SEC Sues Individual for Computer "Hack-to-Trade" Scheme

The SEC charged a UK citizen for engaging in a "hack-to-trade" scheme involving the unauthorized access of computer systems belonging to five US public companies to deceptively obtain nonpublic corporate earnings information which he used for profit by trading in advance of the companies' public earnings announcements.

In a Complaint filed with the US District Court for the District of New Jersey, the SEC alleged that the individual, between January 2019 and August 2020, accessed the computer systems of at least five publicly-traded companies by using stolen credentials and misrepresenting his identity. The SEC contended that, through this deceptive conduct, the individual obtained material, nonpublic information, including draft earnings releases and press announcements, and subsequently traded on this information before the companies publicly announced their earnings. The SEC alleged that the individual's actions resulted in illicit profits of approximately $3.75 million by trading in advance of at least 14 earnings announcements, often establishing large options positions just before the disclosures.

The SEC alleged that the individual violated Exchange Act Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Rules 10b-5 ("Employment of manipulative and deceptive devices") thereunder.

The SEC is seeking a final judgment from the Court that includes (i) permanent injunctions against further violations of the federal securities laws and rules that the Complaint alleges the UK citizen violated; (ii) disgorgement of ill-gotten gains with prejudgment interest; (iii) and civil monetary penalties.