Hackers charged in multi-million dollar insider trading scheme

Two Ukrainian men stand accused of hacking into newswires to obtain the information, and the 30 other defendants allegedly traded on that information, generating more than US$100 million in illegal profits. The allegations have not been proven.

In parallel actions, the U.S. Attorney’s Office for the District of New Jersey and the U.S. Attorney’s Office for the Eastern District of New York also announced criminal charges against several of the defendants that are also named in the SEC’s action, including the alleged hackers and several traders based in the U.S. and Ukraine. They are presumed to be innocent of the charges.

The authorities allege that Ivan Turchynov and Oleksandr Ieremenko hacked into several newswire services over a five-year period, stealing hundreds of corporate earnings announcements before they were released publicly. According to the SEC’s complaint, the accused hackers hid the intrusions by using proxy servers to mask their identities and by posing as newswire service employees and customers. Authorities also allege that the stolen data was then transmitted to traders in Russia, the Ukraine, Malta, Cyprus, France, and the U.S., who profited on the inside information.

“This cyber hacking scheme is one of the most intricate and sophisticated trading rings that we have ever seen, spanning the globe and involving dozens of individuals and entities,” says Andrew Ceresney, director of the SEC’s division of enforcement, in a statement. “Our use of innovative analytical tools to find suspicious trading patterns and expose misconduct demonstrates that no trading scheme is beyond our ability to unwind.”

The SEC’s complaint, which was unsealed Tuesdya, was filed yesterday in U.S. District Court in Newark, NJ. The court immediately granted an asset freeze and other preliminary relief.

“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,” adds Mary Jo White, SEC chairwoman “These hackers and traders are charged with reaping more than US$100 million in illicit profits by stealing nonpublic information and trading based on that information. That deception ends today as we have exposed their fraudulent scheme and frozen their assets.”

The SEC’s complaint charges each of the 32 defendants with violating federal antifraud laws and related SEC antifraud rules and 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.

The 23-count indictment filed in the District of New Jersey charges five defendants with wire fraud conspiracy, securities fraud conspiracy, wire fraud, securities fraud, and money laundering conspiracy. Turchynov and Ieremenko are also charged with computer fraud conspiracy, computer fraud, and aggravated identity theft.

The Eastern District of New York indictment charges four defendants with wire fraud conspiracy, securities fraud conspiracy, securities fraud, and money laundering conspiracy.

Five of the nine defendants were arrested this morning. International arrest warrants were issued today for Turchynov, Ieremenko, and a couple of the other accused that reside in the Ukraine.

Also, earlier today, the U.S. government also seized 17 bank and brokerage accounts containing more than US$6.5 million of alleged criminal proceeds. It also took steps to restrain assets worth more than US$5.5 million.