Gordon Gekko said it best in Oliver Stone's classic Wall Street, "The most valuable commodity in the world is information." Indeed, that's true, but of course, the ruthless insider trader played by Michael Douglas implored his young protégé Bud Fox (Charlie Sheen) to take it a little bit further. He did that by hitting the streets, sneaking into restaurants to overhear conversations and spot his target's guests, and running down flight information, all in an effort to extract and extrapolate information that could be used to trade on.
Take those concepts of information gathering and insider trading and inject them into today's technological landscape. Now you have something worthy of a Hollywood script and the underpinning of the most sophisticated insider trading scheme to date.
Marketwired, PRNewswire Association, and Business Wire were the victims of an orchestrated computer attack led by a pair of Ukrainian hackers, Ivan Turchynov, 27 and Oleksandr Ieremenko, 23. According to news reports, the Ukrainian men have been at this racket since 2005, and through a network of traders scattered throughout the world, the duo along with other hackers funneled the unreleased news wires (press releases) that companies like Panera Bread used to disseminate corporate information, such as earnings or lack thereof.
The scheme is relatively straightforward, and operates no different than any other insider trading fraud. The hackers get the information that will affect the pricing of the stock and act on it ahead of the public. They build their trading and equity positions according to the not-yet released news. For example, a company expects to take a loss or learns that earnings are going to "disappoint," then traders take short positions and make profits as the stock declines in response to the public's reaction. What makes this case so important is that it shows how these gigantic companies trusted with sensitive corporate data are vulnerable and far from immune to the skills of basement and college dorm hackers abroad.
The criminal federal indictments were unsealed in Newark and Brooklyn, with the SEC filing a parallel suit in Newark. The FBI carried out raids during early hours, and several of the defendants are scheduled to make arraignments in Pennsylvania and Georgia. The Government will have to rely on the extradition process for the hackers, which is likely to be a complicated process that could cause substantial delays. It's likely a stay will be granted with the SEC suit because typically in instances like this, a criminal trial will precede the civil trial, and that is largely due to the overly broad discovery requests associated with civil cases. Because of the amount of gains and perceived risk of flight, it's likely the stateside defendants will get bond, and if they do, you can bet that pre-trial restrictions will be severe.
You can read more articles by Blayne Davis at WhiteCollarTalk.blogspot.com.