Disney Insider Trading Raises Questions for Social Media, IT Security and Corporate Counsel

The following information is summarized from a conversation on the Martindale-Hubbell Connected network for legal professionals. Thanks to Virgina Henschel, Rob Robinson, Mike Mintz and Steven Weinberger for their contributions and insights.

On May 26 of this year, the SEC filed a complaint against an administrative assistant at The Walt Disney Company and her boyfriend, who sent numerous hedge funds anonymous letters offering to provide the funds with inside information about Disney’s quarterly earnings in exchange for a fee. They were busted by the FBI when they sold the information to an undercover FBI agent posing as an investment manager.

When the administrative assistant thought she was going to get away with her crime, she posted the following status update on her Facebook account:

I go shopping, shopping, shopping.

As a result, the defendant’s Facebook status is being used against her by the SEC, to prove a mindset and motivation to do the crime.

In the wake of the case, corporate counselors on the Martindale-Hubbell Connected online network have debated the lessons for companies, which I’ll summarize below for those folks who are not members of that community:

  1. The biggest lesson should be held for corporate IT, not social media managers. Specifically, distribution, access and printability of pre-release earnings data should be more secure than it apparently was at Disney.
  2. There is no way that Disney could have inferred the defendant’s criminal intent from her Facebook update. Even so, all companies need to monitor social media to ensure that they react appropriately to conversations in social media that impact their brand or their organization.

Because the defendant seemed primarily motivated to get money for a Stella McCartney handbag and shoes from Nieman Marcus, some have debated whether this crime impacts the brands of Stella McCartney or Nieman Marcus. That seems unlikely to me.

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