FBI Databases Used for Stock Fraud

Phronesis writes "The Associated Press reports that two FBI agents have been indicted for conspiring with the owner of InsideTruth.com to short stocks and then leak information from the FBI's internal databases (e.g., unpleasant personal information about corporate officers). They also allegedly blackmailed companies with the threat of revealing such information. This case illustrates the failure of law enforcement agencies to implement adequate protection against the abuse of information they collect."

Stop this from happending in the eu

[Anonymous Coward]

Help stopping a propsal that will force the ISP's in the EU to store info on their users for several years.

info at http://stop1984.com/index2.php?text=letter.txt [stop1984.com]
I guess we're heading the same way as you guys

Re:As usual its an inside job

[term8or]

Yeah. I remember a few years ago reading that 70% of computer cracking incidents are caused by people inside the organisation

The real problem is preventing internal people breaking a system. Realistically, if your Computer Services Manager is cracking your e-mail system to read internal mail from directors, you don't have much hope. (Something that happened in a company I was working for a few years back).

One thing I'm impressed with is the fact that this story came out at all. I've heard rumours of similar things happening in the UK, and they are all covered by the official secrets (Cover the govt arse) Act.

this doesnt really deal with gov't data collecting

[sketchkid]

these guys would just find out little companies (traded OTC [over the counter], not on the nasdaq or NYSE) that were being investigated by the FBI for wrongdoing. then, the guy would borrow a lot of shares of the company (these were very small companies, so we;re talking about penny stocks. i.e., $0.42 a share) then immediately sell them, trash the company and recommended selling the shares on their website and then waited for news about the FBI investigating them to break. this would, invariably, cause the stock to drop substantially (a drop from $0.42 to $0.21 would be a 50% drop) then these guys would re-buy the stock and give it back to whomever they borrowed it from. this gave them a substantial profit.

they were finding out which companies were being investigated by the FBI and then trading based on that information. it wasnt because of gov't data collecting, but, rather, because of gov't investigating.

I Agree, But...

[virg_mattes]

In this case, the FBI had a legitimate reason for having the data. The abused persons were under active FBI investigations at the time. As stated above, the agents would borrow shares of a small company when they knew that one of the principals of the company was under investigation. They'd sell the shares, leak the bad secrets, wait for the share price to fall, buy them back, return them to the original owners, and pocket the difference. It's certainly abuse, but in this particular case the FBI as a whole had good reason to have the data.

Virg

RTFA

[virg_mattes]

Actually, they were leaking information about ongoing investigations to affect stock prices. The way they'd do this is to borrow stocks in companies whose principal(s) were under investigation, sell the stock, leak the data, wait for the stock price to fall, buy back the shares, return them to the original owners, and pocket the rest. So, in answer to your question, the "who"s that wouldn't want this:

1.) The individuals under investigation. Remember, they are innocent until proven guilty, and more than half of people investigated by the FBI are exonerated, so the reputation damage done by the leak may not be deserved.

2.) The stockholders, both the ones from whom the stocks were borrowed and other stockholders whose investments are getting trounced by these leaks. Remember, more than half of these investigations do not result in charges.

3.) Others who are also being investigated by the FBI. What assurance do they have that they won't be the next targets of this?

4.) The stock market in general, which takes a very dim view of insider trading of any kind, since it undermines faith in the system, which is key to its survival.

That ought to be enough to start with. The thing to remember in this is that they were not just leaking data about past offenses, they were leaking the fact that they're under investigation currently.

Virg