The Securities and Exchange Commission said Tuesday that it charged nine defendants with participating in a 2016 scheme to hack into the agency’s corporate Electronic Data Gathering, Analysis and Retrieval, or Edgar, filing system and extract nonpublic information to use for illicit trading.
The SEC charged a Ukrainian hacker; six individual traders in California, Ukraine and Russia; and two entities.
The SEC’s Tuesday complaint alleges that the following traders received and traded on the basis of the hacked Edgar information:
- Sungjin Cho, Los Angeles
- David Kwon, Los Angeles
- Igor Sabodakha, Ukraine
- Victoria Vorochek, Ukraine
- Ivan Olefir, Ukraine
- Andrey Sarafanov, Russia
- Capyield Systems Ltd.(owned by Olefir)
- Spirit Trade Ltd.
“Our complaint alleges that certain individuals hacked into Edgar and accessed test filings, including test filings containing material nonpublic information pertaining to earnings announcements of publicly traded companies,” said SEC Chairman Jay Clayton, in a statement. “We allege that certain defendants then traded based on the hacked information and profited once the information became public.”
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced related criminal charges Tuesday.
Clayton was informed about the 2016 Edgar system intrusion in August 2017, shortly after his arrival at the commission. He publicly announced the intrusion on Sept. 20, 2017, and followed up on an internal investigation’s progress into the hack in late September testimony before the Senate Banking Committee.
The SEC announced the same day as Clayton’s Senate testimony two new cyber-related initiatives: the creation of a Cyber Unit that will focus on targeting cyber-related misconduct and a retail strategy task force that will implement initiatives that directly affect retail investors.
The hacker and some of the traders were also involved in a similar scheme in 2015 to hack into newswire services and trade on information that had not yet been released to the public, according to the SEC.
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 SEC states. “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 traders traded before at least 157 earnings releases from May to October 2016 and generated at least $4.1 million in illegal profits, the SEC states.