Insider Trading at the Fed and Computer Hack Prompt Wall Street Security Worries
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A Wall Street report may have included insider information from a leaker in the Federal Reserve, while cyber criminals may have hacked into investment banks’ confidential databases to get an edge on the market.
New reports about two separate cases of illicit data leaking from inside the Federal Reserve and investment banks is prompting concerns that both Wall Street and its regulators are not doing enough to protect data and punish illegal market manipulation.
A Wall Street report may have included insider information from a leaker in the Federal Reserve, while cyber criminals may have hacked into investment banks’ confidential databases to get an edge on the market.
New reports about two separate cases of illicit data leaking from inside the Federal Reserve and investment banks is prompting concerns that both Wall Street and its regulators are not doing enough to protect data and punish illegal market manipulation.
According to a new report, in 2012 a senior managing director at Medley Global Advisors, a market research firm with hedge fund clients, released a note to clients about the Federal Open Market Committee’s meeting in September 2012, including a hint that the FOMC would increase its Treasury purchases by $45 billion. The details of the Treasury purchase plans discussed at the meeting seemed reflected in the Medley report in precise detail.
The Federal Reserve has since investigated whether leaked meeting details went to Medley Global or another party, but the central bank has not publicly announced the results of its investigation.
However, the report correctly predicted the Fed’s decision and the resulting rise in Treasury yields, which Medley clients had advanced information of thanks to the report.
Wall Street Gets Hacked
While the Fed searches for the source of its data leak, Wall Street banks are facing a different data leak of their own. According to researchers at FireEye, a security firm, several investment bankers were hacked by a group that the firm is calling FIN4, who used a mixture of techniques to access confidential data on merger and acquisition activity.
Like the information from the FOMC meeting, that data could be used to front run the market and turn a profit.
FireEye said that a use for the data could be insider trading, adding that the group is probably composed of Americans who have worked on Wall Street in the past. The leaked information touched on activity involving over 80 publicly traded companies, mostly in the healthcare and pharmaceutical sectors.
“Access to insider information that could make or break stock prices for over 80 publicly traded companies could surely put FIN4 at a considerable trading advantage,” FireEye said in its report.
FireEye said it has turned over its information to the FBI. “It is likely that FIN4 used the inside information they had to capitalize on these stock fluctuations,” FireEye said in their report. The company noted that FIN4 would focus on hacking bankers’ email accounts. “In order to get useful inside information, FIN4 compromises the e-mail accounts of individuals who regularly communicate about market-moving, non-public matters,” they said.
It remains unclear how FIN4 used the information to profit from moves in the stock market, or to what extent the group profited from its data. However, FireEye manager Jen Weedon believes the group focuses on using the confidential information to gain an edge. “They are pursuing sensitive information that would give them privileged insight into stock market dynamics,” she said.
The SEC has publicly said it plans to increase its investigations of insider trading activity, but FireEye’s recent release suggests that computer hacking may be the next frontier for illegal Wall Street activity.
