Insider Trading, At Your Service

Author: Editorial Team

As the dark web economy evolves, it increasingly becomes a “negative mirror” of the legitimate economy on the world wide web. It looks much like that old Star Trek episode where Captain Kirk and his cohorts are transported to a parallel evil universe – everyone and everything looks the same, they’re just evil.

On the dark web, we’re seeing this through the development of “evil marketplaces,” or marketplaces that function much like Craiglist and Amazon, but for illicit activites. They are places where anyone can market their ill-gotten bounty – data, exploits, network access, etc. As we wrote in a previous blog, there is also a growing ecosystem around “as a service” offerings, where anyone with limited technical knowledge can monetize and consume illegal information. A prime example of this is the rise of an insider-trading-as-a-service (ITaaS) site.

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The SEC Can’t Keep Up

The Securities and Exchange Commission (SEC) takes hundreds of insider-trading enforcement actions every year. Usually these are against high-profile violators, like company executives, hedge fund directors, celebrities, and so on. And, this has proven to be a reasonably effective approach – these violators tend to conduct large-scale insider trading schemes where they stand to make millions of dollars, and the publicity around their arrests helps to dissuade others from trying something similar.

However, for every senior executive privy to inside information, there are many more lower-level employees who also have access to material information that can be used for ill-gotten gains. Think about all the departments in companies with staff members who are aware of not-yet-public material information – legal, accounting, investor relations, IT, marketing, sales…in fact, it’s hard to think of a department that does not have access to this kind of information. And, some people can take advantage of this to make small-time gains in the stock market, even if it’s just giving a tip to a friend.

With the emergence of the dark web, however, it became possible to turn this cottage industry of small-time insider trading into big business, by creating an ITaaS site. The site gives low-level insiders the ability to monetize their knowledge without making any stock trades that might tip off regulators or their employers, while also giving subscribers the ability to make money off a steady diet of inside information. Below you can see the ITaaS site found by our research team:

In its Agency Financial Report, the SEC discusses the dark web as an emerging threat, but provides precious few details on what exactly it can do about it: “In terms of emerging threats, the Cyber Unit will move forward in its focus on ICOs, violations by gatekeepers, and cyber-related trading violations. It will also work within the agency and with law enforcement partners across the government to advance ENF’s ability to investigate increasingly complex misconduct, such as by tracing digital asset transactions, tracking illicit online trading-related activity, and identifying misconduct occurring on the dark web.”

This all sounds good, but as we have seen in the past, even when law enforcement is successful at taking down dark web marketplaces, the underlying criminal economy simply moves on to other sites and channels. As we wrote in our annual predictions blog, the dark web is becoming more decentralized due to the disappearance of large marketplaces, and threat actors are moving to a broader array of secure channels to continue their commercial activities. Getting back to our Star Trek analogy, threat actors are moving to multichannel commerce, just like legitimate companies.

So, what does this all mean for insider trading? It’s a much bigger problem that involves far more people than the SEC or Wall Street will tell you. And while some day-trader making $10,000 on inside information might not seem like a threat to our financial markets, multiply that by the entire addressable market of potential small-time insider traders, and it pretty quickly adds up to substantial numbers – potentially larger than what any crooked hedge fund manager might try using conventional means.

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GroupSense Can Help Mitigate Insider Threats

Until the SEC and other government organizations figure out a way to quash any more ITaaS sites and other insider threats from the dark web, companies need to do their own monitoring to make sure their employees are not participating in insider trading communities. The dark web may be anonymous, but with the right resources and intelligence, it is possible to narrow down the potential sources of information leaks. And if employees know their company is keeping tabs on the dark web, chances are they’ll stay away from the evil parallel universe and go back to just giving Aunt Sally a “hot tip” over Thanksgiving dinner.

GroupSense has access to the the farthest and darkest parts of the dark web where insider threats take place. Our team provides you with proper, actionable and finished intelligence to limit insider risk and maintain a fair and even playing field. Contact us to begin mitigating insider threats within your company and throughout your supply-chain.