* Ukraine computer hackers and international ring of traders
* Insider trading scheme lasted five years -prosecutors
* Criminal charges filed against nine people
(Adds Marketwired statements, appearances in Atlanta federal
court, background on newswire business)
By Noeleen Walder, Jonathan Stempel and Joseph Ax
NEW YORK, Aug 11 An alliance of mainly
U.S.-based stock traders and computer hackers in Ukraine made as
much as $100 million in illegal profits over five years after
stealing confidential corporate press releases, U.S. authorities
said on Tuesday.
Prosecutors announced charges against nine people in an
insider-trading case that marks the first time criminal charges
have been brought for a securities fraud scheme involving hacked
inside information, in this instance 150,000 press releases from
distributors Business Wire, Marketwired and PR Newswire.
"This is the story of a traditional securities fraud scheme
with a twist - one that employed a contemporary approach to a
conventional crime," FBI Assistant Director-in-Charge Diego
Rodriguez said at a news conference.
Prosecutors said Ukraine-based hackers improperly accessed
press releases before the distributors planned to release them
to the public. The traders gave the hackers "shopping lists" of
releases, prosecutors said.
The hackers created a "video tutorial" to help traders see
the stolen releases, and were paid a portion of the profits from
trades based on the information in them, prosecutors said.
Nine people were indicted by grand juries in Brooklyn, New
York, and in Newark, New Jersey, on charges that they made $30
million in illegal profits starting around February 2010.
Five were arrested on Tuesday, and international arrest
warrants were issued for the other four.
A related U.S. Securities and Exchange Commission civil
lawsuit charged 17 people and 15 corporate entities, and said
that thefts of inside information resulted in more than $100
million in illegal profit.
The SEC said the network included traders in New York,
Cyprus, France, Malta and Russia. It is seeking civil penalties,
and has already obtained court-ordered asset freezes.
Law enforcement officials have warned companies for years
about securing their computer networks against hackers, whose
victims over the past two years have included leading retailers
and U.S. government personnel.
"This case illustrates how cyber criminals and those who
commit securities fraud are evolving and becoming more
sophisticated," U.S. Attorney Paul Fishman in New Jersey said at
the news conference. "The hackers were relentless and they were
Fishman said the distributors, who were not charged with
wrongdoing, provided "fabulous cooperation" in the probe.
The breaches could put more pressure on the business, which
was founded decades ago before the ubiquity of the Internet and
which depend on clients trusting them with sensitive
information. In recent years, major U.S. companies including
Google, Microsoft, Wal-Mart and Tesla have started to publish
important information on their own websites or social media
platforms, reducing their dependence on the wires.
The three companies all released statements touting their
cooperation with authorities and their security measures.
Business Wire, a unit of Warren Buffett's Berkshire Hathaway
Inc, said it hired a security firm to test its systems.
"Despite extreme vigilance and commitment, recent events
illustrate that no one is immune to the highly sophisticated
illegal cyber-intrusions that are plaguing every aspect of our
society," it said in a statement.
PR Newswire, a unit of UBM Plc, said it also takes
security very seriously, while Marketwired said it is protected
by world-class security, monitoring and prevention practices.
SENSITIVE CORPORATE NEWS
The indictments said the news releases included sensitive
corporate information such as financial results that would later
become public. Foreign shell companies were used to share the
money made from the insider trading, officials said.
"The traders were market-savvy, using equities, options and
contracts for differences to maximize their profits," SEC Chair
Mary Jo White said at the news conference.
Authorities said the scheme involved trades on such
companies as Acme Packet Inc, Align Technology Inc,
Caterpillar Inc, Dealertrack Technologies Inc,
Dendreon Corp, Edwards Lifesciences Corp, Hewlett-Packard
Co, Home Depot Inc and Panera Bread Co.
The indictment in Brooklyn charged four traders: Vitaly
Korchevsky, 50, a former hedge fund manager from Pennsylvania;
Vladislav Khalupsky, 45, of Brooklyn and Odessa, Ukraine; and
Leonid Momotok, 47, and Alexander Garkusha, 47, of the U.S.
state of Georgia. The charges included securities fraud, wire
fraud and money laundering conspiracy.
Korchevsky appeared without a lawyer in Philadelphia federal
court. He was released on a $100,000 bond and told to surrender
A prosecutor told the court that Korchevsky was a flight
risk with $5 million at his disposal and that he had traveled
abroad 42 times since 2010. Korchevsky's wife told the judge
that 99 percent of her husband's travel was in his role as a
pastor. Later, prosecutors asked another judge to revoke the
first judge's release of Korchevsky.
A separate indictment made public in New Jersey charged Ivan
Turchynov, 27, and Oleksandr Ieremenko, 24, two purported
hackers who live in Ukraine; Pavel Dubovoy, 32, a trader from
Ukraine; and Arkadiy Dubovoy, 51, and his son Igor Dubovoy, 28,
traders from Georgia.
Arkadiy and Igor Dubovoy appeared in Atlanta federal court,
and will appear there again on Thursday, including over whether
they should defend themselves in New Jersey.
One indictment quotes online chats in which Ieremenko told
Turchynov on March 25, 2012, that he had "bruted" the log-in
credentials of 15 Business Wire employees, and told an
unidentified recipient in Russian on Oct. 10, 2012, that "I'm
SEC investigators found the traders by using technology that
identified both suspicious trading and relationships among
traders, White told reporters.
She said those charged "went to great lengths to evade
detection" and the SEC sorted through millions of traders,
thousands of earnings announcements and gigabytes of data on IP
(Additional reporting by Nate Raymond and Mica Rosenberg in New
York, Tom Hals in Philadelphia, and Rich McKay in Atlanta;
Writing by David Ingram; Editing by Alden Bentley and Grant