Last week a Georgia-based real estate developer plead guilty for participating in the first ever criminal insider trading scheme involving hacked information. US authorities accuse the defendant for his involvement in a $100 mln conspiracy to hack inside information from computer systems distributing corporate press releases.
Background of the Case
US Prosecutors accused Alexander Garkusha, a real estate developer who is a US citizen born in Russia, for trading on inside information stolen by hackers in the Ukraine. Authorities said that Garkusha, and three other co-defendants, generated close to $30 mln in illicit profits by trading early on information that was obtained from information hacked from systems containing numerous corporate press releases.
The other traders arrested as part of this scheme include Vitaly Korchevsky, from Glen Mills, Pennsylvania; Vladislav Khalupsky, of Brooklyn, New York; and Leonid Momotok, from the Atlanta, Georgia area. Authorities said the scheme resulted in illegal profits trading on the shares of companies including Acme Packet, Align Technology, Caterpillar, Dealertrack Technologies, Dendreon, Edwards Lifesciences, Panera Bread and Verisign. Garkusha plead guilty to conspiracy to commit wire fraud.
In a related case, nine people were indicted and 32 defendants were named in a lawsuit by U.S. securities regulators for engaging in a conspiracy to steal over 150,000 press releases from Business Wire, Marketwire and PR Newswire before the news became public.
Our Take
Federal prosecutors lost a number of insider trading cases (and had others overturned) in 2015 due to an appeals court reversal late last year. However, this does not mean the feds have given up on prosecuting insider trading.
Clearly, the Garkusha case and related arrests, show that the US government is now focused on prosecuting individuals caught profiting from trading on MNPI obtained by hacking, not merely obtaining information from tippers. Given the growth in computer security breaches, and the significant profits that can be made by trading on sensitive information stolen from corporate computer systems, we would not be surprised to see even more of these type of insider trading cases in the future.