Consumer Finance

Capital One Analysts Charged for Database Mining for Personal Profit

The Securities and Exchange Commission has charged ex-Capital One analysts Bonan and Nan Huang with insider trading after it was found that they were using the company's consumer database to predict stock prices from retail sales data, according to a formal litigation release from Jan 22.

Bonan and Nan Huang were both data analysts tasked with investigating fraudulent credit card activity for the card issuer by examining non-public databases for discrepancies. The suit alleges that during a three-year stretch starting in Jan 2012, the Huangs used the database to instead access transaction records from various consumer retail corporation in order to forecast future stock performances. Armed with this data, the Huangs then took out call and put options ahead of quarterly sales reports by these companies, resulting in a $2,826,500 profit over three years of activity, a near 1,819-percent return. While Apple was the only company formally mentioned in the case, evidence suggests the Huangs also analyzed data from Cabela's, Coach and Chipotle Mexican Grill.

While the Huangs were able to demonstrate the growing power of retail sales data in forecasting market trends, according to Finextra, the activities were in violation of Sections 10(b) and 10b-5 of the Securities Exchange Act of 1934, which prohibits "misappropriation of confidential company data." Furthermore, the SEC charges that the keyword searches, which were saved on Capital One computers, were not "in furtherance of employment duties."

The two analysts were terminated by Capital One on Jan. 16 as a result of the investigation, and the SEC filed its suit on Jan. 21 in the U.S. District Court in the Eastern District in Pennsylvania. The case will be heard at the Southern District of New York court, where the SEC will seek to recover "ill-gotten" profits with interest, as well as other fines and expenses. The Huangs' bank accounts and assets have been temporarily frozen per approval of a federal judge on Jan. 28, according to Reuters.

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