by: Stephen Sebald

Passcodes on company-owned smartphones in the case of two former Capital One employees have been deemed personal information and not corporate records by Pennsylvania federal judge Mark Kearney. The ruling is a huge win for personal privacy for the two defendants, Bonan and Nan Huang, who are being investigated by the Securities and Exchange Commission for using information regarding their Capital One position to profit in insider trading. The SEC is accusing them of illegally turning $150,000 into $2.8 million using stock information that they acquired before it was released to the general public. They also believe that proof of this crime can be found on the defendants’ company owned smartphones, but without the passcodes to get in, can’t access the evidence.

The phones with the alleged information were turned back into Capital One after the company fired the defendants for their insider trading, but only the employees knew their own passcodes for security reasons. Because this information itself was never company property, the defendants are currently protected from having to disclose those numbers, as they are seen as ‘personal information’.

The collective entity doctrine would generally allow for investigators to access corporate records that former employees possessed, and they would not fall under the right against self-incrimination under the 5th Amendment. But because the employees were the only people ever to know the passcodes, and not their employers, Judge Mark Kearney has agreed with the defendants that their information is constitutionally protected under the 5th Amendment.

Another exception to the 5th Amendment which prosecutors tried to argue is the foregone conclusion doctrine, which allows information the government already knows about to not be shielded by the 5th Amendment. However, this argument was also rejected by Judge Kearney, saying that the SEC cannot prove that the documents they need are even on the smartphones, or that they even exist. Because of this, there’s no way to compel the defendants to give out their passcode information. Defense attorney Greg Morovillo agreed with this ruling, saying: “The SEC is just guessing…the ‘foregone conclusion’ doctrine doesn’t apply.”

The defendants, who had worked as data analysts for Capital One, are still on trial for their alleged insider trading, but may be off the hook when it comes to the contents of their company phones. The SEC has also declined to comment on the case at this stage, but are understandably frustrated at not being able to access the information that they believe is just outside of their reach. As increasing amounts of company work is done online and through mobile phones, this is likely not the last case we will hear on similar questions of mobile password access and online corporate information ownership.

If you believe your information is at risk of being illegally accessed, or need a defense attorney for your business related legal case, contact us at (814) 833-1987 to learn how Sebald, Hackwelder, & Knox will work to fight for your constitutional rights, including those against self-incrimination under the protections of the 5th Amendment.