| NEW YORK
NEW YORK Feb 26 The U.S. Securities and
Exchange Commission is beefing up its capacity to detect insider
trading and other illegal activity by engaging with Palantir
Technologies, a software company originally set up to help foil
terrorists, according to people familiar with the matter.
The SEC has embarked on a multi-year deal, worth more than
$13 million, to use Palantir to help the agency crunch massive
amounts of data, the sources said.
The closely held Palo Alto-California-based company was
co-founded by Peter Thiel, the billionaire tech mogul who also
co-founded PayPal, the online payment service now owned by eBay
Inc. Palantir's software has its roots in technology that PayPal
uses to detect fraudulent transactions, and it takes its name
from a magical stone in J.R.R. Tolkien's epic "The Lord of the
Rings" that can see things not immediately apparent.
Officials expect Palantir's platform to help the SEC find
evidence of illegal activity more quickly and easily by linking
trading records and personal contact information from paid
databases with tips, complaints and referrals the agency has
received, said the sources, who were not authorized to speak
publicly about the matter.
The platform has been up and running for several months, but
it is still being rolled out to full capacity throughout the
agency, according to the sources.
Members of the SEC's Division of Enforcement are using the
new technology to look for incidents of insider trading,
pump-and-dump schemes in penny stocks, accounting fraud and
violations of the U.S. Foreign Corrupt Practices Act, among
The agency is already using analytical models and algorithms
developed in-house and run on software provided by SAS to find
suspicious activity in stock trading and other activities it
regulates. Palantir's contribution, according to the sources, is
to strengthen the connections between different sets of data.
The SEC is one of a host of government agencies turning to
"big data" to improve their detection of suspicious activity.
Palantir works with other U.S. government agencies, including
the National Counterterrorism Center.
A spokeswoman for Palantir declined to comment.
The new platform is designed to let people working in
different divisions of the SEC more easily share discoveries
about companies and people that could help lead to more cases.
Sofia Hussain, a senior forensic accountant in the SEC's
Enforcement Division in Boston, said pattern-recognition tools
already have led to several new cases. The SEC has already been
using analytical models and algorithms developed in-house to
pick out suspicious activity in stock trading and other
activities it regulates.
Palantir allows the SEC to compare the records of every
trade made in a particular stock, along with the identities of
those who made each trade, with addresses, phone numbers and
other personal information from paid databases. That enables it
to see more clearly relationships between all those trading in
the same stock.
The trend toward big data in white-collar enforcement has
reached the private sector, too. A new software vendor is
selling technology to hedge funds, pension funds and brokerage
firms that profiles traders, keeps track of their normal trading
habits and reports any suspicious deviations.
The company, AIMPaaS, began marketing its software three
weeks ago and is currently negotiating its first deal. Its
co-founder, Leslie Seff, said the company is talking to large
hedge funds. He said AIMPaaS software can be customized to
change the threshold for suspicious activity, which is
determined by changes in order size, trading venues and other