SEC brings charges in EDGAR hacking case to trade nonpublic earnings information

by Talk Business & Politics staff ([email protected]) 183 views 

The Securities and Exchange Commission has filed federal charges against nine defendants in California, Russia, the Ukraine that allegedly hacked into the EDGAR system to extract nonpublic information to use for illegal trading.

According to the federal complaint, the SEC charged a Ukrainian hacker, six individual traders in California, Ukraine, and Russia, and two entities. The hacker and some of the traders were also involved in a similar scheme to hack into newswire services and trade on information that had not yet been released to the public. The SEC charged the hacker and other traders for that conduct in 2015.

The SEC’s complaint alleges that after hacking the newswire services, Ukrainian hacker Oleksandr Ieremenko turned his attention to EDGAR and, using deceptive hacking techniques, gained access in 2016. Ieremenko extracted EDGAR files containing nonpublic earnings results. The information was passed to individuals who used it to trade in the narrow window between when the files were extracted from SEC systems and when the companies released the information to the public. In total, the defendants traded before at least 157 earnings releases from May to October 2016 and generated at least $4.1 million in illegal profits.

“International computer hacking schemes like this pose an ever-present risk to organizations that possess valuable information,” said SEC Enforcement Division Co-Director Stephanie Avakian. “This action shows the SEC’s commitment and ability to unravel these schemes and identify the perpetrators even when they operate from outside our borders.”

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has also announced related criminal charges. The SEC’s complaint charges each of the defendants with violating the federal securities antifraud laws and related SEC antifraud rules and seeks a final judgment ordering the defendants to pay penalties, return their ill-gotten gains with prejudgment interest, and enjoining them from committing future violations of the antifraud laws. The SEC also named and is seeking restitution from four relief defendants who profited from the scheme when defendants used the relief defendants’ brokerage accounts to place illicit trades.

EDGAR, or the Electronic Data Gathering, Analysis, and Retrieval system, is the SEC’s electronic database where all domestic publicly-traded concerns and other companies that sell securities and stocks in the U.S. are required to file registration statements, periodic reports, and other forms related to securities filings. Publicly-traded companies in Arkansas regularly file a wide-range of documents from quarterly earnings and annual reports known respectively as 10 and 10K filings to filings describing details of stock trades and sales by insiders, key shareholders and company executives.