On August 11th, the SEC announced the filing of fraud charges against 32 defendants for taking part in an international scheme to profit from stolen non-public corporate earnings announcements. See SEC Press Release
The SEC’s complaint alleges that over a five-year period, two Ukrainian men, Ivan Turchynov and Oleksandr Ieremenko, used advanced techniques to hack into two or more newswire services and steal hundreds of corporate earnings announcements before they were released publicly. Turchynov and Ieremenko allegedly created a secret web-based location to transmit this stolen data to traders in Russia, Ukraine, Malta, Cyprus, France, and the United States. The traders them used this nonpublic information in the short window before it was released to place illicit trades in stocks, options, and other securities.
According to the SEC’s complaint, Turchynov and Ieremenko hid their intrusions by using proxy servers and by posing as newswire service employees and customers. They recruited traders to use their stolen materials with a video showcasing their ability to steal earnings information before its public release. The traders are alleged to have funneled a portion of their illegal profits back to Turchynov and Ieremenko.
The traders who accessed the stolen information frequently had very short windows of opportunity to place their illicit trades. For example, according to the SEC’s press release, in one instance on May 1, 2013, 10 minutes after a company sent a release to a newswire stating that it was revising its financial projections downward, traders began short selling the company’s stock and selling contracts for difference, realizing $511,000 in profits when the company’s stock fell following its revision announcement 26 minutes later.
The SEC alleges that the hackers and traders reaped more than $100 million in illicit profits through this scheme. SEC Chair Mary Jo White spoke upon announcement of the charges, calling the scheme “unprecedented in terms of the scope of the hacking, the number of traders, the number of securities traded and profits generated.”
The charges were filed under seal in U.S. District Court in Newark, New Jersey on August 10th. On that day, the court entered an asset freeze and other preliminary relief. The SEC is seeking penalties, disgorgement, and injunctions against the defendants. In parallel actions, the U.S. Attorney’s Office for the District of New Jersey and the U.S. Attorney’s Office for the Eastern District of New York have brought criminal charges against several of the defendants in the SEC’s action, including Turchynov and Ieremenko, and traders in the U.S. and Ukraine.
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