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 Prosecutors announced charges against nine people in an
insider-trading case that marks the first time criminal charges have
been brought for a securities fraud scheme involving hacked inside
information, in this instance 150,000 press releases from
distributors Business Wire, Marketwired and PR Newswire.
"This is the story of a traditional securities fraud scheme with a
twist - one that employed a contemporary approach to a conventional
crime," Diego Rodriguez, FBI assistant director-in-charge, said at a
news conference.
Prosecutors said the Ukraine-based hackers, who were given "shopping
lists" of press releases by the traders, improperly accessed press
statements before the distributors planned to release them to the
public.
The hackers created a "video tutorial" to help traders see the
stolen releases and were paid a portion of the profits from trades
based on the information in them, prosecutors said.
The nine people were indicted by grand juries in Brooklyn, New York,
and Newark, New Jersey, on charges that they made $30 million in
illegal profits starting around February 2010.
Five were arrested on Tuesday. International arrest warrants were
issued for the other four.
The U.S. Securities and Exchange Commission in a related civil
lawsuit charged 17 people and 15 corporate entities, and said that
thefts of inside information resulted in more than $100 million in
illegal profit.
The SEC said the network included traders in New York, Cyprus,
France, Malta and Russia. It is seeking civil penalties, and has
already obtained court-ordered asset freezes.
Law enforcement officials have warned companies for years about
securing their computer networks against hackers, whose victims over
the past two years have included leading retailers and U.S.
government personnel.
"This case illustrates how cyber criminals and those who commit
securities fraud are evolving and becoming more sophisticated," U.S.
Attorney Paul Fishman in New Jersey said at the news conference.
"The hackers were relentless and they were patient."
Fishman said the distributors, who were not charged with wrongdoing,
provided "fabulous cooperation" in the probe.
The breaches could put more pressure on the information distribution
business, which was founded decades ago and depends on clients
trusting the distributors with sensitive information. In recent
years, prominent U.S. companies including Google, Microsoft,
Wal-Mart Stores and Tesla have started to release important
information on their own websites or social media platforms,
reducing their dependence on the business wires.
The three distribution companies all released statements touting
their cooperation with authorities and their security measures.
Business Wire, a unit of Warren Buffett's Berkshire Hathaway Inc,
said it hired a security firm to test its systems.
"Despite extreme vigilance and commitment, recent events illustrate
that no one is immune to the highly sophisticated illegal
cyber-intrusions that are plaguing every aspect of our society," it
said in a statement.
PR Newswire, a unit of Britain's UBM Plc, said it also takes
security very seriously, while Marketwired said it is protected by
world-class security, monitoring and prevention practices.
SENSITIVE CORPORATE NEWS
The indictments said the news releases included sensitive corporate
information such as financial results that would later become
public. Foreign shell companies were used to share the money made
from the insider trading, officials said.
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"The traders were market-savvy, using equities, options and
contracts for differences to maximize their profits," SEC Chair Mary
Jo White said at the news conference.
Authorities said the scheme involved trades on such companies as
Acme Packet Inc, Align Technology Inc, Caterpillar Inc, Dealertrack
Technologies Inc, Dendreon Corp, Edwards Lifesciences Corp,
Hewlett-Packard Co, Home Depot Inc and Panera Bread Co.
The indictment in Brooklyn charged four traders: Vitaly Korchevsky,
50, a former hedge fund manager from Pennsylvania; Vladislav
Khalupsky, 45, of Brooklyn and Odessa, Ukraine; and Leonid Momotok,
47, and Alexander Garkusha, 47, of the U.S. state of Georgia. The
charges included securities fraud, wire fraud and money laundering
conspiracy.
Korchevsky appeared without a lawyer in federal court in
Philadelphia. He was released on a $100,000 bond and told to
surrender his passport, but later on Tuesday, a judge in Brooklyn
stayed his release order, authorizing law enforcement to keep him in
custody until a bail hearing can be held in Brooklyn.
A prosecutor told the court that Korchevsky was a flight risk with
$5 million at his disposal and that he had traveled abroad 42 times
since 2010. Korchevsky's wife told the judge that 99 percent of her
husband’s travel was in his role as a pastor.
The indictment made public in New Jersey charged Ivan Turchynov, 27,
and Oleksandr Ieremenko, 24, alleged hackers who live in Ukraine;
Pavel Dubovoy, 32, a trader from Ukraine; and Arkadiy Dubovoy, 51,
and his son Igor Dubovoy, 28, traders from Georgia.
Arkadiy Dubovoy and Igor Dubovoy appeared in federal court in
Atlanta, while Momotok and Garkusha made court appearances in nearby
Gainesville. All four were scheduled to be in court again on
Thursday.
One indictment quotes online chats in which Ieremenko told Turchynov
on March 25, 2012, that he had "bruted" the log-in credentials of 15
Business Wire employees, and told an unidentified recipient in
Russian on Oct. 10, 2012, that "I'm hacking prnewswire.com."
SEC investigators found the traders by using technology that
identified both suspicious trading and relationships among traders,
White told reporters.
She said those charged "went to great lengths to evade detection"
and the SEC sorted through millions of traders, thousands of
earnings announcements and gigabytes of data on IP addresses.
(Additional reporting by Nate Raymond and Mica Rosenberg in New
York, Tom Hals in Philadelphia, and Rich McKay in Atlanta; Writing
by David Ingram; Editing by Alden Bentley, Grant McCool and Leslie
Adler)
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