U.S. accuses Chinese citizens of hacking
law firms, insider trading
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[December 28, 2016]
By Nate Raymond
NEW YORK (Reuters) - Three Chinese citizens
have been criminally charged in the United States with trading on
confidential corporate information obtained by hacking into networks and
servers of law firms working on mergers, U.S. prosecutors said on
Tuesday.
Iat Hong of Macau, Bo Zheng of Changsha, China, and Chin Hung of Macau
were charged in an indictment filed in Manhattan federal court with
conspiracy, insider trading, wire fraud and computer intrusion.
Prosecutors said the men made more than $4 million by placing trades in
at least five company stocks based on inside information from unnamed
law firms, including about deals involving Intel Corp and Pitney Bowes
Inc.
The men listed themselves in brokerage records as working at information
technology companies, the U.S. Securities and Exchange Commission said
in a related civil lawsuit.
Hong, 26, was arrested on Sunday in Hong Kong, while Hung, 50, and
Zheng, 30, are not in custody, prosecutors said. Defense lawyers could
not be immediately identified.
The case is the latest U.S. insider trading prosecution to involve
hacking, and follows warnings by U.S. officials that law firms could
become prime targets for hackers.
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"This case of cyber meets securities fraud should serve as a wake-up
call for law firms around the world: you are and will be targets of
cyber hacking, because you have information valuable to would-be
criminals," U.S. Attorney Preet Bharara in Manhattan said.
Prosecutors said that beginning in April 2014, the trio obtained inside
information by hacking two U.S. law firms and targeting the email
accounts of law firm partners working on mergers and acquisitions.
Prosecutors did not identify the two law firms, or five others they said
the defendants targeted.
But one matched the description of New York-based Cravath, Swaine &
Moore LLP, which represented Pitney Bowes in its 2015 acquisition of
Borderfree Inc, one of the mergers in question.
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A map of China is seen through a magnifying glass on a computer
screen showing binary digits in Singapore in this January 2, 2014
photo illustration. REUTERS/Edgar Su
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The indictment said that by using a law firm employee's credentials,
the defendants installed malware on the firm's servers to access
emails from lawyers, including a partner responsible for the Pitney
deal.
Cravath declined to comment. In March, Cravath confirmed discovering
a "limited breach" of its systems in 2015.
Prosecutors also accused the defendants of trading on information
stolen from a law firm representing Intel on the chipmaker's
acquisition of Altera Inc in 2015.
Intel's merger counsel on the deal was New York-based Weil, Gotshal
& Manges LLP. The law firm declined to comment.
In Beijing, Chinese Foreign Ministry spokeswoman Hua Chunying said
she was aware of the reports about the case but knew nothing about
it.
The case is U.S. v. Hong et al, U.S. District Court, Southern
District of New York, No. 16-cr-360.
(Reporting by Nate Raymond; Additional reporting by Ben Blanchard in
Beijing; Editing by Jeffrey Benkoe and Richard Chang)
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