Grygo is chief content officer for FTF News.
Earlier this month there was a development in one of the most ingenious hacking and securities fraud efforts in a long time — one that in theory would make for a great crime/thriller movie.
To refresh your memory, we reported [ http://bit.ly/2bLHdUQ ] that in a major anti-fraud action, the SEC issued charges against 32 participants — hackers and traders — who allegedly schemed to trade on corporate earnings announcements via press releases stolen before they were made public. The “defendants in and outside the U.S.” generated “more than $100 million in illegal profits,” SEC officials said a year ago.
There has been a break in the case as Leonid Momotok, lately of Suwanee, Georgia, pleaded guilty on Aug. 2, 2016 “to conspiracy to commit wire fraud for his role in an international scheme to hack into three business newswires and steal yet-to-be published press releases containing non-public financial information that was then used to make trades that generated approximately $30 million in illegal profits,” according to information released by the U.S. Justice Department. (Justice has been working closely with the SEC and the Department of Justice’s Office of International Affairs (OIA) on this case.)
The guilty plea was entered before U.S. Magistrate Judge Ramon E. Reyes, Jr. at the federal courthouse in Brooklyn, New York, officials say.
“When sentenced, Momotok faces up to 20 years in prison, as well as restitution, criminal forfeiture, and a fine,” officials add. Robert L. Capers, U.S. Attorney for the Eastern District of New York, and Diego Rodriguez, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office, announced the guilty plea. The charges were brought “in connection with the President’s Financial Fraud Enforcement Task Force,” officials add.
So, that’s right. The hackers and traders are charged with allegedly making huge profits from hacking unreleased press releases and then acting on this inside information.
“Momotok and his group of traders engaged in a brazen scheme that was unprecedented in its scope, impact and sophistication,” Capers says in a prepared statement.
Rodriguez also comments, adding that the scheme represents “one of the most sophisticated insider trading cases we’ve seen to-date” and that the guilty plea “should send a message to others who seek to cheat the system for a lucrative payday — these schemes only end with prison time and forfeiture of those profits.”
But this scheme went on for a while, apparently undetected.
The court filings presented at the plea hearing show that “between February 2010 and August 2015,” hackers in the Ukraine broke into the computer networks of Marketwired L.P., PR Newswire Association LLC (PRN), and Business Wire (the Newswire Companies), officials say.
The hackers used cyber-attacks upon the newswire networks, according to Justice officials. Once in, the hackers stole releases about “earnings, gross margins, revenues, and other confidential and material financial information.”
The hackers then sent the stolen press releases to “Momotok and other traders through overseas servers,” officials add. “In a series of emails, the hackers provided the traders with credentials and instructions on how to access and use the overseas servers.”
It got to the point that the traders created shopping lists and wish lists for the hackers about upcoming press releases for publicly traded companies.
“In order to execute trades before the press releases were made public, Momotok and the other traders sometimes had to execute trades in extremely short windows of time,” Justice officials say. “Frequently, all of this illegal trading activity occurred on the same day.”
Justice officials say that among the companies whose press releases were hacked were: Align Technology Inc.; Caterpillar Inc.; Hewlett Packard; Home Depot; Panera Bread Co.; and Verisign Inc.
As part of the deal, Momotok and the other traders gave the hackers “a percentage of the illegal proceeds, which were transferred to them through foreign shell companies,” officials say.
While it’s good news that there has been progress in this case, it’s still disturbing how this scheme came together and lasted for five years. It’s also disturbing that the flow of crime via financial services appears to be fairly healthy and ongoing.
I wonder if the answer is not more regulation and enforcement but a serious consideration of using robots ruled by algorithms to not only make the trades and process them, but to govern the trading enterprise as well. Robots make sense because some humans are doing a great job of creating and executing cybercrimes that overwhelm the great majority of honest people. We need a more effective way to counteract those who embrace evil and to counteract our own nature.
Of course, the evil side of human ingenuity would probably devise ways to corrupt and take over the robots, and to more efficiently collect ill-gotten gains.
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