4 locals charged in $100M scheme

Illegal stock trades made using insider reports, feds allege.

Four metro Atlantans were part of an international conspiracy that reaped more than $100 million by hacking into corporate earnings reports before they were released and making illegal stock trades based on the information, federal authorities said Tuesday.

“This is the story of a traditional securities fraud scheme with a twist — one that employed a contemporary approach to a conventional crime,” said Diego Rodriguez, head of the FBI’s New York office.

Two computer hackers in Ukraine teamed up with 30 traders in the U.S. and overseas to buy and sell stocks based on company financial results in the hours and minutes before those results became public, a

variation on insider trading, according to federal indictments.

The ring hacked into business newswires that distribute market-moving news such as earnings reports and merger announcements, rather than into the companies themselves, authorities said. Shares of major companies, including Delta Air Lines and Home Depot, were traded in the alleged scheme.

Federal authorities said it is the largest trading scheme of its kind ever prosecuted. Nine people in the U.S. and Ukraine face criminal charges, while the U.S. Securities and Exchange Commission brought related civil charges against those nine, plus 23 other people.

The conspiracy included a group of relatives and friends in Alpharetta, Cumming and Suwanee, according to investigators. Working with others in the U.S. and overseas, the metro Atlanta group brought in more than $31 million in illicit trading profits, the largest haul from the scheme, according to the SEC and FBI.

The four metro Atlantans arrested Tuesday were among the nine facing criminal charges for wire fraud, securities fraud, money laundering and other violations. They were identified as Arkadiy Dubovoy, 50, of Alpharetta; his 28-year- old son, Igor Dubovoy, also of Alpharetta; Aleksandr Garkusha, 47, of Cumming and Alpharetta; and Leonid Momotok, of Suwanee.

Arrest warrants were also issued for four others in Ukraine, including Pavel Dubovoy, 32, who lives part-time in Alpharetta, according to the SEC.

Prosecutors said the elder Dubovoy owns or is a partner in several companies in the construction or brokerage business, including two Georgia companies that were used in the scheme: APD Developers LLC in Atlanta and Southeastern Holding and Investment Co., in Cumming.

Authorities said they also seized 17 bank and brokerage accounts con- taining $6.5 million and a dozen properties valued at $5.5 million, including a Macon apartment building and a Woodstock property described on online real estate listings as a 10-bedroom house.

In addition to traders in Georgia, New York and Pennsylvania, the network included conspirators in Russia, Ukraine, Malta, Cyprus and France, according to investigators.

Fraud and securities laws bar people, including executives and other company insiders or their relatives and acquaintances, from profiting on corporate information before it is made public. In this case, the hackers and co-conspirators allegedly profited from stolen in- formation rather than relying on insiders’ knowledge.

Prosecutors said that for nearly three years starting in 2010, two hackers based in Ukraine gained access to news releases that were about to be issued by Marketwired of Toronto; PR Newswire, based in New York; and Business Wire of San Francisco. When the companies discovered some of the intrusions and shut them down, the hackers moved on to other firms, only to sometimes return later, investigators said.

They stole more than 150,000 news releases over the duration of the scheme.

They allegedly fed the information to the network of traders in met- ro Atlanta and around the globe. Exploiting head starts ranging from minutes to up to three days, investigators said, the traders bought and sold shares of dozens of big companies, including Panera Bread Co., Boeing Co., Oracle Corp., Hewlett-Packard Co., and Caterpillar Inc., ahead of the news. The hackers were paid based on how much in profits the traders made, prosecutors alleged. They also allegedly created a how-to video on gaining access to the stored news releases.