$30 million global insider trading and hacking ring busted by FBI, 9 persons arrested
An FBI spokeswoman said on Tuesday that they have arrested nine people and charged a further 32 in an international bust of a hacking and insider trading ring. They have taken in FBI custody on the charges of being involved in an insider trading scheme that generated more than $30 million in illegal profits. The nine of these were arrested by federal agents in morning raids on Tuesday in Georgia and Pennsylvania.
The modus operandi of the hackers and inside traders was simple. The Ukraine or Russia based hackers hacked into the computer systems of wire service providers like PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett’s Berkshire Hathaway Inc. Once they had access to the servers, the hackers had access to the press releases issue by firms listed on DJIA and NASDAQ before the same was made public.
The hackers informed the members of the gang in United States about the press releases, who then used the information to either buy or sell stocks based on the nature of information in the release.
Prosecutors on Tuesday were announcing the indictment of nine individuals in New Jersey, Brooklyn and New York, charged with stealing of company new releases and illegally traded on the stolen information before it became public.
The hackers supposedly had access to over 150,000 press releases in a period of 2 years, which included data on corporate deals and earnings that could be used to predict stock market moves and make profits in trades.
The information was later forwarded by the hackers to their associates in the U.S., who supposedly used in the purchase and sale of shares of dozens of companies, including Panera Bread Co., Oracle Corp., Boeing Co., Caterpillar Inc., and Hewlett-Packard Co. through their retail brokerage accounts. The money was then transferred offshore through Estonian banks. More than $30 million was made in the scheme, according to sources.
This is the first important case that has uncovered the susceptibilities of financial markets in the digital age of insider trading that has crossed into the cyber kingdom. The criminals have now gone beyond the ever-more aggressive tactics like wiretaps deployed by prosecutors to restrain illegal trading with a simple trick by stealing information as an alternative to convince others to share it incorrectly. It’s also a great weapon, as advance information can be extracted from companies without the need to have longstanding Wall Street connections.
In spite of this, the important discovery is a noteworthy victory for the Federal Bureau of Investigation and Prosecutors, who have been striving hard to stop a flourishing caseload of computer invasions that have visibly shaken big companies like Sony Corp., JPMorgan Chase & Co., and Target Corp., among others.
It all started when a sequence of suspicious trading by some of the defendants was brought to the notice of Prosecutors in Brooklyn and the FBI by the Securities and Exchange Commission. Later, a separate investigation concentrating on the foreign hackers was started by the U.S. Secret Service and Federal Prosecutors in New Jersey, the person said.
According to people having knowledge of the investigation said that for more than two years, investigators tried to solve the scheme and the trades, which further extended for another five years and continued until recently. The three wire services of the computer breaches were notified by the Federal agents, who in turn did not reveal them to the public in order for the investigation to continue without any obstruction, the person said.
While PRNewswire chose not to comment immediately on the charges, the other newswires could not be contacted.
The person said that Federal charges that includes hacking and conspiracy to perpetrate securities fraud are likely to be filed against the nine men in New Jersey and Brooklyn. At the same time, parallel civil case against some of the individuals is being pursued by the SEC.
The nine defendants extend across two or perhaps three countries. However, there is no clarity as to who is the man behind the plot to take control of the wire services’ computers and do business on the stolen information.
Described as the lynchpin of the markets strategy, only one professional trader was arrested in Pennsylvania. Before commencing on his own hedge fund, he ran a mutual fund and worked on Wall Street. However, the other members of the group do not have similar financial qualifications. They include themselves in construction businesses and myriad real estate.
Anyone who is ready to shell out money to pay for the services of the hackers could gain access to information required for illegal trading, wherein insufficient qualifications are more than enough to work in the new world of insider trading.
In recent years, where the major cases brought by New York prosecutors included connections like Ivy League schools, top consulting firms and Wall Street employers is surely missing in the case of nine men convicted of hacking and stealing charges.