9 charged in US insider trading scheme involving hackers

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Nine Charged in International Hacking Scheme

NEW YORK (Reuters) -- An alliance of U.S.-based stock traders and computer hackers in Ukraine made as much as $100 million in illegal profits over five years after stealing confidential corporate press releases, U.S. authorities said on Tuesday.

The charges mark the first time that U.S. prosecutors have brought criminal charges for a securities fraud scheme that involved hacked inside information, in this case 150,000 press releases from distributors Business Wire, MarketWired and PR Newswire.

"This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," FBI Assistant Director-in-Charge Diego Rodriguez said in a statement.

More pictures as the news unfolded:

11 PHOTOS
Insider trading hacking scheme, Vitaly Korchevsky
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9 charged in US insider trading scheme involving hackers
NEWARK, NJ - AUGUST 11: Securities and Exchange Commission Chair Mary Jo White speaks during a press conference with Secretary of Homeland Security Jeh Johnson (L) and U.S. Attorney for New Jersey Paul J. Fishman (2nd R) on August 11, 2015 in Newark, New Jersey. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
NEWARK, NJ - AUGUST 11: Securities and Exchange Commission Chair Mary Jo White speaks during a press conference on August 11, 2015 in Newark, New Jersey. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
Vitaly Korchevsky is escorted in handcuffs from his home by agents from the Federal Bureau of Investigation (FBI) in Glen Mills, Pennsylvania, U.S., on Tuesday, Aug. 11, 2015. Korchevsky, 50, was one of several men arrested Tuesday morning in the biggest case of insider trading linked to the fast-growing threat of global cybercrime. The alleged scheme stretched from the affluent suburbs of Philadelphia, where Korchevsky ran the small investment firm NTS Capital Fund, to the darkest realms of the Internet. Photographer: Peter Foley/Bloomberg via Getty Images
Vitaly Korchevsky is escorted in handcuffs from his home by agents from the Federal Bureau of Investigation (FBI) in Glen Mills, Pennsylvania, U.S., on Tuesday, Aug. 11, 2015. Korchevsky, 50, was one of several men arrested Tuesday morning in the biggest case of insider trading linked to the fast-growing threat of global cybercrime. The alleged scheme stretched from the affluent suburbs of Philadelphia, where Korchevsky ran the small investment firm NTS Capital Fund, to the darkest realms of the Internet. Photographer: Peter Foley/Bloomberg via Getty Images
Vitaly Korchevsky is escorted in handcuffs from his home by agents from the Federal Bureau of Investigation (FBI) in Glen Mills, Pennsylvania, U.S., on Tuesday, Aug. 11, 2015. Korchevsky, 50, was one of several men arrested Tuesday morning in the biggest case of insider trading linked to the fast-growing threat of global cybercrime. The alleged scheme stretched from the affluent suburbs of Philadelphia, where Korchevsky ran the small investment firm NTS Capital Fund, to the darkest realms of the Internet. Photographer: Peter Foley/Bloomberg via Getty Images
NEWARK, NJ - AUGUST 11: U.S. Attorney for New Jersey Paul J. Fishman speaks during a press conference next to Secretary of Homeland Security Jeh Johnson on August 11, 2015 in Newark, New Jersey. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
NEWARK, NJ - AUGUST 11: Acting U.S. Attorney for the Eastern District of New York Kelly T. Currie speaks during a press conference on August 11, 2015 in Newark, New Jersey. U.S. Attorney for New Jersey Paul J. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
NEWARK, NJ - AUGUST 11: U.S. Attorney for New Jersey Paul J. Fishman (R) speaks during a press conference next to Secretary of Homeland Security Jeh Johnson and Securities and Exchange Commission Chair Mary Jo White ( R ) on August 11, 2015 in Newark, New Jersey. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
NEWARK, NJ - AUGUST 11: Secretary of Homeland Security Jeh Johnson speaks during a press conference next to Securities and Exchange Commission Chair Mary Jo White ( R ) on August 11, 2015 in Newark, New Jersey. Attorney for New Jersey Paul J. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
NEWARK, NJ - AUGUST 11: U.S. Attorney for New Jersey Paul J. Fishman speaks during a press conference with Secretary of Homeland Security Jeh Johnson (2nd L) ad Securities and Exchange Commission Chair Mary Jo White on August 11, 2015 in Newark, New Jersey. Fishman announced indictments in Brooklyn and Newark federal court charging nine people in an international hacking/insider trading scheme that generated more than $30 million in illegal profits. (Photo by Kena Betancur/Getty Images)
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Prosecutors said that hackers based in Ukraine infiltrated press releases before they were due to be released by the distributors. They included those that traders had put on "shopping lists" of releases that they wanted, prosecutors said.

