You know who else was constantly paranoid about wiretaps? The Wire’s Russell “Stringer” Bell. For good reason.
The Fed’s insider trading investigation is giving the already cagey hedge fund industry more reason to be paranoid lately.
Hedge fund managers are paying security firms to check their offices and homes for bugs and listening devices, according to the FT. The suspicious bunch want to know whether or not the government is listening in on their conversations.
The paranoia was set in by the Fed’s insider trading investigation that’s charged dozens of hedge fund employees and expert network employees for their involvement in receiving and sharing non-public information about companies like Apple, Dell, AMD and Marvell.
The hedge fund industry is very opaque and one of the least regulated areas of the financial industry. So it comes as little surprise that fund managers are paying money to find out if anyone is listening in on their super-secret trading activity.
But doesn’t the mere act of hiring experts to sweep your home and office for wiretaps implicate a bit of guilt? That’s not to say every firm that’s paid for a sweep of their office is the next RajRajaratnam but if you’ve got nothing to hide, why all the fuss?
Before the privacy police get on my case, I want to clarify that I agree with the principle behind average citizens wanting to know whether or not the government is watching and listening. However, I don’t think the hedge fund industry should be placed on the same level.
Besides, as a computer forensics expert tells the FT, it’s highly unlikely that most hedge funds are being tapped anyway.  Edward Stroz of Stroz Friedberg tells his clients to think twice before requesting the sweeps. He asks them: “What led you to think this? Is it really worth the effort, or are you thinking back to some movie you saw?”
I wonder how many hedge fund managers are catching up re-runs of HBO’s The Wire. How many of them are sitting around living a scene similar to this one? Perhaps minus the part about ripping payphones out of the walls. But maybe not.
CLEVELAND – The threat of foreign espionage seemingly disappeared with the Cold War. But there is a new spy game in town.
“Now you’re talking about economic espionage and that is one of the biggest threats to national security that we have,” said Brad Beman, head of the counter intelligence unit for the Cleveland branch of the FBI.
Beman warns that today’s spies are just as interested in the office computer as government secrets.
“Other countries that are not necessarily friendly to the United States are gaining out technology and gaining an edge potentially over us,” Beman said.
Some of the most dangerous spies don’t work for foreign governments, but for local companies. Employees motivated by revenge, money or patriotism are betraying company secrets, according to the FBI.
At Lubrizol in Brecksville, a disgruntled employee, Kyung Kim, sold trade secrets to a competitor in his native South Korea two years ago in exchange for hundreds of thousands of dollars.
Another South Korean native, Kue Sang Chun, a former researcher at NASA Glenn, has admitted to using his credentials to acquire high tech infrared technology for another company to send to a company in his homeland.
Eric Vanderburg, an expert in information security at JurInnov, a Cleveland company that investigates corporate espionage, said theft of trade secrets is a more significant in Cleveland than most realize and happens more often than companies care to admit. Some foreign and domestic companies looking for an edge over the competition hire social engineers.
“A social engineer is a person who’s going to use persuasion to get you to divulge information or perform some action for them,” Vanderburg said.
Social engineers scour the Internet looking for someone to manipulate or even blackmail into divulging company secrets, making the coworker in the next cubicle or the neighbor next door a spy. But local companies aren’t the only targets of economic espionage.
“A lot of our research’s conducted at the university level and it’s unclassified research, which means that it’s much less protected and it’s easier for people to get access to it,” Beman said.
Copyright 2011 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The deepening riddle over a break-in allegedly involving South Korean intelligence officials presents diplomatic embarrassment to the country and threatens to foil its attempt to seal an export deal.
It was reported earlier this week that three unidentified people who broke into a hotel room of visiting Indonesian presidential envoys last week were actually officials at South Korea’s National Intelligence Service (NIS).
The intruders intruded into the hotel room in downtown Seoul in an apparent attempt to steal laptops and fled after being walked in on by a member of the Indonesian delegation.
The Indonesian delegation, led by Indonesia’s coordinating economic minister Hatta Rajasa, was visiting Seoul last week at the invitation of President Lee Myung-bak. The delegates, six of whom are ministerial-level officials, asked for support of the South Korean government and local firms for their major economic projects.
Lee pledged the country’s active participation in the Indonesia Economic Development Corridors (IEDCs), mostly focused on developing Indonesian industries and building infrastructure, saying he will seek a reciprocal, “win-win cooperation strategy.”
The attempted theft, however, presented an unexpected hurdle in the growing rapport between South Korea and Indonesia, with the NIS becoming a lightning rod for criticism for what appears to be its bungled intelligence project.
The agency also has become something of a laughing stock — the three intruders, if they were indeed NIS officials, were far from professionals. Police have said the suspects returned to the room to give back the laptops, and were filmed by a CCTV camera at the hotel.
The NIS has a history of causing a diplomatic row for its activities. Espionage attempts of a South Korean official based in Libya upset Libyan officials last year, leading Seoul to replace its top envoy to the country.
