Insider trading is one of the scourges of Wall Street. Despite the large fines, prison time, and embarrassment linked to insider trading, people from Martha Stewart to John Boehner continue to be tempted by the instant riches promised by trading on inside knowledge. The Dark Web could give a mischievous few access to market moving information before the general public. Since there is a loser on the end of every trade, should your IRA returns suffer at the expense of an insider’s profits? Based on recent high profile arrests, authorities seem to be getting better at tracing insider trading. But are they, really? Or is it going underground faster than Jordan Belforts Wolf of Wall Street firm? The Dark Web is best described by Michael Bergman, the CEO of BrightPlanet, a firm that harvests data from the Dark Web, who put it concisely: “Searching on the Internet today can be compared to dragging a net across the surface of the ocean. While a great deal may be caught in the net, there is still a wealth of information that is deep, and therefore, missed.” Like a forgotten back alley, the Dark Web seems an ideal place for illegal investment activities.
The Dark Web is only accessible via the Tor browser. A Tor (The Onion Router) browser is special because it uses multiple layers of security, like the layers of an onion, to hide the internet protocol (IP) address of those accessing the sites it hosts. Without an IP address, it is nearly impossible to trace users back to their computers. Thousands of people evaded the FBI by using the Tor browser to do illicit deals on sites like The Silk Road – the e-bay for drugs, guns, and hit men. I met a man who claims he buys stolen credit card details on the Silk Road with Bitcoins and then goes on shopping sprees at outlet malls. With complete anonymity now possible, what other illicit profit seeking enterprises can find a home on the Dark Web?
Last November hedge fund billionaire Steve Cohen’s firm SAC Capital paid the largest insider trading fine ever, a cool $1.8 billion dollars. Every year worldwide insider trading resulting in billions of dollars in fines and years of jail time. In 2006, Operation Perfect Hedge was a large sting set up by the federal government used to investigate why hedge fund profits far outpaced those of the market. It was widely suspected that insider trading played a part. Between 2008 and 2011 a total of 83 arrests were made using information from wiretaps and search warrants. Despite coming out of the corner swinging, 79 defendants were knocked out in court, giving the New York State Attorney a better record than Mike Tyson.
Last year alone, 58 insider trading cases got the governments attention many of which of were brought to court by a paper trail of emails and phone calls. While the average inside trader would find it difficult to make his phone calls fly under the radar of any government agency, posts on the easily accessible dark web are just as hard for the Feds to trace. Looking at the graph below, some assume those pursuing legal punishment for insider trading increased over the year, and the would be violators have drowned under a sea of fear. In reality the insider trading has moved into another realm and only those too antiquated to use new evasive technology are caught, almost like a form of natural selection. Only the cleverest survive.
Tor hosts thousands of message boards where all posts are anonymous. Every user is known by an alias. This totally anonymous setting makes the proliferation of sensitive information very easy and safe for the users. Since there is a loser on the end of every insider trade, your money and retirement could be at risk.
The Tor browser gives employees a marketplace to exchange insider information on their firms for Bitcoin or insider information on other public firms. Individuals can trade with such information, profiting illegally without a paper trail. The Securities Exchange Commission (SEC) can identify large insider trades placed just before earnings reports. Periodic smaller volume trades, however, would not raise the flag. The Dark Web is a safe haven for crime now, but it might not be in the future. As a novelist said, “nothing stays secret forever”.