Facebook and Twitter Cause Insider Trading Headaches for the SEC

Lauren Fox

Unlike the days when insider trading was limited to using an anonymous pay phone booth or creating code words for secret communication, today's social media networks have created a new sphere for financial insiders to engage in stealth activities. And it's making the Securities Exchange Commission's Chairwoman's job a bit tougher.

Mary Schapiro told reporters at a Christian Science Monitor breakfast Wednesday that the popularity and simpliciity of social media makes insider trading easier and more accessible than ever before.

"There is so much that is great about social media, but it does create challenges for regulators," Schapiro says.

Schapiro explained the SEC became clued into some of the challenges of the Internet when investors posing as consumers would log into chat rooms to hype specific stocks and convince investors to buy shares.

Today, the challenge is even greater with sites like Twitter, Facebook and various blog networks allowing anonymous insiders to quickly disseminate information to mass audiences.

"The incredibly low cost and ease of reaching millions of people through social media creates opportunities for mischief, without question," Schapiro says.

Another hurdle for the SEC is proving that insider trading is occurring on constantly updated and changing social media sites.

"Because we are very reliant when we do investigations on documentation, on E-mails, on telephone calls that might be taped by trading desks or by others, to the extent some of this is very ephemeral, it makes it harder to build cases," Shapiro says.

It can be difficult to access social media accounts for the purpose of investigations. While the government can subpoena social media sites to examine who is behind a particular tweet or message, various groups, including the American Civil Liberties Union, have expressed privacy concerns over tracking individual's social media usage.

NEWS & CURRENT EVENTS ...

Investing - Facebook and Twitter Cause Insider Trading Headaches for the SEC