Chinese hackers strike U.S. law firms
Prosecutors allege traders stole merger info, profited from it
“This case ... should serve as a wake-up call for law firms around the world: You are and will be targets of cyber hacking.” Preet Bharara, above, U.S. attorney for the Southern District of New York
Chinese traders hacked into the computer systems of U.S. law firms that handle mergers, then used the data for insider trading that generated more than $4 million in illegal profits, federal prosecutors and regulators charged Tuesday.
The suspects in the alleged criminal marriage of cyberhacking and securities fraud targeted at least seven law firms and other entities that handle the sensitive and often lucrative legal work of advising firms pursuing mergers and acquisitions, according to a 13-count superseding indictment unsealed in New York.
Operating from April 2014 through late 2015, the alleged scheme ultimately gained access to secret information from two law firms about pending corporate deals, prosecutors charged. The suspects allegedly prized, targeted and gained access to the emails of attorneys
directly involved in the deals. Prosecutors charged they exchanged a list of partners who performed such work at one of the firms before hacking into that firm’s computer system.
Using that information, the suspects allegedly bought stocks in the companies involved in the deals and ultimately sold the investments at a profit when the mergers or acquisitions were announced.
Preet Bharara, the U.S. attorney for the Southern District of New York, in a formal statement said the allegations spotlight the vulnerability of highly-sensitive law firm records to the efforts of determined cyber criminals.
The Securities and Exchange Commission filed a parallel civil lawsuit that seeks an asset freeze aimed at preventing the alleged suspects from cashing in on their alleged trading gains.
SEC investigators used trading surveillance and analysis to identify the alleged scheme, which was carried out through the use of both U.S. and offshore ac- counts, said Stephanie Avakian, acting director of the SEC’s enforcement division.
The defendants include Iat Hong, a resident of Macau who was arrested in Hong Kong on Christmas Day. He is now being held pending extradition to the U.S. Prosecutors identified Hong’s alleged co-conspirators as Bo Zhen and Chin Hung, and said they remain at large. All three are charged with conspiracy to commit securities fraud, wire fraud, computer intrusion and other criminal counts.
The deals outlined in the charges included the prospective 2014 acquisition of InterMune, a Brisbane, Calif.-based biotech company. Although the contemplated acquisition was never completed, InterMune ultimately agreed to an $8.3 billion transaction with Swiss biotech giant Roche in August 2014.
The suspects allegedly cashed in on the announcement, selling 18,000 InterMune shares they had acquired 12 days before the deal became public for roughly $380,000 in profits, the indictment charges.