Wall Street Banker, Pastor, Hacking Ring Member Guilty of Insider Trading
Vitaly Korchevsky, now a Pennsylvania pastor, was convicted of participating in a sprawling, international insider trading and hacking ring that is alleged to have generated over $100 million in trading profits during a five year period. U.S. v. Korchevsky, No. 1:15-cr-00381 E.D.N.Y.).
Mr. Korchevsky, a resident of Glen Mills, Pennsylvania, was a registered investment adviser at Morgan Stanley. He is alleged to have been a member of an international insider trading ring composed of over 30 individuals and entities that hacked news organizations to obtain advance copies of press releases containing inside information. Ultimately the group’s activity resulted in criminal actions in the Eastern District of New York as well as the District of New Jersey. The SEC filed a parallel civil action. SEC v. Dubovoy, Civil Action No. 15-cv-06078 D.N.J.).
The defendants divide into three groups: 1) The hacker defendants: Oleksandr Ieremanko and Ivan Turchynov, both residents of Kiev, Ukraine. 2) The trader defendants—The Dubovoy Group: This was a close nit group of family, friends and business associates of Arkadiy Dubovoy. Members of the group resided in Georgia, Ukraine, New York and Pennsylvania. It had 12 members according to the SEC, including eight individuals and four entities. Mr. Korchevsky was a member. The group is alleged to have made over $31 million in trading profits. 3) The foreign trader defendants: This is a group of two individuals and eighteen entities. The individuals reside in Russia and Ukraine. The entities are from jurisdictions which include Malta, the Cayman Islands, Cyprus and France.
The hackers obtained as many as 150,000 press releases from news organizations such as PR Newswire Associates LLC, Marketwired LP and Business wire over about a five year period beginning in 2010, according to news reports. Defendants penetrated the computer services of the organizations using a variety of advanced techniques which included masking their identities by posing as newswire employees and customers. As a result the hackers were able to acquire advance copies of corporate press releases before distribution to the public, according to court papers. Over time this gave the hackers access to press releases regarding companies which included: Catepillar, Inc., TreeHouse Foods, Inc., RadioShack, Zumiez, Inc., Brocade Communications Systems, Edwards Life Sciences, Panera Bread Co., VMware, Inc., TIBCO Software and Align Technology.
The hacker defendants – Messrs. Ieremanko and Turchynov – transmitted the information to the traders. The traders had been recruited with a video which showcased the ability of the hackers to obtain inside information. The information had to be transmitted in a narrow window of time before the release by the news wires of the press releases. The members of the trader group placed trades through a variety of accounts using the information before its release to the public. The hacker defendants were paid either a flat fee or a percentage of the trading profits. At times the traders in the groups communicated with each other and the hackers had access to various trading accounts. Trading in this fashion continued through at least May 2015.
Prior to Mr. Korchevsky’s trial the head of the Dubovoy group of which he was a member, Arkadiy Dubovoy, pleaded guilty. He then testified for the government at the trial against his former group member. At trial the government also presented an analysis of Mr. Korchevsky’s trading prepared by an SEC economist. That testimony demonstrated that prior to joining the group, Mr. Korchevsky generated trading losses. Once he joined the group, however, his results improved, resulting in trading profits of over $8.5 million, according to a Bloomberg report of the trial. The jury returned a verdict of guilty late on Friday, July 6, 2018. The date for sentencing has not been set.