Page 25 - ARUBA TODAY AUG 12

BUSINESS A25
Wednesday 12 August 2015

A look at stock market scams Utilizing stolen news releases:

using the latest technology Hacking ring accused of scamming $100M

NEW YORK (AP) — Stock scams are about as old as DAVID PORTER risks posed for our global ample, the group traded
the market itself, but the combination of worldwide Associated Press markets by today’s sophis- more than 75,000 shares
information technology and automated programs NEWARK, N.J. (AP) — An in- ticated hackers,” SEC chief of Panera Bread Co. stock
that can make thousands of trades in a second has ternational web of hackers Mary Jo White said. “To- in a little over an hour and
created new paths for potential frauds. The U.S. gov- and traders made $100 mil- day’s international case is made $900,000, authorities
ernment says alleged scammers have used meth- lion on Wall Street by steal- unprecedented in terms said.
ods including rapid trades, fake regulatory filings ing a look at corporate of the scope of the hack- A strong earnings report
and news reports to get an advantage and make press releases before they ing at issue, the number of or other positive news can
profits. went out and then trading traders involved, the num- cause a company’s stock
on that information ahead ber of securities unlawfully to rise, while disappointing
Here are a few examples:
— In May 2010 the Dow Jones industrial average United States Secretary of Homeland Security Jeh Johnson, center, speaks during a news
plunged 600 points in about five minutes and closed
with a loss of 348 points. Regulators said the dive was conference in Newark, N.J., Tuesday, Aug. 11, 2015. An international group of hackers and
triggered by a computerized selling program, and in
April 2015 the U.S. government filed criminal charges stock traders made $30 million by breaking into the computers of newswire services that put
against British futures trader Navinder Singh Sarao.
The U.S. Department of Justice said Sarao used an out corporate press releases and trading on the information before it was made public, federal
automated trading program to manipulate the mar-
ket and charged him with fraud and commodities prosecutors said Tuesday. (AP Photo/Seth Wenig)
manipulation. Sarao has said he was merely good
at his job. of the pack, federal au- traded and the amount of news can make it fall. The
— Shares of Avon Products rose as much as 20 per- thorities charged Tuesday. profits generated.” conspirators typically used
cent in May after a false Securities and Exchange Authorities said it was the The nine indicted include the advance information
Commission filing said an investment firm wanted to biggest scheme of its kind two people described as to buy stock options, which
buy the cosmetics retailer for $8 billion. That was a ever prosecuted, and one Ukrainian computer hack- are essentially a bet on the
big premium for a company that had struggled with that demonstrated yet an- ers and six stock traders. direction a stock will move,
falling sales and reduced revenue. In May the SEC other way in which the fi- Prosecutors said the de- authorities said.
sued a Bulgarian man, Nedko Nedev, and said he nancial world is vulnerable fendants made $30 mil- The hackers were paid a
and five others violated securities laws by creating to cybercrime. lion from their part of the cut of the profits, prosecu-
fake takeover offers. The SEC said Nedev also made In an insider-trading scan- scheme. tors alleged.
fake bids for Rocky Mountain Chocolate Factory in dal with a 21st-century Authorities said that begin- “This is the story of a tra-
2012 and insurer Tower Group International in 2014. twist, the hackers pulled ning in 2010 and continu- ditional securities fraud
— In July, Twitter’s stock climbed as much as 8.5 per- it off by breaking into the ing as recently as May, the scheme with a twist — one
cent after a fake story said the short messaging ser- computers of some of the hackers gained access to that employed a con-
vice received a $31 billion buyout offer. That, too, biggest business newswire more than 150,000 press re- temporary approach to a
was a significant premium to Twitter’s market cap at services, which put out leases that were about to conventional crime,” said
the time, and it came as investors worried about Twit- earnings announcements be issued by Marketwired Diego Rodriguez, head of
ter’s losses and its user growth. The story appeared and other press releases of Toronto; PR Newswire the FBI’s New York office.
on a website that mimicked the business news page for a multitude of corpora- in New York; and Busi- Five defendants were ar-
of Bloomberg. Twitter shares returned most of those tions. ness Wire of San Francisco. rested in the U.S. on Tues-
gains after Bloomberg said the story was a fake. Nine people in the U.S. and The press releases con- day, and warrants were
— On Tuesday the U.S. government said a group of Ukraine were indicted on tained earnings figures and issued for four others in
hackers and securities brokers broke into the com- federal criminal charges, other corporate informa- Ukraine.
puter systems of three companies that publish news including securities fraud, tion. Among those charged
releases and traded on the information in hundreds computer fraud and con- The defendants then used were Pavel, Igor and
of press releases before the public saw them. The spiracy. And the Securities roughly 800 of those news Arkadiy Dubovoy. Authori-
Justice Department says the group had members in and Exchange Commis- releases to make trades be- ties said they are related
Ukraine and the U.S., and it made $100 million over sion brought civil charges fore the information came but didn’t say how. Arkadiy
the years from trading shares of heavy machinery against the nine plus 23 out, exploiting a time gap and Igor were arrested at
maker Caterpillar, Invisalign braces maker Align other people and compa- ranging from hours to three their homes in Alpharetta,
Technology, and other companies based on the nies in the U.S. and Europe. days, prosecutors said. Georgia. Pavel was be-
unpublished releases. The case “illustrates the In one day in 2013, for ex- lieved to be in Ukraine.q

Robert Heim, a former lawyer at the SEC, said these
kinds of schemes will probably persist because news
spreads so fast over social media and traders have
to react so quickly. He compared the fake offer for
Twitter to a pump and dump fraud as well.
“Instead of having a room full of cold callers calling
up investors and pitching a stock, now people can
set up a website in a day or so, often on their own,
and publish a fake news story to be able to trade on
the securities before the truth comes out.”
Automated trading programs that act based on
increased trading volume and prices can magnify
the effect of the scams, he added. Heim said retail
investors should be careful and make sure news sto-
ries are verified before they made trades based on
them.q