The US Securities and Exchange Commission has filed fraud charges against an Estonian financial services firm and two of its employees who allegedly used a 'spider' program to steal advance PR filings from the Business Wire Web site and made at least $7.8 million by illegally trading on the stolen data.
The SEC has filed an emergency federal court action against Estonian financial services firm Lohmus Haavel & Viisemann (Lohmus) and two of its employees, Oliver Peek, 24, and Kristjan Lepik, 28, both of Tallin, with conducting a fraudulent scheme involving the electronic theft and trading in advance of more than 360 confidential press releases issued by more than 200 US public companies.
The Commission alleges that the defendants fraudulently stole the confidential information from the Business Wire Web site and since January 2005 have made at least $7.8 million in illegal profits.
The complaint alleges that in June 2004 Lohmus became a Business Wire client for the sole purpose of gaining access to the company's secure client Web site. The defendants then surreptitiously used a "spider" program to gain unauthorised access to confidential information contained in impending nonpublic press releases.
The SEC filing says the information fraudulently stolen by the defendants has allowed them to strategically time their trades around the public release of news involving, among other things, mergers, earnings, and regulatory actions.
Using this information and several US brokerage accounts, the defendants have bought long or sold short the stocks of the companies whose confidential information they had stolen, and purchased options to increase their profits.
Linda Chatman Thomsen, director of the Commission's division of enforcement, says the court action "demonstrates that we will seek out and stop securities fraud wherever we find it".
"Whether in an old-fashioned boiler room or, as in this case, in the high-tech environs of the internet, such conduct will be met with a swift and vigorous enforcement response," says Thomsen.
However, a statement released by Business Wire claims that its news releases were not accessed prior to distribution and that its proprietary news distribution platform, NX, was not compromised.
Lorry Lokey, chairman and CEO, Business Wire, says no one "gained access to our news release file prior to distribution to the media and investment community Some of the SEC statements in its complaint have been misinterpreted".
But Business Wire says it played a key role in helping the SEC with their investigation and its senior technical staff worked closely with SEC investigators and helped them pinpoint the source of the problem.