The Department of Justice announced charges Tuesday against three Chinese citizens accused of generating millions of dollars by hacking into the computer systems of American law firms and then trading stocks based off of stolen insider knowledge.
Iat Hong, Bo Zheng and Chin Hung were charged in a felony indictment unsealed in U.S. District Court in Manhattan. Authorities said an insider trading scheme allowed the three men to make more than $4 million in illegal proceeds in less than two years.
The Chinese citizens participated in a conspiracy from April 2014 to late 2015 that involved penetrating the computer networks of law firms and subsequently pilfering privileged information that was then used to turn a profit, the indictment said.
Once inside the networks, the hackers scoured computer systems and email accounts for information regarding planned yet unannounced mergers and acquisitions that could be used to their advantage on the stock market, prosecutors said.
Authorities said the men would purchase stocks in those companies before the details were published. When the acquisitions were announced, according to the indictment, they quickly sold off their stocks and made immense profits.
Through various accounts, the men purchased shares of at least five publicly traded companies before it was announced that those firms would be acquired, generating a profit in excess of $4 million, prosecutors said.
Specifically, prosecutors said, the men in early 2015 exfiltrated 2.8 gigabytes of confidential data stolen from a hacked law firm that included details about tech giant Intel’s plans to acquire Altera Corp., an integrated circuit maker.
Authorities said the trio used the privileged details to purchase more than 210,000 shares of Altera before the merger was publicized on March 27, then sold that stock shortly after Altera’s share priced surged by roughly 26 percent as a result of the deal.
“This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: You are and will be targets of cyber hacking, because you have information valuable to would-be criminals,” U.S. Attorney Preet Bharara said in a statement.
Mr. Hong, 26, was arrested in Hong Kong on Christmas Day and is pending extradition to the U.S., the Justice Department said Tuesday.
Mr. Hung, 50, and Mr. Zheng, 30, were believed to be still at large.
In addition to being named in the criminal indictment, all three men were charged by the Securities and Exchange Commission this week with fraudulently trading on hacked information. The SEC said it is attempting to freeze the men’s assets to prevent them from cashing out before they face extradition and trial in the U.S.