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From Securities Regulation Daily, August 11, 2015

SEC and criminal authorities announce charges in unprecedented international computer hacking scheme

By Jacquelyn Lumb

The SEC today unsealed a complaint outlining an international computer hacking scheme, which Chair Mary Jo White described as unprecedented in scope, the number of securities traded, and the profits generated. The scheme was orchestrated by two Ukrainian nationals who hacked into the computers of newswire services to steal companies’ earnings information before it was released to the public. The hackers provided the stolen data to a network of market savvy traders who paid the hackers either a flat fee or a percentage of the profits they gained from their illegal trading.  Over a period of five years, the 32 defendants named in the complaint collectively reaped over $100 million in profits (SEC v. DubovoyAugust 10, 2015).

International trading ring. In a news release announcing the charges, Enforcement Director Andrew Ceresney said the cyber hacking scheme was one of the most sophisticated trading rings the SEC has ever encountered. Traders were based in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states. The orchestrators of the scheme hid their intrusions by using proxy servers to cloak their identities and also posed as newswire service employees and customers. The traders were recruited by a video showcasing the hackers’ ability to steal earnings information before its public release.

Vulnerability of computers. The charges were announced during a press conference at the U.S. attorney’s office in Newark, New Jersey. In remarks at the press conference, White said the case serves as a stark reminder to companies about the vulnerability of their computer systems. She urged companies to take measures to detect and guard against hacking, and to work with law enforcement to uncover the theft and misuse of stolen information.

Partnership with criminal authorities. White said the case also highlights the SEC’s continued partnership with the criminal authorities in investigating securities law violations, including activity that crosses international borders. The investigation was conducted by the SEC’s Market Abuse Unit, its Complex Financial Instruments Unit, the IT Forensics staff, and with assistance from the Office of International Affairs.

The SEC also received assistance from the U.S. Attorney’s Offices for the District of New Jersey and the Eastern District of New York, the FBI, the Department of Homeland Securities, the U.S. Secret Service, FINRA, the U.K. Financial Conduct Authority, and the Danish Financial Supervisory Authority.

Sanctions. The SEC’s complaint charges each of the 32 defendants with violating federal antifraud laws and seeks a final judgment ordering them to pay penalties, return their ill-gotten gains with prejudgment interest, and be subject to permanent injunctions from future violations of the antifraud laws.

The SEC obtained an asset freeze against the overseas traders that secured at least $20 million of the ill-gotten gains, and reported that its investigation is continuing.

New Jersey U.S. Attorney’s Office.  The U.S. Attorney’s Office for the District of New Jersey charged nine of the individuals in connection with an estimated 150,000 stolen press releases which resulted in $30 million in illegal profits. The scheme was the largest of its kind ever prosecuted by that office, according to its press release (U.S. v. Turchynov, Crim. No. 15-cr. 390 (MCA), August 10, 2015).

MainStory: TopStory FraudManipulation Enforcement

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