FBI, SEC Nab Pair Using Gmail To Run Insider-Trading Scam; Undercover Agents Responded To Offer To Sell Disney Earnings Report

So, you want to use Google’s free Gmail service to pull off a scam? From this day forward you should not be confident that you’re not already caught. The FBI today announced that it set up a sting to nail two people who were trying to sell the quarterly earnings report of Walt Disney Co. before its scheduled release date by communicating with potential buyers through a Gmail account.

Arrested today on federal charges of wire fraud and conspiracy were Bonnie J. Hoxie and Yonnie Sebbag. Hoxie, 33, of Los Angeles, was a Disney administrative assistant and had access to the company’s confidential communications. Sebbag, 29, also of Los Angeles, is a friend of Hoxie’s and used the alias “Jonathan Cyrus.”

The scheme began when Sebbag and Hoxie sent anonymous letters through the U.S. mail to “multiple hedge funds and other investment companies, many of which were located in Manhattan, offering to sell the Inside Information for purposes of illegal insider trading,” authorities said.

FBI agents posing as hedge-fund traders interested in obtaining the information communicated with the scammers, authorities said.

In a separate fraud action by the SEC, the agency said the letters all had Los Angeles postmarks and stated (emphasis added):

Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is [Actual Gmail Address Email Deleted By PPBlog]. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.

At least 20 hedge funds, including funds based in several U.S. states and European countries, received the same or substantially the same letter, the SEC said.

The SEC’s filing suggests the scammers were made to believe that the actual undercover agents were worried about the scammers being agents.

“First of all, i am not a fed,” Sebbag allegedly wrote to the undercover agents. “I have no way to prove it at this point but i am not asking you to disclose your identity not i will disclose mine. It is up to you to determine if this is worth the risk as i did. I work for Disney, that is all i can tell you.”

Sebbag, though, did not work for Disney. He lied about that and relied on the information provided by Hoxie, an actual Disney employee and Sebbag’s co-conspirator, authorities said.

On May 14, the FBI “paid” Sebbag $15,000 for the inside information after meeting him in New York to seal the deal.

“This investigation should serve as a warning, if you’re contemplating acquiring and profiteering from insider information, sometimes the person you’re trying to sell it to is really an undercover FBI agent,” said George Venizelos, acting assistant director-in-charge
of the New York FBI field office.

“What the case also shows is that the FBI’s vigilance is needed to police the small percentage of bad apples who can cause so much damage,” Venizelos said. “The majority behave like the dozens of hedge funds and investment companies that received Hoxie and Sebbag’s offers of insider Disney information: none took the bait, and almost all notified the FBI.”

The SEC’s director of enforcement said the case sends a powerful message.

“Hoxie and Sebbag stole Disney’s confidential pre-release earnings information and put it up for sale,” said Robert Khuzami. “Fortunately, multiple hedge funds reported the illicit scheme, and the SEC and criminal law enforcement authorities acted quickly to stop this brazen attempt to establish an ongoing insider trading business.”

Prosecuutors noted that, after Sebbag received the $15,000, he “further agreed that he would provide similar confidential information in the future in return for a thirty percent share of any profits from the insider-trading scheme.”

It is common for scammers to use free email addresses to cloak their identities.

Credit for the busts was given to the interagency Financial Fraud Enforcement Task Force, which President Obama created in November 2009.