Hacking, Cyber Security

BROOKLYN – Vitaly Korchevsky, a former hedge fund manager, and Vladislav Khalupsky, a securities trader, were convicted last Friday in federal court in Brooklyn of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusion, conspiracy to commit money laundering and two counts of securities fraud in connection with their roles in an international scheme to hack into three business newswires and steal yet-to-be published press releases containing non-public financial information, which was then used to make trades that generated approximately $30 million in illegal profits.

The verdicts followed a four-week trial before United States District Judge Raymond J. Dearie.  When sentenced, each defendant faces a maximum of 20 years’ imprisonment.

“The defendants teamed up with cybercriminal co-conspirators to hack pre-distribution press releases and then traded in the stock market based on that stolen information, making massive profits as a result,” stated United States Attorney Donoghue.  “Today’s verdict sends a powerful message that this Office, together with our law enforcement partners, will work tirelessly to disrupt any scheme, no matter how sophisticated, that threatens the integrity and fairness of our markets.”  Mr. Donoghue expressed his grateful appreciation to the United States Attorney’s Office for the District of New Jersey (USAO-DNJ), the Department of Homeland Security (DHS) and the U.S. Securities and Exchange Commission (SEC) for their significant cooperation and assistance in this case.

“Conspiring with hackers overseas, Korchevsky and Khalupsky worked swiftly to trade on stolen press releases, illegally profiting millions of dollars,” stated FBI Assistant Director-in-Charge Sweeney.  “Such a massive criminal operation called for massive cover-ups, but their attempts to cover their tracks were done in vain.  Devoting much time to the execution of this sneaky scheme, upon sentencing, the defendants will now rightfully face time in prison.”

The evidence at trial established that between February 2010 and August 2015, computer hackers based in the Ukraine gained unauthorized access into the computer networks of Marketwired L.P., PR Newswire Association LLC, and Business Wire, via a series of sophisticated cyberattacks.  At one point, one of the hackers sent an online chat message in Russian to another individual stating, “hacking prnewswire.com.”  The hackers moved through the computer networks and stole press releases about upcoming announcements by public companies concerning earnings, revenues and other material non-public information.  Over the course of the scheme, the hackers stole more than 100,000 press releases.

In order to monetize the material non-public information in the stolen press releases, the hackers shared those stolen press releases with a network of traders, including Korchevsky and Khalupsky, via overseas computer servers controlled by the hackers and/or through secure email accounts.  Once they received the stolen press releases, Korchevsky and Khalupsky generally traded ahead of the public distribution of the stolen releases.  In order to execute their trades before the releases were made public, Korchevsky and Khalupsky often had to execute trades in extremely short windows of time between when the hackers illegally accessed and shared information, and when the press releases were disseminated to the public by the newswires, usually shortly after the close of the markets.  As a result, the trading data often showed a flurry of trading activity around a stolen press release just prior to its public release.  The defendants traded on stolen press releases containing material nonpublic information about publicly traded companies that included, among hundreds of others: Align Technology Inc.; CA Technologies; Caterpillar Inc.; Hewlett Packard; Home Depot; Panera Bread Co.; and Verisign Inc.

The illegal trading by the criminal network resulted in gains of more than $30 million, much of which was routed back to the hackers.  Korchevsky traded on the stolen press releases both in accounts that benefited the criminal network as well as in his own personal accounts, and ultimately netted more than $15 million in profits over the course of the scheme.  Khalupsky primarily traded in accounts that benefited the criminal network, and received a percentage of the profits he generated by trading on the stolen press releases, totaling at least $500,000 over the course of the scheme.

The evidence at trial also demonstrated that the defendants went to great lengths to conceal their roles in the criminal scheme.  The conspirators used separate phones, computers and hotspots to conduct their illegal trading activity, and routinely deleted emails and/or destroyed hardware that contained evidence of their crimes.  The conspirators also directed that payments received for the illegal profits they generated for the criminal network be made to offshore shell companies.

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