REGULATORS are having to change their way of looking at breaches as the world of the net has changed how information is transmitted. You also wonder if the creators of these new tech systems ever envisaged that their work would be part of criminal activity.
From carrying boxes of paper to now just a screenshot with a mobile phone, information can be sent within seconds that used to take at least a few hours if not days to reach the same number of people.
A recent investigation into 30 stock brokers, traders, research analysts started close to the Christmas season which included regulators seizing personal mobile phones, laptops and documents.
The reason for this? A newswire carried details how unreleased financial results for a quarter was being spread by non other than via Whatsapp chat groups. And the details of the results was a few days prior to the official announcement.
The investigation showed that some of the messages were not true however there was a message that was accurate; analysts and the market were predicting a profit however the Whatsapp message disclosed that in fact the company would make a loss of at least US$7.71mil.
Just a couple of days later, the company in fact announcement was indeed a loss. Although the number was not US$7.71mil loss, the Whatsapp message was close enough at being a loss of under US$7mil.
There was a second case which included another listed company where unpublished price sensitive data was also released via a Whatsapp chat group.
This company was yet another company that was targeted by a newswire that there results were released ahead on a whatsapp chat. The regulator found that the release of the information was ‘either matching or were very close to the actual announcement except for a few figures”.
The regulator also noted the “UPSI” which stands for unpublished price sensitive information source cannot be ascertained at this point.
The regulator has also said that they will be reviewing the process of controls of information at the public listed company. However, the processes must be inadequate for the financial information leak to have happened.
In this instance, the company has been given three months from the date of the directive of how the leaks occurred to take corrective action.
The regulator in that country is now full on going through the share trading data of these companies. In today’s world and data mining capabilities, the regulators are able to detect who was indeed trading in the stocks at the time of the Whatsapp messages.
The investigation also includes the timing of the phone calls of those associated with the Whatsapp messages as well as with those who traded the stocks at the time of the messages.
The regulator is reviewing all those broking houses as well as analysts that are covering the stock. Market observers have also commented that there is a likelihood of using “call metadata” of the individual. This means that the content of the call is not important, but more what time the calls were made.
The chairman of that exchange has come out very strongly to state that they will not’ sit idly by when such pertinent information is leaked in this manner’.
Everyone knows that releasing financial results before it becomes public information contravenes the insider trading rules. Any information that is material and non-public is considered insider information.
However, the rules in many jurisdictions of who is considered to be an insider has been widened to include “anyone who is in possession of or having access to unpublished price-sensitive information regardless of how they came in possession of such information.”
This investigation brings back to mind the investigation that took place in the US whereby the regulators were reviewing the mobile phones and Blackberry of the trader that was caught for insider trading.
And with the data mining capabilities now, the investigation showed that the trader did in fact scroll down the email information which contained inside information. The trader had initially claimed that he received the email but hadn’t read it.
What all of this says is that with all the usage of mobile phones and data, just opens the doors for complete tracking of individuals on their information flow – either giving information or receiving information.
Investigators are now monitoring the social media websites, as well as requiring telephone companies to hand over data on phone calls – who made the calls and what time and to which number.
Of course, those in the business to defraud will tell you that they are now moving to non-traceable phone calls; that is the phone calls via Whatsapp or via the internet.
Many market observers are now watching to see how far the regulators will go and what they will do to increase the level of enforcement.
We expect that cell phones with cameras is going to come under some form of scrutiny in office environments – perhaps even having all cell phones left outside an office.
As we see the brick and mortar industries becoming obsolete due to ‘disruption’ – perhaps regulators should start to enforce fines on companies that allow their electronic systems to aid in criminal activity; especially so when those companies refuse to help in any form of investigation such as recalling whatsapp data or providing information that we all know they maintain.
© CORSTON-SMITH ASSET MANAGEMENT SDN BHD 2014