Ac­cused in newswire hack­ing scheme ar­rives in U.S.

SEC de­fen­dant Khalup­sky ex­tra­dited from Ukraine

Stockwatch Daily - - FRONT PAGE - By Mike Caswell

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.

(*SEC)

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