On August 5, 2015, the SEC and DOJ both filed cases against against a large group of hackers and traders who carried out an audacious insider trading and hacking scheme. According to the DOJ, five men engaged in an "international scheme to hack into three business newswires, steal yet-to-be published press releases containing non-public financial information, and use the information to make trades that allegedly generated approximately $30 million in illegal profits." The DOJ ultimately brought criminal charges against 10 trader and hacker defendants in the case. The SEC's complaint further alleged that the hackers worked with a much broader network of other traders that increased the amount of the unlawful profits to over $100 million.
Yesterday, almost exactly one year after the cases were brought, prosecutors announced the latest guilty plea in the case--the fifth so far. Leonid Momotok, a Russian-born U.S. citizen, pleaded guilty on Tuesday to one count of conspiracy to commit wire fraud related to his trading based on the inside information provided by the Ukranian hackers. Reuters reports that Momotok admited in court that "I profited from these trades.... It was a bad judgment. I am very sorry."
Robert L. Capers, United States Attorney for the Eastern District of New York, called the scheme "unprecedented in its scope, impact and sophistication” and said that Momotok's guilty plea "demonstrates our steadfast commitment and preparedness to combating the ever-evolving threat of cybercrime and to protecting the integrity of our financial markets.” Diego Rodriguez, Assistant Director-in-Charge of the FBI's New York Field Office, agreed that the scheme was "one of the most sophisticated insider trading cases we’ve seen to-date" but warned that the guilty plea should send a message to others that such schemes "only end with prison time and forfeiture of those profits.”
Momotok now faces up to 20 years in prison, as well as restitution, criminal forfeiture, and a fine when he is sentenced on Dec. 9. According to Reuters, Momotok's plea agreement provides that he will not appeal a prison sentence of nine years or fewer.
As detailed in yesterday's announcement of the plea agreement, the Ukrainian hackers broke into the computer networks of three wire services: Marketwired, PR Newswire and Business Wire. Once they gained access, "the hackers stole press releases about upcoming announcements by public companies concerning earnings, gross margins, revenues, and other confidential and material financial information."