An international web of market traders and computer hackers have been accused of stealing press releases ahead of publication. Nine have been indicted on criminal charges in an unprecedented insider-trading ring.
US federal prosecutors said Tuesday they had broken up one of the largest-ever fraud schemes that used sophisticated computer hacking for unprecedented insider trading in international markets.
"This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," said Diego Rodriguez, head of the FBI's New York office.
An indictment unsealed Tuesday alleges the the conspiracy was engineered by a pair of Ukrainian hackers who had penetrated computers systems of leading public relations firms allowing them to peak at announcements from publicly traded companies before the information was public knowledge.
Cutting-edge technology, traditional fraud
As a strong earnings report or other positive news can cause a company's stock to rise, the hackers were able to pass this information to traders who would hedge their bets accordingly. If the news was disappointing, the stock price would fall, and traders could profit from this information too.
"The defendants were a well-organized group that allegedly robbed the newswire companies and their clients and cheated the securities markets and the investing public by engaging in an unprecedented hacking and trading scheme," said US Attorney Paul Fishman.
The defendants then used roughly 800 of those news releases to make trades before the information was released, capitalizing on a time lag from a few hours to even days, prosecutors said.
For example, the hacker group made more than $648,000 (586,980 euro) by trading the stock of Caterpillar Inc. in 2011 after getting an advance look at a news release that said the heavy-equipment maker's profits were up 27 percent, according to the indictment.
The US Securities and Exchange Commission (SEC) - the top stock market regulator - has also filed a civil lawsuit against 17 individuals and 15 corporate entities believed to have made off with more than $100 million in illegal profits over five years.
The SEC said the network included traders in New York, Cyprus, France, Malta and Russia and has already asked a court to freeze assets of the traders and hackers involved.
The hack on the financial newswires comes amid a barrage of attacks on targets that have ranged from the US government to banking giant JPMorgan Chase and retailer Target.
Ukrainian hackers targeted PR firms
The hackers had specifically targeted the PR firms of Marketwired, PR Newswire and Business Wire, which distribute press releases for major publicly traded companies, officials said. All three firms have cooperated with the investigation, prosecutors said.
"The lesson in this is your information is only as secure as the people you share it with," said Matthew L. Schwartz, a former federal prosecutor in New York. "If you share that information with a news service, a PR firm or even a law firm, then you need to make sure that it's secure."
SEC investigators say they found the traders by using technology that identified both suspicious trading and relationships among traders, SEC Chair Mary Jo White told reporters. She said those charged "went to great lengths to evade detection" and the SEC sorted through millions of traders, thousands of earnings announcements and gigabytes of data.
The most serious charges in the indictment, wire fraud and securities fraud, carry up to 20 years in federal prison.
Five of the defendants have been arrested, a spokesman for the US attorney in New Jersey said. The other four defendants remain in Ukraine, and international arrest warrants were issued for their arrests, the government said.
jar/bw (AP, AFP, Reuters)