Hacking the Stock Market

August 24, 2015

Illegal insider trading has always been a concern on the stock market. But in recent years, a new method for becoming an insider trader was developed by a group of hackers from around the world. They used phishing-sending emails with malicious links-to break into the systems of at least three companies that publish press releases.

Once the hackers had access to the press release companies' systems, they were able to read upcoming releases hours or even days before they went public. This gave them the opportunity to trade on the stock market.

For example, a press release from Panera Bread indicated that their earnings would be revised downward.  The hackers made use of this information to buy options in Panera and generate USD 1 million in profit.  Conversely, they learned that Caterpillar's earnings would exceed expectations and made more than half a million dollars in profit from that stock.

The group responsible is believed to have generated more than USD 100 million in profit over the past five years. Now, however,the key members of the ring have been arrested and, if convicted,face 20 years in prison. The Securities and Exchange Commission has filed a lawsuit against the defendants to try to get restitution.

Could this be insured, and could companies like Panera and Caterpillar have a case against the press release companies they had trusted with their information? Potentially yes, and security breach liability is a typical coverage for those purchasing cyber insurance.  Of course, as the inside traders profited, other investors lost money; however, it would be almost impossible for them to recover any assets.

Speaking of press releases, AIR will be releasing one soon regarding its cyber model. You'll have to stay tuned for the release planned for mid-September, which we hope is after this hacking ring has been shut down.

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