Securities fraud – once confined to private conversations, surreptitious meetings and carefully planned one-on-one engagements between conspirators – now has a new forum, the FBI and SEC (News - Alert) are reporting. That new forum is social media, which makes it easier for people to collude on illegal trading.
To try and counter it, FBI agents are engaged in searching both Twitter and Facebook (News - Alert) for clues, according to two top agents who oversee an ongoing investigation into insider trading in the hedge fund industry.
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April Brooks, a special agent in charge of the FBI’s New York field office, and David Chaves, a supervisory agent, said that advances in technology and social media have helped insider trading and fraud to proliferate.
"I will tell you technology will play a huge part, social media, Twitter (News - Alert). Any kind of technology that is new and doesn't exist today, if there is any way to exploit it, these individuals will exploit it," Brooks told Reuters (News - Alert) TV.
It’s not uncommon for hedge funds, big institutional investors and investment research firms – the organizations that are usually privy to the biggest relevant news that enables fraud – to use social media, such as Twitter, as a platform for sharing their ideas and investment strategies.
The FBI operation, which has been ongoing for some time, recently caught a big fish. The government has reportedly charged a former employee of Steven A. Cohen's SAC Capital, Mathew Martoma, with a $276 million insider trading scheme that prosecutors called "the most lucrative" ever. Martoma allegedly signed off on trades in Elan Corp and Wyeth in July 2008, in advance of bad news about a clinical drug trial the companies were engaged in.
Studies and research reports have shown that Twitter can be used as an early indicator of changing investor sentiment around particular stocks and commodities. This allows Twitter data to be used to predict price fluctuations in the market.
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Edited by Brooke Neuman