An international insider trading scheme helped a group of hackers and securities brokers earn close to $100 million in illicit profits over a five-year period by hacking into corporate news releases to gain access to insider news.
The U.S. attorney's office in New Jersey initially charged nine people with insider trading in the scheme but an announcement later Tuesday in New York by the Department of Justice and Securities Exchange Commission revealed at least 32 people were facing charges.
A Toronto-based newswire, Marketwired, was among the organizations hacked by members of the group, according to filings by New Jersey prosecutors.
The SEC alleges that two hackers based in the Ukraine recruited brokers around the world by showing how they gained access to confidential corporate information, including earnings reports.
Traders in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania, were involved in the fraud.
Nine people face criminal charges of wire fraud, securities fraud and identity theft. The SEC filed civil charges of violating anti-fraud laws against a total of 32 people, many of them securities traders.
A New Jersey court filing alleges the group conspired to hack into Business Wire and P.R. Newswire Association in the U.S. and Marketwired, which has locations in Canada and the U.S. All are services that provide business news.
They stole confidential press releases that had not yet been released and were able to make trades based on the information. A filing in court says they gained access to 150,000 releases and traded on information in more than 800 companies.
Those charged include:
- Ivan Turchynov and Oleksandr Ieremenko, computer hackers who resided in Ukraine.
- Arkadiy Dubovoy, a securities trader living in Alpharetta, Ga., and his son Igor Dubovoy.
- Pavel Dubovoy, who resided in Ukraine and is related to the other Dubovoys charged.
- Four other co-conspirators, who were all U.S.-based securities traders.
They were charged after an extensive investigation by the SEC, FBI, Homeland Security and U.S. attorney's offices in several states.
They traded in numerous companies, including Boeing Co., Bank of America, Caterpillar Inc., Dreamworks Animation, Netflix and Viacom.
The SEC said it will seek fines and other penalties on the civil charges.
SEC chairwoman Mary Jo White called the investigation a "cutting-edge" effort, involving technological tools such as innovative analytical tools that detect suspicious trading patterns.
"It also illustrates the risks posed for our global markets by today's sophisticated hackers," she said in a news conference Tuesday in Manhattan. She warned companies to take steps to ensure their own cybersecurity.
At various times, the indictment alleges, the hackers were locked out of the news services' computer systems. But they eventually managed to get back in, often using simple "phishing," or sending bogus emails with links that, if clicked on, can eventually lead a hacker to a computer user's login and password.
The hackers were paid based on how much profit the traders made, prosecutors alleged.
A strong earnings report or other positive news can cause a company's stock to rise, while disappointing news can make it fall. The conspirators typically used the advance information to buy stock options, which are essentially a bet on the direction in which a stock will move, authorities said.
Five defendants were arrested on Tuesday, and arrest warrants were issued for four in Ukraine.