Hacking And Trading, A Powerful Combination

A couple of days ago I dismissed the threat to Internet commerce from
hackers shutting down sites through the kind of “denial of service”
attack that crippled Yahoo! (YHOO)
for nearly four hours on Monday.

But given the skyrocketing prices of shares in a number of Internet
security companies in the wake of subsequent assaults on some of the
Web’s other most-popular sites, it’s now clear that these acts of
sabotage could be used to manipulate stocks.

This, of course, is a serious concern. Historically, the ability to
manipulate the stock market has been the exclusive province of Wall
Street’s power brokers – underwriters, institutional investors and the
filthy rich. That some anonymous outsiders – maybe even damned kids –
could move so many stocks with an Internet terror campaign must deeply
disturb the street elite. Even more troubling, they didn’t think of it
themselves.

The numbers are astonishing. Just look at Wednesday’s gains:

• WatchGuard Technologies (WGRD) – up 46 percent
• Network-1 Security Solutions (NSSI) – up 33 percent
• Axent Technologies (AXNT) – up 22 percent
• Pilot Network Services (PILT) – up 21 percent
• RSA Security (RSAC) – up 20 percent
• V-One (VONE) – up 18 percent
• Entrust Technologies (ENTU) – up 11 percent
• ISS Group (ISSX) – up 11 percent
  Litronic (LTNX) – up 10 percent
• Check Point Software (CHKP) – up 6 percent
• VeriSign (VRSN) – up 3%

Through mid-afternoon trading Thursday, only NSSI (down 9 percent) has fallen
back considerably. And while Wednesday’s advances by CHKP and VRSN seem
relatively unimpressive, each is up 12% in Thursday afternoon’s session.

The irony is that most investors have no idea if any of these companies
sell products or services that could effectively repel denial-of-service
attacks. This is investing based on opportunism, like buying stock in a
construction company after an earthquake. The big difference is that the
tremors rocking the Internet are man-made.

I still don’t think these attacks will do much to disrupt Internet
commerce, though an FBI probe as ordered by Attorney General Janet Reno
is welcome if it will discourage such activity. The real problem will be
if certain sectors and stocks spasm every time there’s an incidence of
Internet terrorism. It could introduce a whole new breed of investor –
the hacker/day trader.

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