Feds Bust Hedge Fund For Stealing Inside Information By Hacking Companies

In a first for the United States government, federal prosecutors have brought a criminal case against defendants alleging a securities fraud scheme involving illegally hacked inside information. Prosecutors in Brooklyn, New York have charged nine people over their alleged activities in a computer hacking scheme. Their crime: hacking into various reporting outlets to obtain corporate press releases before they were made public in order to trade on the not-yet public information and make a profit. In fact the hackers made a significant profit, to the tune of more than $30 million.

Specifically, authorities allege that beginning in early 2010, Russian and Ukrainian hackers found their way into the networks of the press release reporters Business Wire, PR Newswire and MarketWired. The hackers then gained access to corporate news, particularly financial results, before the information was made available to the public. Once the news was obtained, it was delivered to traders who made illegal trades in options and stocks based on the stolen information. These trades resulted in profits, which were then siphoned offshore through Estonian banks.

The leader of this hacking ring appears to be Vitaly Korchevsky, a Russian immigrant who went to business school and worked on Wall Street before operating his own hedge fund. The 50-year old Russian received his MBA in 1995 and also received his Certified Financial Analyst charter. He then worked in a number of positions at Morgan Stanley, Victus Capital and Investment Counselors of Maryland before registering his own hedge fund, NTS Capital Fund, in Glen Mills, Pennsylvania. It was while he was “operating” NTS that he allegedly committed the hacking scheme.

Korchevsky and the others arrested face charges on securities fraud, conspiracies to commit securities fraud, wire fraud and money laundering. The Securities and Exchange Commission (“SEC”) has also brought a related civil suit naming many more defendants. The civil suit alleges that the thefts resulted in greater than $100 million in illegal profits and the agency is seeking asset freezes, recoupment of illegal profits and other civil penalties.

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