Despite the intelligence agency’s repeated denial, speculation runs high that the NIS head, Won Se-hoon, has already tendered resignation to the president for causing diplomatic embarrassment.
“This incident did an irreparable damage to South Korea’s international reputation. The country will be repeatedly embarrassed for this incident,” a senior official at the main opposition Democratic Party said Tuesday at a party meeting.
“The government should get to the bottom of the incident and immediately fire the head of the National Intelligence Service to restore its tainted reputation,” the official said.
Indonesia, on its part, has officially asked South Korea to look into the case. Nicolas T Dammen, Indonesian Ambassador to South Korea, visited the foreign ministry in Seoul Monday to ask for confirmation of the alleged involvement of NIS officials. The foreign ministry said it plans to notify Indonesia as soon as local reports are confirmed.
Dong-a Ilbo newspaper here reported the NIS will likely take disciplinary action against the three officials implicated in the incident and express regret to Indonesia to placate the country.
Local media also say the president’s efforts to clinch a major defense deal with Indonesia have met a challenge with the botched espionage attempt.
South Korea has been seeking to sell T-50 Golden Eagle trainers to Indonesia, after it failed to sell them to Singapore and the United Arab Emirates.
JoongAng Ilbo newspaper, another leading daily here, quoted an unnamed senior official as saying that the export deal with Indonesia looked poised to be sealed before the incident took place.
Ashton Kutcher, who traveled to technology conference TED this week, has been punk’d. That’s what happens when you hang out on the same wireless network as a bunch of technology geeks — who probably don’t even need hacking-made-easy-tool Firesheep to eavesdrop on Internet sessions on unencrypted Web pages.
Kutcher’s over six million followers are now going to be aware of Twitter’s lack of security thanks to these two tweets Wednesday night:
The hacker who likely accessed Kutcher’s account through a shared wireless network at TED2011 in Long Beach, California, tweeted, “This account is not secure. Dude, where’s my SSL?” followed by “This is for those young protesters around the world who deserve not to have their Facebook Twitter accounts hacked like this.”
This security problem with Twitter got widespread attention last year, due to the release of Firesheep — a program that made hacking a fellow wireless network user’s account on non-encrypted sites easy. Pressure was put on companies like Facebook and Twitter to make their websites “https” (or encrypted) by default. Facebook has since made it an option for users to enable that feature (though it’s still not a default). Twitter also has a https option, though it’s also not the default.
Back in November 2010 during the Firesheep controversy, Twitter told me: “Protecting users and providing a safe Twitter experience is incredibly important to us. We’re actively exploring avenues for increasing user safety that would address this issue.”
We’ll see if the hacking of a high-profile user’s account makes Twitter explore those avenues more quickly.
Update (March 3): Twitter’s PR account tweeted late Wednesday night, “Users can use Twitter via HTTPS: http://t.co/q84H6K3. We’ve long been working on offering HTTPS as a user setting will share more soon.”
(To avoid @aplusk’s fate, make sure you do your tweeting at https://twitter.com/.)
Throughout the U.S. government’s ongoing insider trading investigation, much of the outrage has centered on rich and powerful investors using improperly-obtained information to gain an edge on the mom-and-pop investor. Tuesday’s SEC charges against former Goldman Sachs board member Rajat Gupta, which allege the director shared non-public information with hedge fund manager Raj Rajnaratnam, just adds to the perception that the financial markets are not a level playing field.
Mark Rifkin, a partner at law firm Wolf Haldenstein Adler Freeman Herz specializing in securities and shareholder rights litigation, said Tuesday’s charges against Gupta “reinforced the suspicion that big-money guys are in better position to profit, but not because they are smarter or better investors.”
Gupta stepped down from the board at Goldman last spring, around the same time the Wall Street Journal reported the former McKinsey executive was linked to the insider trading investigation into Galleon.
Perhaps the worst part of the actions, which Gupta is denying through his lawyer, is the betrayal of trust that comes when an outside director – who is voted onto a board with the explicit mandate to protect shareholders and keep management accountable – uses his position to profiteer, or help his friends profiteer, says Rifkin.
SEC Division of Enforcement Director Robert Khuzami said “Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets. Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”
“It’s a breakdown in the system, says Rifkin. And what happens, he wonders, the next time Blankfein has to share sensitive information with his board ahead of its public release?
“The bigger issue is whether it is one rogue director or if it represents something about the culture,” says Rifkin. “Gupta was on the governance committee! Talk about the fox in the henhouse.”
Goldman Sachs declined to comment on the charges against Gupta Wednesday. The director is also alleged to have passed Rajnaratnam pre-release earnings figures from Procter Gamble, where he was also on the board. The consumer products maker confirmed that Gupta stepped down from its board Tuesday. American Airlines parent AMR, where Gupta is also a director, declined to comment on the matter, as did Buffett’s Berkshire Hathaway.
The SEC’s allegations are totally baseless. Mr. Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.
