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Russian, Ukrainian Hackers Charged With Netting $100 Million From Insider Trading

The SEC charged 32 people with netting $100 million from an international insider trading ring that extended from the suburbs of Philadelphia and Atlanta to Russia and Ukraine. The defendants were accused of lifting confidential information from 100,000 public press releases of public companies before they were released to the general public.   Click here for the link to the SEC announcement.

The SEC charged 32 people with running an international insider trading ring extending from the suburbs of Philadelphia and Atlanta to Russia and Ukraine.  Click here for the Criminal Complaint.

The alleged scheme netted the hackers and their accomplices $100 million, the SEC said. The market manipulation began at least as far back as February 2010 and included trades as recently as August 2015. The defendants were accused of lifting confidential information from 100,000 public press releases of public companies before they were released to the general public.

“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,” SEC Chair Mary Jo White said in remarks that were prepared for a joint announcement with federal prosecutors in Newark, New Jersey. The U.S. attorney’s office in Brooklyn, New York, the Federal Bureau of Investigation, the Secret Service, and the Department of Homeland Security also participated in the investigation.

Andrew Ceresney, the SEC’s enforcement chief, called the alleged scheme “one of the most intricate and sophisticated trading rings that we have ever seen.”

Law enforcement agents raided the homes of defendants in Alpharetta and Cumming, Georgia, and Glen Mills, Pennsylvania. Warrants were issued for the arrests of the defendants who remain in Kiev and Moscow. Agents also seized a shopping center in Pennsylvania, an apartment building in Georgia, and 17 bank and brokerage accounts.

The individuals were accused of hacking into business news wires run by BusinessWire, PR Newswire Association LLC, and MarketWired LP, and gaining access to upcoming announcements by public companies about earnings reports and other financial announcements that had not yet been made public. The hackers then alerted accomplices who traded on the information before it became public.

The SEC accused the ringleaders, Ivan Turchynov and Oleksandr Ieremenko of Kiev, with using a training video that boasted of their skill at gaining inside information to recruit accomplices, hiding their activities through a proxy server, and falsely identifying themselves as employees of the news wire services. They also stole the log-ins and passwords of wire service employees.

The defendants were not satisfied with relatively simple forms of insider-trading, like buying shares of companies that were about to run up in price and then selling before the stocks fell, the SEC said in its complaint. They were charged with using options, short sales, and a class of stock derivative called a “contract for difference” that involves an agreement between two traders to exchange the difference in value of an underlying stock between the time the contract is open and the time it is closed. If the price increases, the seller of the contract pays the difference to the buyer. The buyer must pay the seller if the share price falls.

They also traded shares by borrowing on margin, which can add to a trader’s profits if the market moves in the direction they expect. Margin buying can also greatly add to a trader’s losses when the market unexpectedly moves against them.

The SEC complaint orders each of the defendants to return their gains with interest, pay penalties, and be subject to court orders that bar them from future violations of U.S. securities laws.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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