Published On: Fri, Jan 18th, 2019

Equifax Insider Trading Case Reignites Used vs. Possessed Debate

Most people — including about 145 million victims around the world — know about Equifax’s epic data breach in 2017. In fact, the remediation process was so complex and difficult, that Equifax’s own InfoSec team had to query the hacker’s own database to grasp the sheer scope of the attack.

Equifax Insider Trading Case

However, what many people outside of the securities law world don’t know, is that there is another Equifax story unfolding before the court. It involves the company’s former CIO, and it has reignited a decades-old debate involving insider trading.

The Case 

The case in question involves Jun Ying, Equifax’s former CIO. According to the SEC, in the very early days of the Equifax data breach, Ying searched the web to find out how much of a hit Equifax’s stock was likely to take once the breach was revealed to the general public. Based on that research, Yung exercised options on 6,815 shares of Equifax stock (which was 100% of his holdings), and sold them for $950,000 — netting him more than $480,000 in profit.

That is a far cry from the estimated $439 million that Equifax has shelled out due to the data breach. However, don’t feel too bad for the company or worry that they’ll be filing for chapter 7 and calling bankruptcy attorney Charles Huber. In 2017, Equifax generated $587.3 million in net income from $3.1 billion in overall revenues. They are a long, long way from heading into the red.

Used vs. Possessed

Ying attempted — and failed — to have the indictment dismissed per a 1998 ruling, in which the Eleventh Circuit court found that to the SEC was obligated in civil insider trading cases to establish that the defendant both possessed non-public information that was reasonably likely to impact the value of a stock, and that the defendant used that non-public information as part of a deceptive trade (or trades). In other words, it was not enough for the SEC to prove that a defendant had the means to engage in insider trading. He or she must also have actively used that information to obtain ill-gotten gains.

The Ruling (So Far) 

The judge in Ying’s case dismissed his application to dismiss the indictment. However, it did warn prosecutors that they would ultimately need to establish that Yung both possessed and used the non-public information; i.e. that Equifax had experienced a massive breach, and once the information became public it was a foregone conclusion that the stock price would rapidly plunge.

However, the news was not all good for Ying. He is also facing a securities fraud charge under 18 U.S. Code Section 1348, for which the SEC is not obligated to establish that he both possessed and used the non-public information. If Ying is convicted on that charge, he faces up to 25 years in prison and significant fines. The case continues in the U.S. District Court for the Northern District of Georgia.