This note argues that computer hackers who sell inside information instead of trading on it themselves, referred to in the note as hacker-sellers, avoid liability under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. Rule 10b-5 criminalizes the use of a manipulative or deceptive device “in connection with the purchase or sale of any security.” Hacker-sellers fall outside the scope of this rule for two reasons. First, the type of hacking employed by hacker-sellers is not always “deceptive,” and only the forms of hacking which deceive the computer into thinking an authorized user is seeking access are “deceptive” under the statute. Second, hacker-sellers’ conduct is not “in connection with” a securities transaction because they do not subsequently trade on the information they acquire. This note proposes that the aiding and abetting provision of the Securities Exchange Act—codified in Section 20(e)—is a more effective provision of the Act under which to charge hacker-sellers because the hacker-seller effectively facilitates the trader’s insider trading violation instead of violating 10b-5 himself.
Ryan H. Gilinson,
Clicks and Tricks: How Computer Hackers Avoid 10b-5 Liability,
82 Brook. L. Rev.
Available at: https://brooklynworks.brooklaw.edu/blr/vol82/iss3/7