Last week SEC Chairman Jay Clayton announced a data breach into the SEC’s EDGAR system, a vast database that contains information about company earnings, share dealings by top executives and corporate activity such as mergers and acquisitions. The announcement immediately made headlines warning of possible insider trading fraud. After all, accessing that EDGAR information before it’s disclosed publicly could allow hackers to profit by trading ahead of the information’s release.
But if the perpetrators of the EDGAR hack did trade on material, nonpublic information stolen from EDGAR, it is not a case of unlawful insider trading. Far more complex and challenging for SEC enforcement staff, the EDGAR hackers who traded would be charged instead with “outsider trading,” a much lesser known and barely tested legal theory of securities fraud.
‘Enforcement 40’ for 2020
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