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Nine charged in 'unprecedented' hacking scheme, federal officials say

A man walks to work on Wall Street,

A man walks to work on Wall Street, near the New York Stock Exchange, in New York in this Oct. 8, 2014 file photo. Photo Credit: AP / Mark Lennihan

Nine people were charged Tuesday in what authorities called an "unprecedented" $30 million international scheme in which they hacked computers of three major business news wire services and traded on the illegally obtained corporate information.

The alleged hackers were based in Ukraine and they fed information to stock market professionals in the United States and around the world in what officials describe as the first major such cyber-attack on the U.S. stock market.

The indictments were announced at the federal building in downtown Newark by acting U.S. Attorney Kelly T. Currie, of the Eastern District of New York, based in Brooklyn, and New Jersey U.S. Attorney Paul J. Fishman. Also present were U.S. Secretary of Homeland Security Jeh Johnson, Securities and Exchange Commission Chair Mary Jo White, Secret Service director Joseph P. Clancy and FBI New York chief Diego Rodriguez.

"The defendants and their co-conspirators formed an unholy alliance of shadowy hackers and securities industry professionals to systematically steal valuable inside information and profit by trading before authorized disclosures to the investing public," Currie said.

Fishman noted that while there have been smaller hacks obtaining corporate information, nothing has previously been done on this scale.

The case shows the increasing sophistication of essentially insider-trading scams, Fishman said, adding that criminals "no longer tease out information from a [small] network of friends."

In all, 150,000 confidential corporate news releases were stolen before they were made public in the past five years, and 800 of them were used to make illegal trades in the largest such scam known, officials said.

In addition to the criminal charges, the SEC brought civil charges against 32 financial professionals in the United States and overseas, including in Russia, Cyprus, Malta and Ukraine, for allegedly making $100 million by trading on the insider information in the alliance between the Ukrainian hackers and the market professionals.

The three hacked news wires, which widely distribute corporate information, were identified as the PR Newswire, Marketwired and Business Wire. Among the stocks that were traded with the illegally obtained information were those of Home Depot, Hewlett-Packard and Panera Bread, officials said.

The business news wires distribute corporate news about earnings, revenue and other potentially stock-moving financial information.

The scheme worked by breaking into the computer systems of the wire services and buying or selling for a profit the stock between the time the services received the corporate information and the time they were publicly posted, officials said.

In October 2013 alone, for example, the schemers made almost $1 million with an hour and a half of trading on filched information on Panera stock, officials said.

The stock traders often gave the hackers lists of particular stocks that they were interested in obtaining information on, and in an effort to conceal the trading, buying and selling of a single stock was spread among a number of traders, officials said.

Authorities did not say how the nine in the criminal case came together except to note that they all had ties to Ukraine.

The investigation began when FBI and Secret Service agents in New York noticed unusually large purchases of companies' stocks shortly before their financial data was publicly disclosed, sources said.

The 23-count New Jersey indictment charges five defendants -- Ivan Turchynov, 27; Oleksandr Ieremenko, 24; and Pavel Dubovoy, 32; all of Ukraine, and Arkadiy Dubovoy, 51, and Igor Dubovoy, 28, of Alpharetta, Georgia -- with wire fraud conspiracy, securities fraud conspiracy, wire fraud, securities fraud and money laundering conspiracy.

Turchynov and Ieremenko are additionally charged with computer fraud conspiracy, computer fraud and aggravated identity theft.

The Eastern District indictment charges four defendants: Vladislav Khalupsky, 45, of Brooklyn and Odessa, Ukraine; Vitaly Korchevsky, 50, of Glen Mills, Pennsylvania; Leonid Momotok, 47, of Suwanee, Georgia; and Alexander Garkusha, 47, of Cumming, Georgia, and Alpharetta, Georgia. They also were charged with wire fraud conspiracy, securities fraud conspiracy, securities fraud and money laundering conspiracy.

According to the SEC's complaint, alleged hackers Turchynov and Ieremenko used proxy servers to mask their identities and posed as news wire service employees and customers. The two allegedly recruited traders with a video showcasing their ability to steal the earnings information before its public release, the complaint said.

The alleged traders included all three Dubovoys, Korchevsky, Momotok, Khalupsky, Garkusha and others, according to court papers.

Five of the defendants were arrested early Tuesday morning and were scheduled to be arraigned later in the day.

Khalupsky, the only person charged from the New York area, was said to be in Ukraine, along with Turchynov and Ieremenko, and Pavel Dubovoy.

Officials said the government of Ukraine would be asked to extradite them.

The government seized 17 bank and brokerage accounts containing more than $6.5 million of alleged criminal proceeds. The government also moved to restrain 12 properties, a shopping center in Pennsylvania, an apartment building in Georgia, and a houseboat, all worth more than $5.5 million as part of the criminal case.

In addition, the SEC moved to freeze $20 million in overseas bank accounts as part of the civil cases, officials said.


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