Hackers, traders accused of making $100 million by peeking at news releases
NEWARK, N.J. – An international web of hackers and traders made $100 million on Wall Street by stealing a look at corporate news releases before they went out and then trading on that information ahead of the pack, federal authorities charged Tuesday.
Authorities said it was the biggest scheme of its kind ever prosecuted, and one that demonstrated another alarming vulnerability in the financial system in this age of increasingly sophisticated cybercrime.
In a 21st-century twist on insider trading, the hackers broke into the computers of some of the biggest business newswire services, which put out earnings announcements and other news releases for a multitude of corporations.
Nine people in the U.S. and Ukraine were indicted on federal criminal charges, including securities fraud, computer fraud and conspiracy. And the Securities and Exchange Commission brought civil charges against the nine plus 23 other people and companies in the U.S. and Europe.
The case “illustrates the risks posed for our global markets by today’s sophisticated hackers,” SEC chief Mary Jo White said. “Today’s international case is unprecedented in terms of the scope of the hacking at issue, the number of traders involved, the number of securities unlawfully traded and the amount of profits generated.”
The nine indicted include two people described as Ukrainian computer hackers and six stock traders.
Authorities said that beginning in 2010 and continuing as recently as May, the hackers gained access to more than 150,000 news releases that were about to be issued by Marketwired of Toronto; PR Newswire in New York; and Business Wire of San Francisco. The news releases contained earnings figures and other corporate information.
The defendants then used roughly 800 of those news releases to make trades before the information came out, exploiting a time gap ranging from hours to three days, prosecutors said.
A strong earnings report or other positive news can cause a company’s stock to rise, while disappointing news can make it fall. The conspirators typically used the advance information to buy stock options, which are essentially a bet on the direction a stock will move.
In 2013, for example, the hackers got an early peek at a news release from Panera Bread Co. announcing that it was lowering its earnings projections. The hacking ring bet correctly the stock would fall when the news came out, and turned a profit of about $1 million the next day, according to the indictment.
The hackers were routinely paid a cut of the profits, prosecutors alleged.
“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.