SEC Charges IT Specialist With Hacking His Firm To Insider Trade

The critical questions about insider trading currently being debated focus on the elements of tipping. Those elements are being considered by the Supreme Court in U.S. v. Salman. Sometimes, however, insider trading is simpler, more straight forward. The Commission’s most recent insider trading case is a good example. SEC v. Ly, Civil Action No. 2:16-cv-01855 (W.D. Wash. Filed December 5, 2016).

Jonathan Ly was employed at Expedia, Inc. as a Senior IT Support Technician in the firm’s Corporate IT Services Department from March 2013 through April 2015. In that capacity he was entrusted with IT administrative access privileges such as a username and password designed for IT personnel. In some instances he had various employees’ corporate computer network credentials.

In July 2013 Mr. Ly discovered that he could electronically intrude without authorization into the computers of firm senior executives. This permitted him to view the contents of electronic files maintained by the CFO and the Head of Investor Relations without permission. He was also able not just to conceal his identity when accessing material, but also to obtain a passwords file that enhanced his access.

Using his access Mr. Li was able to obtain Expedia earnings announcements for Q2 2013, Q3 2013, Q4 2013, Q2 2014, Q2 2015, Q3 2015 and Q4 2015. He was also able to obtain confidential information regarding an exclusive marketing agreement between his employer and Travelocity, Inc. and the DOJ approval of Expedia’s acquisition of Orbitz Worldwide. This access continued after he left the firm in April 2015 since he took a firm laptop. In each instance that he obtained inside information, Mr. Li traded in the shares of Expedia. Overall he had $348,515.72 in trading profits. The complaint alleged violations of Exchange Act Section 10(b) and Securities Act Section 17(a).

To resolve the action Mr. Li agreed to pay disgorgement equal to the amount of his trading profits and prejudgment interest. The U.S. Attorney’s Office for the Western District of Washington filed a parallel criminal case.

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