Accused in newswire hacking scheme arrives in U.S.
SEC defendant Khalupsky extradited from Ukraine
THE U.S. has successfully extradited Vladislav Khalupsky, one of those wanted in a newswire hacking scheme. Mr. Khalupsky appeared before a New York judge on Sept. 11, 2017, and was released on conditions that include a $2-million appearance bond signed by six sureties. (All figures are in U.S. dollars.) The judge granted his release despite the fact that the government had to have Mr. Khalupsky extradited from the Ukraine to face the charges.
The extradition of Mr. Khalupsky, 46, comes as part of a case in which prosecutors claim that he and others profited from a hacking scheme that targeted three newswire
services, including Toronto’s Marketwired LP. The group accessed 100,000 or more news releases ahead of publication, the government says. The group used the information to make $30-million in illegal profits, according to prosecutors.
Mr. Khalupsky, who had worked as a broker in the United States, helped set up offshore accounts as part of the scheme, the government contends. He also made or directed trades in brokerage accounts tied to the hacking, according to prosecutors. The government has not stated his profits from the scheme.
When prosecutors unveiled the case on Aug. 11, 2015, Mr. Khalupsky was not among those arrested. At the time the government listed him as a resident of Brooklyn, N.Y., but he also maintained a residence in Odessa, Ukraine. That is where he eventually turned up.
According to media reports in the Ukraine, he was detained in Odessa in February, 2017. He was placed under house arrest while the U.S. formally requested his extradition from that country. That process concluded on Aug. 3, 2017, when the Ukranian prosecutor general, Yuriy Lutsenko, determined that Mr. Khalupsky would be extradited.
In the U.S., Mr. Khalupsky appeared before New York Judge Roanne Mann on Sept. 11, 2017, for a detention hearing. In releasing Mr. Khalupsky, the judge ordered six sureties to post $40,000 in cash as well as property with the court. The conditions of release include a requirement that Mr. Khalupsky live at an address in New York and that he surrender his passport. The release order (which is partially redacted) does not state the judge’s reasons for allowing Mr. Khalupsky to go free, but presumably the judge determined that his flight risk was not sufficient to keep him in jail. The judge also imposed location monitoring on Mr. Khalupsky.
The charges that Mr. Khalupsky faces in the U.S. (to which he pleaded not guilty) include wire fraud, securities fraud and money laundering conspiracy. With Mr. Khaluspky’s extradition, six of the nine defendants in the case have been captured. (The remaining defendants are Ivan Turchynov, Oleksandr Ieremenko and Pavel Dubovoy.)
Details of the scheme are contained in an indictment filed on Aug. 11, 2015, in the Eastern District of New York. According to the indictment, Mr. Khalupsky was part of a group of traders who were working with a pair of Ukrainian hackers. The hackers targeted three wire services between February, 2010, to August, 2015, stealing news releases before they became public, prosecutor said.
The three newswires identified in the indictment were PR Newswire, Business Wire and Marketwired. According to prosecutors, the attacks on Marketwired involved something called an SQL injection attack. In those attacks, the hackers were able to gain access to employee log-in credentials. Other attacks involved installing malware on servers at the wire services, prosecutors said.
The hackers then shared the stolen news releases with the traders through a server where the traders could quickly access and download the items, the indictment states. For their efforts the hackers received a portion of the profits. Eventually the traders set up what was essentially a shopping list for the hackers, with the list showing companies that were expected to release results over the ensuing two weeks.
The evidence against Mr. Khalupsky includes a screen shot of an unpublished news release. According to the government, he e-mailed the screen shot (which related to an earnings announcement) to his own e-mail account. The time of the e-mail was 1:21 p.m., nearly three hours before the news release became public. The government said that he took the screen shot using a smartphone application that does not save data, but he then preserved the image when he sent it via e-mail.
In all, prosecutors cited Mr. Khalupsky and the others for approximately 1,000 trades. Prosecutors listed their total gains as $30-million, but in a separate civil suit the U.S. Securities and Exchange Commission calculated gains from the scheme to be as high as $100-million.
The other defendants in the case include Vitaly Korchevsky, a New York fund manager who allegedly made $17-million in the scheme. Prosecutors said that he entered more than 600 unlawful trades. He pleaded not guilty, and awaits trial. (He is free until that trial, and recently requested that the judge allow him to travel to Moldova to attend the 33rd Conference of the Union of the Christian Evangelical Baptist Churches. The judge rejected the request.)
The other defendants are: Arkadiy Dubovoy, 51, and Igor Dubovoy, 28, both of Alpharetta, Ga.; Leonid Momotok, 47, of Suwanee, Ga.; and Alexander Garkusha, 47, of Alpharetta, Ga. All have pleaded not guilty and await trial except Igor and Arkadiy Dubovoy, who entered guilty pleas on Jan. 20, 2016, and Feb. 18, 2016.