The Dark Web and Fake Inside Information Sold For Trading

From “Fake News” to “Cancel Culture” it can be difficult to virtually impossible to determine what to believe and what not to believe. Careful evaluation, due diligence and other tools can help evaluate what to believe and what to reject — but not always and there are no guarantees.

In contrast, consider those who troll the “Dark Web.” That is the large, vast trove of material available on the internet, excluding the small portions indexed by Google and other search engines. So, what is on the “Dark Web” and why would anyone care other than perhaps as a curiosity? One site claims to have MNPI. If you are a stock trader, and if you believe in these kinds of sites, and if you don’t have scruples about the sources of the information, trading on this information could be an option.

So it was in the Commission’s latest insider trading case. SEC v. Jones, Civil Action No. 1:21-cv-00659 (S.D. Ind. Filed March 18, 2021). James Roland Jones trolled the Dark Web. All sorts of items were available for sale – illegal drugs, firearms, counterfeit goods and malicious software to name a few.

In 2016 Mr. Jones discovered a site that claimed to provide material non-public information. Access to the site was not for everyone. To enter a potential user had to demonstrate that they had genuine inside information about a publicly traded stock. Mr. Jones, lacking actual inside information, created MNPI – a lie. He failed to gain entry. He tried again. He failed. He tried again, but only after carefully studying a stock. Success at last! His guess was right and won him entry. Moderators of the site were told the supposed illegal tip came from a friend.

Nothing lasts forever. To stay in the club Mr. Jones and others had to provide a continuing stream of illegal tips. His membership was only for three months.

Undeterred, Mr. Jones devised a new scheme. If he could not stay in the Dark Web Insider Trading Club, he would create his own. In the spring of 2017 Mr. Jones listed “inside tips” for sale on one of the Dark Web marketplaces. Defendant claimed that his information came from the Dark Web Insider Trading Forum and/or corporate insiders.

Mr. Jones’ information was typically general predictions that the shares would go up or down. Sometimes his tips for the same stock went both ways – he predicted the shares would go up for some customers and down for others. In some instances he agreed with a customer to split the trading profits. Payments for the information were in bitcoin.

The tips provided by Mr. Jones were false. In many instances they were vague enough that buyers might have questioned if the information was material. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Middle District of Florida filed parallel criminal charges. U.S. v. Jones, No. 8:21-cr-33 (MD. Fla.).

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