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Nine men have been charged with crimes related to a $30 million insider trading scheme that exploited knowledge obtained from hacked press releases:
In morning raids in Georgia and Pennsylvania, federal agents arrested five men in the plot, while four others indicted on hacking and securities fraud charges remain at large. The hackers, who are thought to be in Ukraine and possibly Russia, allegedly infiltrated the computer servers of PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett's Berkshire Hathaway Inc., over a five-year period. They siphoned more than 100,000 press releases including corporate data on earnings that could be used to anticipate stock market moves and make profitable trades. The hackers passed the information to associates in the U.S., who allegedly used it to buy and sell shares of dozens of companies, including Panera Bread Co., Boeing Co., Hewlett-Packard Co., Caterpillar Inc. and Oracle Corp., through retail brokerage accounts.
Prosecutors said the men targeted more than 100 companies and made "approximately 1,000 inside the window trades." Money was then shifted offshore through Estonian banks, according to one of two federal indictments unsealed Tuesday. While U.S. prosecutors said the nine men netted $30 million, a broader lawsuit by the Securities and Exchange Commission listed 12 men and 15 companies as defendants in a scheme that allegedly earned more than $100 million. By way of comparison, Manhattan U.S. Attorney Preet Bharara described the $275 million insider trading case of SAC Capital Advisors LP portfolio manager Mathew Martoma as the biggest ever against a single person.
From Reuters:
"This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," FBI Assistant Director-in-Charge Diego Rodriguez said in a statement. Prosecutors said that hackers based in Ukraine infiltrated press releases before they were due to be released by the distributors. They included those that traders had put on "shopping lists" of releases that they wanted, prosecutors said. The hackers created a "video tutorial" to help traders view the stolen releases, and were paid a portion of the profits from trades based on information contained there, prosecutors said.
New Jersey indictment [PDF], NPR.
(Score: 3, Interesting) by MrGuy on Wednesday August 12 2015, @02:38PM
This is a problem that's not likely to go away, and ironically, the issue of fairness is part of the problem.
The SEC in the US (and similar regulatory bodies elsewhere) require market participants to try as much as possible to keep the playing field level with potentially market-moving information. This generally requires publicly traded companies to release information as widely as possible at the same time, to prevent some market participants from having an information advantage. Sometimes, in addition to a press release, there are requirements for a regulatory filing (e.g. in the US an 8-K may be required for certain events like a merger/acquisition). Even when there's no regulatory requirement, there may bee a need to ensure the release is scrubbed for terminology (e.g. avoiding "forward looking statements" being made unintentionally) and to ensure clear communication. Often, to meet the desire to avoid an information asymmetry, information is released after the markets close for the day.
The problem is that, given the desire for communication to be clear, in accordance with all regulatory norms, and available to everyone at the same time, there's a process that takes time to complete between "here's a thing that we've decided we need to communicate" and "the communication is released to the public." During that period, the market-impacting information is known, is being circulated/prepared, but is not generally available.
The information will go through several stages. The base information will be put together. A writer will draft a release internal to the company in question. That draft will be reviewed by legal and regulatory folks. The draft will be approved by management for release. The approved release will be uploaded to distribution channels with a release date. The release will be made available.
This attack targets one portion of this process (the last one, where the release is uploaded to news systems for later release). But it's not the only portion of the process that's potentially vulnerable. Just the most convenient (since it's where information from multiple market participants comes together). Secrecy is hard to maintain when your information lives on electronic networks.
(Score: 2) by darkfeline on Wednesday August 12 2015, @08:01PM
There is no fairness. If everyone gets the information at the same time, only big financial firms with huge computing power and low latencies will win.
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