicians from getting into troubles with insider trading.

This guy just got lucky and stumbled upon it.
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Gene Hoffman, 19 Feb 2008 @ 8:51am

Understanding Securities Law
Crash course on insider trading law as it's needed here. You have the right to trade on material non-public information. What you are not allowed to do is breach trust with an insider. If you overhear a Pubco CEO's juicy M&A activity and you don't know the guy, you can trade on it. If you're his Dad or his Company's lawyer, you can not.

This doesn't match SEC's policy preferences, but it happens to be the actual law.

This guy broke the '84 Computer act but not Securities law.

-Gene
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Ghost Genius, 19 Feb 2008 @ 9:15am

Cracker vs Hacker - You are all on Crack.
So, What year did "Criminal Hacker" become "Cracker"?
Why do you think Hacker is good or bad?
Can't you focus on the subject...

I doubt any of you commenting on Cracker vs Hacker actually are able to do either of the two.

From someone who was a Cracker, Hacker & a Pirate:

Pirate - Someone who steels by any means. Usually relies on a Cracker to obtain his goods, though can be one in the same.

Cracker - Circa 1978 - Someone who "Cracks" the protection on something. NOT ANY RELATIONSHIP to "Criminal Hacker" though you thought you were so smart. To Crack is to Break (like an egg shell dummy) the software protection so that you can Pirate it.

Hacker - Circa 1980 - Someone who "Hacks" into a system. A Hacker is someone who breaks into an online system or into a computer system. It means trying over and over again until you acheive the goal.

Hacking - Recent - Has been mis-used to mean anything from good to bad, "A Hack" can be an engineer who wasn't formally trained and "Hacks Away" at code until it works or until he figured out how a system/api/etc works. Usually bad code. Linux wasn't "Hacked together", it was engineered or programmed. This form of "Hacking" comes clearly from above, but it applied to programming.

Programmer - Someone who programs a computer, duh.

Now, for the guy who Hacked into the computer system and made money -- you are a thief -- just because some idiot charged you with the wrong crime doesn't make you innocent, try enjoying your $300,000 from jail. Idiot.

Next time, to be a good hacker, go to some public place with no tracability to yourself and hack into the system on a public, or otherwise not yours, computer...the trick to Hacking is to be anonymous...
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Anonymous Coward, 19 Feb 2008 @ 12:09pm

In the 21st century, it goes like this...
Hacker = thief
Cracker = white person
Negro = black person

so, from what we have learned...
Cracker Hacker = white thief
Negro Hacker = black thief (redundant)
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Anonymous Coward, 19 Feb 2008 @ 12:59pm

"Cracker - Circa 1978 - Someone who "Cracks" the protection on something. NOT ANY RELATIONSHIP to "Criminal Hacker" though you thought you were so smart. To Crack is to Break (like an egg shell dummy) the software protection so that you can Pirate it."

Ummm, this is Techdirt. When you crack the software protection, you are just freeing information and creating a new business model. You shouldn't call it pirating or stealing it.
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Mike (profile), 19 Feb 2008 @ 1:01pm

Re: mischaracterized, as usual
I'm curious as to what's actually mischaracterized. I write a blog post that covers the facts and link to the original article for deeper detail.

again, mike doesn't tell the facts in the story

Yes, I left out some facts. If I included everything it would be the article, not a short post on the important points. I don't think the facts I left out make anything I stated incorrect.

a ukranian resident committed the crime and authorities may have thought it would be difficult if unlikely to actually apprehend him or recover the loss

Indeed, but that doesn't change the facts I stated in the post, or the fact that he might get away with it. The fact that he's in the Ukraine or that it would be difficult to apprehend him don't matter to the fact that he may get away with it because they charged him with the wrong law.

Or am I missing something?
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Ken, 19 Feb 2008 @ 1:45pm

Race Thing
I completely agree that hackers are good people; "crackers" are hackers turned evil, however, I'm a black guy. I wouldn't say "cracker" without the audience being an entire group of computer experts present.
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Anonymous Coward, 19 Feb 2008 @ 2:46pm

A story that isn't about patents or copyrights. Mike must really be having a bad day!
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Mike (profile), 19 Feb 2008 @ 2:48pm

Re:
A story that isn't about patents or copyrights. Mike must really be having a bad day!

Let's see. By my count, at this moment, 15 out of the 20 stories on the front page are about neither patents nor copyright. Honestly, it would be a GREAT day if I could not write about either topic for an entire day, but since those are the stories that come up, that's what gets written about.
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drawoC suomynonA, 19 Feb 2008 @ 7:45pm

Re: ummm
Why do all hackers/crackers all whine about the term hacker being bad? why not just make up a new name if you dont like the connotation of the one youve given yourselves
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Gene Hoffman, 20 Feb 2008 @ 1:46am

Error in the article
Mike,

There is an actual error in the way you present the article. You state that obtaining insider information from legal means is illegal. It's not. What is illegal is breaching a duty of due care to the corporation or a fiduciary duty - if you have one.

Clearly a guy breaking into a computer has about the opposite of a duty of due care or fiduciary duty.

-Gene
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