SEC and DOJ Target Insider Trading on the Dark Web

The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) brought actions against SpaceX engineer James Roland Jones for selling insider information on what’s known as the dark web.

On March 18, 2021, Mr. Jones pleaded guilty to conspiracy to commit securities fraud by selling material nonpublic information.

According to the SEC’s complaint, Mr. Jones lied about possessing material nonpublic information about a number of publicly traded companies and then sold this information, which he falsely claimed to be “insider tips” on various dark web marketplaces.

Traders purchased Mr. Jones’ fake insider information and then relied on it to purchase and sell stock of these publicly traded companies. The complaint alleges that Mr. Jones made approximately $27,000 as a result of his misrepresentations and deceptive acts, and he now faces up to five years in prison.

The dark web, which is well-known for promulgating illegal activity under the guise of anonymity, has made it easier to transmit and sell material nonpublic information. For instance, the insider-trading forum that Mr. Jones accessed was designed with the goal of creating a “long-term and well-selected community of gentlemen who confidently exchange insider information about publicly traded companies,” according to the complaint.

Since companies began selling securities, they have faced the dangers of insider trading by company insiders. However, the anonymity of the dark web places companies at a heightened risk that insiders will use confidential information illegally, leading to potential reputational and other harms for the company.

Thus, it is increasingly difficult to safeguard and monitor sensitive information. This case, however, serves as an example that the SEC can and will pursue securities law violators, even if they only operate on the dark web.

Companies need to take proactive, prophylactic steps to help minimize the danger that company insiders will misuse access to material nonpublic information.

The original article can be viewed in its entirety here.

Izabella Babchinetskaya (LAW ’19) is an associate at Ballard Spahr in the firm’s White Collar Defense/Internal Investigations Group. During her time in law school, Izabella was a member of Temple’s National Trial Team where she was a regional champion.

David L. Axelrod is a partner at Ballard Spahr, a former Supervisory Trial Counsel at the U.S. Securities and Exchange Commission’s (SEC) Philadelphia Regional Office, and a former federal prosecutor.David is the Practice Leader of Ballard Spahr’s Securities Enforcement and Corporate Governance Litigation Group. David’s practice focuses on representing companies and individuals under investigation or charged by federal and state agencies.

Henry E. Hockeimer, Jr. is a partner at Ballard Spahr and leads the firm’s White Collar Defense/Internal Investigations Group. His practice focuses on white collar criminal defense and securities fraud/litigation.

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