SEC accuses 3 Chinese traders of making almost $3 million by trading on hacked nonpublic information
Linus Unah – Fourth Estate Contributor
Washington, DC, United States (4E) – The U.S. Securities and Exchange Commission (SEC) Tuesday charged three Chinese traders with racking up almost $3 million in illegal profits by fraudulently trading on hacked nonpublic “market-moving” information stolen from two prominent New York-based law firms.
The SEC’s complaint alleged that Iat Hong, Bo Zheng , and Hung Chin, 50, executed a scheme to hack into the networks of two law firms and steal confidential information pertaining to firm clients that were considering mergers or acquisitions.
The alleged hacking incidents involved installing malware on the law firms’ networks, compromising accounts that enabled access to all email accounts at the firms, and copying and transmitting dozens of gigabytes of emails to remote internet locations, according to the SEC’s complaint.
Hong, 26, and Zheng , 30, coveted the emails of attorneys involved in mergers and acquisitions as they exchanged a list of partners who performed the work at one of the law firms before the hack at that firm.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges.
“We used enhanced trading surveillance and analysis capabilities that we developed over the last few years to identify the broad scope of the defendants’ alleged scheme, including the use of both U.S. and offshore accounts to carry it out,” Stephanie Avakian , acting director of the SEC’s enforcement division.
“This action demonstrates our commitment and effectiveness in rooting out cyber-driven schemes no matter how sophisticated.”
According to the SEC’s complaint, Hong, Zheng , and Chin used the stolen confidential information contained in emails to purchase shares in at least three public companies ahead of public announcements about entering into merger agreements.
The SEC alleged that they spent about $7.5 million in a one-month period buying shares in semiconductor company Altera Inc. in advance of a 2015 report that it was in talks to be acquired by Intel Corporation.
The two men also allegedly traded in advance of a 2014 merger announcement involving InterMune , a pharmaceutical company.
The SEC’s complaint charges Hong, Zheng , and Chin with violating the antifraud provisions of the federal securities laws and related rules.
The SEC seeks a final judgment ordering them to pay penalties and disgorge ill-gotten gains plus interest and permanently enjoining them from violating the federal securities laws.
The SEC also is seeking an asset freeze that prevents the traders from cashing in on their illicit gains.
The enforcement action marks the first time the SEC has charged hacking into a law firm’s computer network.
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