The hackers created a "video tutorial" to help traders view the stolen releases, and were paid a portion of the profits from trades based on information contained there, prosecutors said.

Nine people were indicted by grand juries in Brooklyn, New York, and in Newark, New Jersey, on charges that they made $30 million in illegal profits over five years starting around February 2010. Separately, a U.S. Securities and Exchange Commission (SEC) civil lawsuit charged many others and said that thefts of inside information resulted in more than $100 million in illegal profits.

"This case illustrates how cyber criminals and those who commit securities fraud are evolving and becoming more sophisticated," Paul Fishman, the U.S. attorney for New Jersey, said at a news conference. He called the hackers relentless and patient.

The distributors were not charged with any wrongdoing. Fishman said authorities received "fabulous cooperation" from them.

Representatives with PR Newswire, a unit of UBM Plc, MarketWired and Business Wire could not immediately be reached or declined immediate comment.

SENSITIVE COMPANY INFORMATION

The indictments said the news releases included sensitive corporate information such as financial results that would later become public. The news was passed to the traders, who made illegal trades in stocks and options based on the stolen information, and foreign shell companies were used to share the rewards, the indictments said.

Authorities said the scheme resulted in illegal profits on such companies as Acme Packet Inc, Align Technology Inc, Caterpillar Inc, Dealertrack Technologies Inc, Dendreon Corp, Edwards Lifesciences Corp and Panera Bread Co.

The indictment in Brooklyn charged four traders: Vitaly Korchevsky, 50, a former hedge fund manager from Pennsylvania; Vladislav Khalupsky, 45, of Brooklyn and Odessa,Ukraine; and Leonid Momotok, 47, and Alexander Garkusha, 47, of the U.S. state of Georgia.

A separate indictment made public in New Jersey charges Ivan Turchynov, 27, and Oleksandr Ieremenko, 24, two purported computer hackers who live in Ukraine; Pavel Dubovoy, 32, a trader from Ukraine; and Arkadiy Dubovoy, 51, and his son Igor Dubovoy, 28, traders from Georgia.

One indictment quotes online chats in which Ieremenko told Turchynov on March 25, 2012, that he had "bruted" the log-in credentials of 15 Business Wire employees, and told an unidentified recipient in Russian on Oct. 10, 2012, that "I'm hacking prnewswire.com."

Charges brought against the various defendants include securities fraud, and conspiracies to commit securities fraud, wire fraud and money laundering.

Five of the defendants were arrested early on Tuesday, prosecutors said: Arkadiy and Igor Dubovoy, Momotok and Garkusha at their homes in Georgia, and Korchevsky at his home in Pennsylvania. International arrest warrants were issued for the other four, prosecutors said.

The SEC lawsuit charged 32 people and corporate entities with civil fraud. The lawsuit seeks civil penalties and has already resulted in a court-ordered freeze of assets, the SEC said in a statement.

The securities regulator has brought a handful of civil lawsuits in the past against individual hackers tied to insider trading. But they were all smaller than the case unsealed on Tuesday and none previously resulted in criminal charges.

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