Two Capital One employees have been charged with insider trading by the Securities and Exchange Commission after they mined customer transaction data to successfully predict stock performance.
The SEC is charging Bonan Huang and Nan Huang with "engaging in illegal insider trading on the basis of material, non-public information about the sales of predominantly consumer retail corporations".
The two men worked as data analysts tasked with investigating fraudulent credit card activity. The SEC says that over a three-year period, they used Capital One's database to conduct a deep dive into the transaction records of consumer retailer corporations to forecast future stock performance
"The defendants conducted hundreds, if not thousands, of keyword searches of this database," says charge-sheet. "These searches, which were not done in furtherance of their employment duties, allowed the defendants to view and analyse aggregated sales data for the companies they searched."
Armed with data, Huang and Huang made a series of profitable transactions by buying up call options on public companies in advance of the public release of quarterly sales announcements.
According to the SEC, the defendants made a staggering $2,826,500 trading options in this way, generating a three-year return of approximately 1,819%
While their activities demonstrate the power of retail sales data in forecasting market trends, the SEC is charging the men with violation of Section 10(b) of the Securities Exchange Act of 1934, which relates to misapropriation of confidential company data. The watchdog is seeking a return of profits made and unspecified financial penalties.