August 18, 2015
The SEC announced indictments on August 11, 2015 for insider trading. What was unusual was that these were not indictments of corporate insiders, but rather of “hackers” who had been accessing corporate press releases before they were published. These hackers hacked into information on earnings and arranged for trading on the impacted stocks before the releases were made public.
“In one particularly dramatic instance on May 1, 2013, the hackers and traders allegedly moved in the 36-minute period between a newswire’s receipt and release of an announcement that a company was revising its earnings and revenue projections downward. According to the SEC’s complaint, 10 minutes after the company sent the still-confidential release to the newswire, traders began selling short its stock and selling CFDs [contracts for difference], realizing $511,000 in profits when the company’s stock price fell following the announcement.”
This case shows the value of sensitive information which is accessed before it is made “public” and also should reinforce the need to protect such information. In this case, there was only a short period of time before the information was made public, but, for those few moments, the non-public data was worth over ½ million dollars.
For those of us in competitive intelligence, there is a similar lesson. Competitively sensitive information must be kept from your competitors, at least so long as its loss would be damaging. However, very few firms work to protect themselves against CI (and, as this series of indictments shows, not always successfully against hackers, either).
Those of us who work with CI should be the most forceful advocates for the creation and maintenance of a business-wide program to defend against the CI efforts of our competitors. Such a program is an invaluable supplement to your own (offensive) CI efforts.
“If I am able to determine the enemy’s dispositions while at the same time I conceal my own, then I can concentrate and he must divide.” — Sun Tzu, The Art of War
 For much more on that, see John J. McGonagle and Carolyn M. Vella, Protecting Your Company Against Competitive Intelligence, Praeger, 1998.
CFO Magazine has previously reported that so-called “disclosure overload” is prompting a major regulatory review of the way financial reports are to be drafted. The article reports that, over the past 20 years, the
“average number of pages in 10-Ks devoted to footnotes and the Management’s Discussion and Analysis…has quadrupled….At that rate, in 20 years companies will be devoting more than 500 pages of their annual reports to footnotes and the MD&A.”
The regulatory concern is that companies are putting in “an avalanche of trivial information” to make sure that they are in complete compliance with all disclosure rules. The goal of the interested regulators is to remove most of this and to present to investors, the nominal audience for these filings, easily read information, but only on significant matters.
Whether or not this is a good idea from the point of view of compliance with the securities and other financial statutes is not something I want to get into. But remember, others, such as those of us involved with competitive intelligence, are also users of these reports.
So keep this in mind: what a corporation may consider to be “trivial information” in the grand context of, say, $6.3 billion of revenues, may be absolutely critical to those of us attempting to do a deep dig on that same business, that is, to its competitors. It is one thing to provide forward-looking information dealing with the impact of currency trading (which should probably be there), and another to pick up the thread of changes in the way research & development or capital investment is now being made and will be made in the future which is included among what regulators consider just “overload”.
Someone’s “trivial information” is someone else’s competitively critical data.
 US Securities and Exchange Commission, International Accounting Standards Board, and the Financial Accounting Standards Board