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Hackers, traders score insider-trading profit

New York - A group of mainly US-based stock traders and computer hackers in Ukraine made as much as $100m in illegal profits over five years by conspiring to use information stolen from thousands of corporate press statements before their public release, US authorities said.

Prosecutors announced charges against nine people in an insider-trading case that marks the first time criminal charges have been brought for a securities fraud scheme involving hacked inside information, in this instance 150 000 press releases from distributors Business Wire, Marketwired and PR Newswire.

"This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," Diego Rodriguez, FBI assistant director-in-charge, said at a news conference.

Prosecutors said the Ukraine-based hackers, who were given "shopping lists" of press releases by the traders, improperly accessed press statements before the distributors planned to release them to the public.

The hackers created a "video tutorial" to help traders see the stolen releases and were paid a portion of the profits from trades based on the information in them, prosecutors said.

International arrest warrants

The nine people were indicted by grand juries in Brooklyn, New York, and Newark, New Jersey, on charges that they made $30m in illegal profits starting around February 2010.

Five were arrested on Tuesday. International arrest warrants were issued for the other four.

The US Securities and Exchange Commission in a related civil lawsuit charged 17 people and 15 corporate entities, and said that thefts of inside information resulted in more than $100m in illegal profit.

The SEC said the network included traders in New York, Cyprus, France, Malta and Russia. It is seeking civil penalties, and has already obtained court-ordered asset freezes.

Law enforcement officials have warned companies for years about securing their computer networks against hackers, whose victims over the past two years have included leading retailers and US government personnel.

"This case illustrates how cyber criminals and those who commit securities fraud are evolving and becoming more sophisticated," U.S. Attorney Paul Fishman in New Jersey said at the news conference. "The hackers were relentless and they were patient."

Fishman said the distributors, who were not charged with wrongdoing, provided "fabulous co-operation" in the probe.

Court appearance

The breaches could put more pressure on the information distribution business, which was founded decades ago and depends on clients trusting the distributors with sensitive information.

In recent years, prominent US companies including Google, Microsoft, Walmart Stores and Tesla have started to release important information on their own websites or social media platforms, reducing their dependence on the business wires.

The three distribution companies all released statements touting their co-operation with authorities and their security measures.

The indictment in Brooklyn charged four traders: Vitaly Korchevsky, 50, a former hedge fund manager from Pennsylvania; Vladislav Khalupsky, 45, of Brooklyn and Odessa, Ukraine; and Leonid Momotok, 47, and Alexander Garkusha, 47, of the US state of Georgia. The charges included securities fraud, wire fraud and money laundering conspiracy.

Korchevsky appeared without a lawyer in federal court in Philadelphia. He was released on a $100 000 bail and told to surrender his passport, but later on Tuesday, a judge in Brooklyn stayed his release order, authorising law enforcement to keep him in custody until a bail hearing can be held in Brooklyn.

A prosecutor told the court that Korchevsky was a flight risk with $5m at his disposal and that he had travelled abroad 42 times since 2010. Korchevsky's wife told the judge that 99% of her husband's travel was in his role as a pastor.

The indictment made public in New Jersey charged Ivan Turchynov, 27, and Oleksandr Ieremenko, 24, alleged hackers who live in Ukraine; Pavel Dubovoy, 32, a trader from Ukraine; and Arkadiy Dubovoy, 51, and his son Igor Dubovoy, 28, traders from Georgia.

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