NEWARK, N.J. (KRON/AP) – The FBI is calling it a traditional securities fraud scheme with a twist. Nine people were charged Tuesday with making $30 million by hacking into business newswire services, reading corporate press releases before they came out, and then trading on that information ahead of the pack on Wall Street.
A San Jose tech company was among the firms affected.
Federal authorities said it was the largest scheme of its kind ever prosecuted. As part of the alleged conspiracy, the U.S. Securities and Exchange Commission brought related civil charges against the nine people in the U.S. and Ukraine plus 23 other individuals and companies.
The criminal charges were contained in two indictments unsealed in New Jersey and New York City.
San Jose-based Align Technology was among the companies the group profited on. The alleged hackers made more than $1.4 million trading stock in Align in 2013 ahead of a press release that said annual revenue was up more than 20 percent, according to the indictment.
The group consisted of two people described as Ukrainian computer hackers, six stock traders – all but one of them in the U.S. – and one U.S. real estate developer. They were charged with offenses including securities fraud, computer fraud and conspiracy to commit money laundering.
Prosecutors said that for nearly three years starting in 2010, the hackers gained access to 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 information from a multitude of companies.
The traders used about 800 of these press releases to make trades before the information came out, exploiting a time gap ranging from hours to three days, prosecutors said.
“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.
Five defendants were arrested on Tuesday, and arrest warrants were issued for four in Ukraine.
The hackers were paid based on how much in profits the traders made, prosecutors alleged. They also allegedly created a how-to video on gaining access to the stored press releases.
Business Wire said it has hired a cybersecurity firm to test its systems and make sure they are secure. Marketwired and PR Newswire did not immediately return emails seeking comment.
The group made more than $600,000 by trading the stock of Peoria, Illinois-based Caterpillar Inc. in 2011 using a news release that said the company’s third-quarter profits had climbed 27 percent, according to the indictment.
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Associated Press writers Bree Fowler and Joseph Pisani, in New York, contributed to this story.
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