Tying cyber crime to financial fraud, US federal officials have indicted nine people, alleging they hacked into three business newswire services to steal unpublished press releases containing sensitive financial information in a $30 million insider trading scam.
US Attorney Paul J. Fishman, District of New Jersey, and Acting US Attorney Kelly T. Currie, Eastern District of New York, announced the indictments, along with US Secretary of Homeland Security Jeh Johnson; US Secret Service Director Joseph P. Clancy; FBI Assistant Director-in-Charge Diego Rodriguez, New York Field Office; and US Securities Exchange Commission Chair Mary Jo White.
“This is the story of a traditional securities fraud scheme with a twist—one that employed a contemporary approach to a conventional crime. In this case the defendants allegedly traded on nonpublic information, ultimately benefitting from more than $30 million in illegal profits over the course of three years,” Assistant Director-in-Charge Rodriguez said. “But just as criminals continue to develop relationships with one another in order to advance their objectives, the law enforcement community has developed a collaborative approach to fighting these types of crimes.”
The federal agencies called the scam “the largest scheme of its kind ever prosecuted” and said the defendants allegedly stole around 150,000 confidential press releases directly from the servers of Marketwired, PR Newswire Association LLC (PRN), and Business Wire. They then reportedly sold over 800 of those releases relating to publicly traded companies, resulting in illegal stock market impacts.
“The defendants were a well-organized group that allegedly robbed the newswire companies and their clients and cheated the securities markets and the investing public by engaging in an unprecedented hacking and trading scheme,” Fishman said. “The defendants launched a series of sophisticated and relentless cyber attacks against three major newswire companies, stole highly confidential information and used it to enrich themselves at the expense of public companies and their shareholders.”
“As alleged, the defendants and their co-conspirators formed an alliance of hackers and securities industry professionals to systematically steal valuable inside information and profit by trading ahead of authorized disclosures to the investing public,” said Currie. “Today’s sweeping indictments are the result of a cutting edge investigation by law enforcement to combat twenty-first century criminal schemes.”
The indictments, filed in the District of New Jersey, charge three Ukrainian citizens and two US citizens from Alpharetta, Ga., with wire fraud conspiracy, securities fraud conspiracy, wire fraud, securities fraud, and money laundering conspiracy.
Another indictment in the Eastern District of New York charges Vitaly Korchevsky, 50, of Glen Mills, Pa.; Vladislav Khalupsky, 45, of Brooklyn, N.Y. and Odessa, Ukraine; Leonid Momotok, 47, of Suwanee, Ga.; and Alexander Garkusha, 47, of Cummings and Alpharetta, Ga., with wire fraud conspiracy, securities fraud conspiracy, securities fraud, and money laundering conspiracy.
Five of the nine defendants were arrested this week, while another four are being sought.
“Today’s announcement is a testament to the countless hours of hard work and dedication by law enforcement and other personnel across government, including the Secret Service investigative team. In today’s day and age, criminals are using computers instead of guns to steal money and threaten the safety and security of our cyber networks,” Johnson said.
The SEC also released a civil complaint charging the nine defendants and several other individuals and entities.
“This international scheme is unprecedented in terms of the scope of the hacking, the number of traders, the number of securities traded and profits generated,” said SEC Chair Mary Jo White in a press release.
The SEC complaint charges that in return for the information, the traders sometimes paid the hackers a share of their profits, even going so far as to give the hackers access to their brokerage accounts to monitor the trading and ensure that they received the appropriate percentage of the profits.
The traders sought to conceal their illicit activity by establishing multiple accounts in a variety of names, funneling money to the hackers as supposed payments for construction and building equipment, and trading in products such as contracts for difference (CFDs), the SEC said.
At times, the hackers and traders had a very narrow window of opportunity to extract and use the allegedly hacked information, the agency said. For example, on May 1, 2013, the hackers and traders allegedly moved in the 36-minute period between a newswire’s receipt and release of an announcement that a company was revising its earnings and revenue projections downward.
According to the SEC’s complaint, 10 minutes after the company sent the still-confidential release to the newswire, traders began selling short its stock and selling CFDs, realizing $511,000 in profits when the company’s stock price fell following the announcement.
The SEC’s complaint charges each of the 32 defendants with violating federal antifraud laws and related SEC antifraud rules. It seeks a final judgment ordering the defendants to pay penalties, return their allegedly ill-gotten gains with prejudgment interest, and be subject to permanent injunctions from future violations of the antifraud laws.
The security firm FireEye recently issued a report indicated that it tracked a hacking group intent upon using cyber tactics to commit financial fraud.
Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].
