SEC Reaches Settlements with Traders in Newswire Hacking and Trading Scheme
On June 10, 2020, the Securities and Exchange Commission (the“ SEC”) announced that it has obtained court approval of settlements with eight defendants: Arkadiy Dubovoy, Igor Dubovoy, Southeastern Holding and Investment Company LLC, APD Developers, Inc., Leonid Momotok, Aleksandr Garkusha, Vladislav Khalupsky, and Memelland Investments Ltd, charged in connection with an international scheme to trade on hacked news releases.
In August 2015, the Commission filed a civil action and then an amended complaint in New Jersey federal court charging the eight settling defendants, together with more than 20 others, with securities fraud. According to the amended complaint, Ukrainian hackers used advanced techniques to hack into newswire services and steal hundreds of corporate earnings releases before the newswires released them publicly. The complaint alleged that the hackers created a secret web-based location to transmit the stolen data to traders in the United States and abroad. The traders allegedly used this nonpublic information in a short window of opportunity to place illicit trades in stocks, options, and other securities, sometimes funneling a portion of their illegal profits to the hackers.
Previously, in parallel criminal actions in the District of New Jersey and the Eastern District of New York, defendants Momotok, Garkusha, and Khalupsky were convicted, sentenced, and ordered to pay restitution and to forfeit assets. Defendants Arkadiy Dubovoy and Igor Dubovoy have pleaded guilty and are awaiting sentencing.
The court entered final judgments enjoining the settling defendants from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgments order Arkadiy Dubovoy, Igor Dubovoy, Southeastern Holding, APD Developers, Momotok, Garkusha, and Khalupsky to pay disgorgement and prejudgment interest, which is deemed satisfied by the restitution and forfeiture orders against the individual defendants in the parallel criminal actions. Memelland, which was not charged criminally, has agreed to pay disgorgement and a civil penalty. Collectively, the monetary liabilities imposed exceed $14 million.
The Commission also dismissed its claims against defendant Global Hedge Capital Fund Ltd., which has ceased operations. Prior to these settlements, the SEC had recovered over $50 million and obtained full injunctive relief from 13 other defendants who previously agreed to settlements in this case.
This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes. For more information about going public with Form S-1, Form F-1 and Regulation A Securities Offerings, Rule 506 and Regulation CF crowdfunding, sponsoring market makers and Form 211, dual listings and foreign issuer listings and public company SEC reporting requirements, please contact Hamilton & Associates Law Group.
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