How The SEC's Enforcement Division Is Responding To Cybersecurity Challenges

Friday, the Securities and Exchange Commission (SEC) charged a lawyer who served on the the board of directors for Pinnacle Financial Partners PNFP with insider trading based on nonpublic information he learned about an impending merger.

This is what many Americans picture when they imagine the SEC — something like a police force for Wall Streeters, cracking down on insider traders and financial fraudsters of the garden variety.

While the SEC continues its tradition of enforcement actions against run-of-the-mill misconduct, it's also actively monitoring newer investment vehicles like robo-advising and peer-to-peer lending.

One of its most notable challenges relates to cybersecurity, a buzzword of late affecting everything from the presidential election to Friday's outages for web giants like Twitter, Inc TWTR and Amazon.com, Inc AMZN.

The SEC is not quickly gaining experience in pursuing actions against bad actors in cyberspace. In the past year and a half, technology-related cases successfully prosecuted by the SEC include:

Newswire Hacking

The SEC charged a couple dozen defendants for a scheme to profit from hacked, nonpublic information about corporate earnings announcements. This high-tech variation on the classic insider-trading scheme generated more than $100 million in illegal profits.

Mustapha

A U.K. resident identified as 'Mustapha' hacked into numerous U.S.-customer accounts of U.S. and foreign broker-dealers, placed stock trades in those accounts without the customers’ knowledge and then traded in the same stocks through his own brokerage account. The scheme was discovered by the SEC and the perpetrator has been charged.

False Filings

A Pakistani national was charged for manipulating the price of a stock through a false filing on the SEC’s EDGAR system, claiming that he and six Chinese investors had acquired 5.1 percent of the stock and that the group had offered to buy all the outstanding shares of that stock at a price that was a 65 percent premium over the current stock price.

In another instance, the agency obtained an emergency asset freeze against a Bulgarian national, and entities controlled by him, for manipulating the stock of three companies through false tender offer filings on the SEC’s EDGAR system and issuing a fraudulent press release.

Morgan Stanley

As recently as this summer, Morgan Stanley MS agreed to pay a $1 million penalty to settle charges related to its failures to protect customer information.

Investors looking for guidance on how to make sure their use of these innovative tools stays on the right side of the law can read over the SEC's list of investor bulletins for areas affected by newly issued rules.

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Posted In: NewsEducationTopicsLegalInsider TradesGeneralCybersecurityMustaphaNewswire
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