The US Securities and Exchange Commission brought fraud charges against 32 defendants for taking part in a $100 million insider-trading scheme that involved corporate earnings statements stolen by two Ukrainian computer hackers.
The 30 other defendants in and outside the US allegedly traded on the nonpublic information, generating the illegal profits, the SEC said. Its complaint was unsealed Aug. 11 in US District Court in Newark, N.J., and the court entered an asset freeze and other preliminary relief that day.
“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 two Ukrainian hackers, Ivan Turchynov and Oleksandr Ieremenko, spearheaded the scheme over a five-year period, using advanced techniques to hack into newswire services and steal hundreds of corporate earnings announcements before they were publicly released, the SEC said.
In parallel actions, the US Attorney’s Office for the District of New Jersey and the US Attorney’s Office for the Eastern District of New York announced criminal charges against several defendants in the SEC’s action, including Turchynov and Ieremenko, and traders in the US and Ukraine–Arkadiy Dubovoy, Igor Dubovoy, Pavel Dubovoy, Vitaly Korchevsky, Vladislav Khalupsky, Aleksandr Garkusha, and Leonid Momotok.
About 150,000 confidential press releases were stolen directly from the servers of Marketwired, PR Newswire Association LLC (PRN), and Business Wire, the federal agencies said. More than 800 of those releases related to publicly traded companies.
The SEC said that Turchynov and Ieremenko created a secret web-based location to transmit the stolen data to traders in Russia, Ukraine, Malta, Cyprus, France, and three US states, Georgia, New York, and Pennsylvania. The traders are alleged to have used this nonpublic information in a short window of opportunity to place illicit trades in stocks, options, and other securities, sometimes purportedly funneling a portion of their illegal profits to the hackers.
Turchynov and Ieremenko hid the intrusions by using proxy servers to mask their identities and posing as newswire service employees and customers, according to the SEC. The two allegedly recruited traders with a video showcasing their ability to steal the earnings information before its public 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.
