Insider ring accused of making $100M on news hack
U.S. prosecutors have charged nine people over their alleged roles in a hacking scheme to obtain corporate press releases before they were made public, a network which they said generated $100 million of illegal trading profit.
Prosecutors in Brooklyn, New York made public an insider trading indictment charging four traders: Vitaly Korchevsky, a former hedge fund manager from Glen Mills, Pennsylvania; Vladislav Khalupsky, of Brooklyn and Odessa, Ukraine and Leonid Momotok, of and Alexander Garkusha of Georgia.
An separate indictment made public in New Jersey charges Ivan Turchynov and Oleksandr Ieremenko, two alleged computer hackers who live in Ukraine; Pavel Dubovoy, a trader from Ukraine; and Arkadiy Dubovoy and his son Igor Dubovoy, traders from Georgia.
The scheme's scope is "unprecedented" and it serves as a "stark reminder" of the risk markets face from sophisticated attacks, Securities and Exchange Commission Chairwoman Mary Jo White said in a press conference Tuesday.
Authorities said that starting around February 2010, hackers infiltrated the networks of press release distributors Business Wire, MarketWired and PR Newswire, and gained access to corporate news such as financial results before it became public.
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According to the indictments, the news was then passed to traders who made illegal trades in stocks and options based on the stolen information, with foreign shell companies being used to share the rewards. Prosecutors said the defendants made $30 million from their part of the scheme.
The hackers were paid based on how much profit the traders made, prosecutors alleged.
The individuals carried out a "broad ranging, cutting edge international scheme," using a variety of attacks to access corporate information early, said Paul Fishman, U.S. Attorney for the District of New Jersey.
"The hackers were relentless and they were patient," he said in a press conference Tuesday.
Authorities said the scheme resulted in illegal profits on such companies as Acme Packet, Align Technology, Caterpillar, Dealertrack Technologies, Dendreon, Edwards Lifesciences, Panera Bread and Verisign.
Charges brought against the various defendants include securities fraud, and conspiracies to commit securities fraud, wire fraud and money laundering.
A spokeswoman for the FBI said five of the defendants have been arrested.
The SEC brought a related civil lawsuit charging many more defendants, and alleging that the thefts resulted in more than $100 million of illegal profit. It named 17 individuals and 15 companies in the U.S. and abroad and is seeking unspecified fines and restitution against the 32 defendants.
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The criminal case marks the first U.S. prosecution alleging a securities fraud scheme using hacked inside information.It is also the largest known suspected case of hacking that resulted in insider trading.
None of the press release distributors or companies whose securities were traded were criminally charged. Business Wire is a unit of Warren Buffett's Berkshire Hathaway.
Until now, the SEC had brought only a handful of civil cases against individual hackers.
In 2007, the agency filed a civil case against a Ukrainian trader named Oleksandr Dorozhko, accusing him of hacking into IMS Health Holdings Inc and stealing information on earnings that he used to make profitable options trades. In 2010, a federal court ordered Dorozhko to pay $580,000.
—CNBC and AP contributed to this report.