Paul's Insights: Hacking is not a victimless crime
It reads like something out of a sci-fi blockbuster. A man sits outside a Melbourne office block using his laptop. He keeps to himself and isn't noticed by passers-by. He's not interested in entering the building - but he's very interested in what's going on inside.
Unknown to the company operating inside the building, the man has hacked into their IT network. He’s on the hunt for inside information. More precisely, he’s looking for stock tips.
When we think of cyber-crime, sophisticated syndicates come to mind. Yet just days ago, a Victorian man was imprisoned for insider trading. He was doing exactly what I described in the above scenario, hacking into the private computer network of an independent media company to gain access to unpublished stock reports containing ‘buy’ recommendations.
Share prices tend to rise when the stock has been given a buy recommendation. The man in question used unpublished reports to select and buy shares, then made profits by selling the shares soon after the reports were made public.
His activities were halted by the market surveillance activities of money watchdog – the Australian Securities and Investments Commission (ASIC).
By the time ASIC had picked up the man’s suspicious trading activity, he’d pocketed around $200,000 over a four-year period.
According to ASIC, cyber-related crimes are one of the most significant concerns for financial markets.
But the good news is that crims aren’t the only ones with access to technology.
ASIC and other bodies can – and do – analyse large volumes of sharemarket trading data. Unusual activity can flag insider trading, which was how ASIC was able to pinpoint the hacker, who ended up being sentenced to three years in prison.
As the presiding judge noted, hacking is not a victimless crime. One in three (31%) Australians invest directly in Australian shares. Many more of us own shares indirectly through our super fund and/or a managed investment fund. So we all have the potential to be impacted by insider trading.
The thing is, making money on shares doesn’t call for a laptop loaded with hacking software.
A well-chosen portfolio of shares or units in a quality managed fund can deliver strong long term returns with the added appeal of ongoing tax concessions. With a plan for how you’ll invest, it’s a far less stressful way to build wealth, and it won’t leave you jumping at every unexpected knock on the door.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.