Law enforcement Mar 23, 2021

US Authorities Target Insider Trading on the Dark Web

U.S. authorities have sued a Space X engineer for allegedly selling fake…

U.S. authorities have cracked down against dark-web enabled insider trading through a high profile case involving s SpaceX engineer who tried sold  “insider tips” on a hidden site.

The U.S. Securities and Exchange Commission (SEC), and the U.S. Department of Justice (DOJ) took SpaceX’s James Roland Jones for selling insider information to dark users. The defendant pleaded guilty on March 18 to charges concerning the conspiracy to commit securities fraud by selling sensitive corporate information.

The court learnt that Jones made fake claims about having material nonpublic information (MNPI) concerning a number of publicly traded organizations and then sold the information to willing parties on the dark web in exchange for cryptocurrency.

SpaceX Engineer Sells Fake Insider Stock Tips on the Dark Web

U.S. authorities allege that in the spring of the year 2017, Jones advertised “insider tips” for sale on the dark web. Considering that the defendant lacked access to MNPI, it is reported that the tips were actually mere guesses that were based upon the defendant’s own speculation – he described them as MNPI in order to dupe his would-be customers.

In addition, Jones created another dark web moniker to promote his service offering as an “insider” who would use insider information to conduct securities transactions on behalf of other people.

The SpaceX engineer was willing to engage investor funds to trade while getting payments from part of the profits. In reality, the suspect did not engage in the purported trading activity, and did not even possess any insider information.

According to the SEC complaint, dark web traders bought the engineer’s fake insider information to be used in making decisions concerning the purchase and sale of stock of listed publicly traded organizations – he managed to rake in about $27,000 from his deceptive acts.

The SpaceX engineer is facing up to five years in prison for the charges levelled against him. According to the SEC, the defendant has agreed to discuss a possible “bifurcated settlement” that is yet to be confirmed by the court – if approved, Jones will be expected to stop committing fraud as relevant civil penalties will be decided at a later date.

Understanding the Threat

While the Jones case represents the SECs first action against securities fraud committed by dark web users, its undertones are otherwise not very impressive, as it reflects on the agency’s go-slow in the fight against financial crimes.

The U.S. institution has been working to target dozens of insider trading cases annually, even though reports indicate that SEC enforcement of insider trading dipped dramatically during the Trump administration.

Considering that firms selling securities have been exposed to a number of risks concerning the occurrence of insider trading networks on the dark web, the hidden web’s user anonymity tools have heightened the risks as insiders will operate under the radar of law enforcement in using company information illegally.

Thus, it may be a bit too late for the current case to make an impact as far as criminal deterrence is concerned on the subject of insider trading. In fact, new research by the cybersecurity company Recorded Future suggests that dark-web-enabled insider trading grew a few years ago, and reduced after 2018.

Then, the popular hidden site The Stock Insiders closed in August, which was followed by the shutdown of a similar forum called Kickass Market. Experts believe that today, insider trading activity stands at a relatively minimal magnitude as threat actors have possibly moved to more secure channels.

In conclusion, companies must adopt intentional and proactive steps in preventing or minimizing the occurrence of insider trading. Prophylactic procedures can go a long way to ensure that company employees do not misuse sensitive organizational information for malicious reasons.



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