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From Securities Regulation Daily, November 10, 2015

Feds charge Israeli man with massive financial data hack

By John M. Jascob, J.D., LL.M.

Federal prosecutors have charged an Israeli man with orchestrating a massive computer hacking scheme against U.S. financial firms and financial news publishers, including the largest theft of customer data from a U.S. financial institution in history. In an indictment unsealed in Manhattan, the government alleges that Gery Shalon directed a sprawling cybercriminal enterprise that stole the personal information of over 100 million customers of the victim companies. The government claims that Shalon and his co-conspirators engaged in these crimes in part to artificially manipulate the price of certain publicly traded stocks by marketing those stocks to persons whose contact information they had stolen (U.S. v. Shalon, November 10, 2015).

The government also announced the unsealing of a separate indictment charging Anthony R. Murgio with conducting an unlawful Bitcoin money transmitting service on Shalon’s behalf. The government alleges that from about October 2013 to July 2015, Murgio operated Coin.mx, a Florida-based Bitcoin exchange service owned by Shalon, in violation of federal anti-money laundering laws. The government claims that Shalon, Murgio, and their co-conspirators used Coin.mx to enable their customers to launder millions of dollars of cash in exchange for Bitcoins, charging them a fee for the service (U.S. v. Murgio, November 10, 2015).

“The charged crimes showcase a brave new world of hacking for profit,” said Manhattan U.S. Attorney Preet Bharara in a news release. “It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate. This was hacking as a business model. The alleged conduct also signals the next frontier in securities fraud – sophisticated hacking to steal nonpublic information, something the defendants discussed for the next stage of their sprawling enterprise.”

U.S. financial sector hacks. Specifically, the government alleges that from approximately 2012 to mid-2015, Shalon, working with co-defendant Joshua Samuel Aaron and others, directed network intrusions into at least nine unidentified major banks, brokerage firms, and financial news publishers. Among these, their network intrusion at one bank resulted in the theft of personal information of over 80 million of the bank’s customers. In furtherance of their scheme, Shalon and his co-conspirators allegedly procured servers in Egypt, South Africa, Brazil, and elsewhere in order to gain unlawful access to the companies’ computer networks and to receive data stolen from those networks during the intrusions.

The government further alleges that Shalon, Aaron, and co-defendant Ziv Orenstein then used the stolen data in part to orchestrate multimillion-dollar “pump and dump” schemes to manipulate the price and trading volume of dozens of publicly traded microcap stocks, thus enabling members of the conspiracy to sell their holdings in those stocks at artificially inflated prices. The indictment alleges that Shalon and Aaron used the U.S. financial sector hacks to acquire email and mailing addresses, phone numbers, and other contact information for potential victims to whom they could send “spam” email and other deceptive communications that falsely touted the stocks in order to trick others into buying them. According to the government, Shalon and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes.

The cases are No. 15 Cr. 33 and No. 15 Cr. 769.

MainStory: TopStory Enforcement FraudManipulation NewYorkNews RiskManagement

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