Nine People Indicted for Alleged Insider Trading, Using Information Allegedly Obtained by Hacking

OpenClipartVectors [Public domain, CC0 1.0 (https://creativecommons.org/publicdomain/zero/1.0/deed.en)], via PixabayFederal prosecutors announced indictments in what they are calling the “largest known computer hacking and securities fraud scheme” in August 2015. The indictments allege that the nine defendants, who are reportedly based in Ukraine, illegally accessed private computer networks to obtain information for use in insider trading. U.S. v. Korchevsky, et al., No. 15-cr-00381, indictment (E.D.N.Y., Aug. 5, 2015); U.S. v. Turchynov, et al., No. 15:cr-00390, indictment (D.N.J., Aug. 10, 2015). Prosecutors claimed that the defendants made $30 million from the scheme. The Securities and Exchange Commission (SEC) filed a related civil enforcement action against 32 individuals and companies, alleging $100 million in illegal profits. SEC v. Dobovoy, et al, No. 15-cv-06076, am. complaint (D.N.J., Aug. 23, 2015). This appears to be one of the first major cases alleging cybercrime directly related to securities fraud.

The defendants in both criminal cases are accused of hacking computer servers maintained by private companies engaged in the business of “issuing press releases on behalf of publicly-traded companies.” Turchynov, indictment at 4. Publicly traded companies have contracts with these companies, commonly known as “newswires,” under which they provide “confidential press releases…contain[ing] material nonpublic information” that would be of interest to the stock market. Id. at 5. The newswires publish these press releases when authorized to do so by the companies.

According to the indictments, the defendants obtained about 150,000 press releases from newswire servers over a five-year period. They allegedly used material nonpublic information from at least 800 of these press releases to trade stocks ahead of the public release of the information, resulting in alleged profits of around $30 million.

The four defendants in Korchevsky are facing five counts, including:
– conspiracy to commit wire fraud, 18 U.S.C. § 1349;
– conspiracy to commit securities fraud, 18 U.S.C. § 371;
– conspiracy to commit money laundering, 18 U.S.C. § 1956; and
– two counts of securities fraud, 15 U.S.C. §§ 78j(b), 78ff.

The charges against the five Turchynov defendants consist of four conspiracy counts for wire fraud, securities fraud, computer fraud, and money laundering; seven counts of wire fraud, 18 U.S.C. § 1343; seven counts of securities fraud; three counts of computer fraud, 18 U.S.C. § 1030; and two counts of aggravated identity theft, 18 U.S.C. § 1028A. The government is also asserting claims for civil and criminal forfeiture in both cases. 18 U.S.C. §§ 981, 982.

The SEC’s civil complaint names all nine people in the indictments as defendants, along with 23 other individuals and businesses allegedly involved in the scheme. It asserts four causes of action under the Securities Act of 1933, 15 U.S.C. § 77a et seq.; and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. Since it is a civil case, the government has a lower burden of proof than in the criminal case. It must prove liability under federal securities laws by a preponderance of evidence, rather than guilt beyond a reasonable doubt.

These blog posts are meant to be illustrative only. Unless expressly stated to the contrary herein, these matters are not the result of any legal work of Michael J. Brown, but are used to communicate a particular point of view. Michael J. Brown does not claim credit for any legal work done by any lawyer or law firm either generally or specifically, with respect to the matters contained in this blog.

If you have been charged with an alleged offense in west Texas, you need the assistance of an experienced and skilled internet crime attorney. Michael J. Brown has fought for his clients’ rights in state and federal courts for more than 20 years. Contact us online or at (432) 687-5157 today to schedule a confidential consultation with a knowledgeable and experienced criminal justice advocate.

More Blog Posts:

Defendant in Major Cybercrime Case Sentenced to Life in Prison for Drug Distribution, Hacking, and Money Laundering, Texas Criminal Lawyer Blog, June 22, 2015

Court Rules that State May Compel Fingerprint, but Not Passcode, Access to Cell Phone, Texas Criminal Lawyer Blog, January 8, 2015

Theft and Misuse of Computer Data Are Becoming Major Areas of Cybercrime Prosecutions, Texas Criminal Lawyer Blog, December 17, 2014

Photo credit: OpenClipartVectors [Public domain, CC0 1.0], via Pixabay.