Three Chinese citizens who traded on insider information by hacking into the systems of two New York-based law firms have been fined $8.8 million by the Securities and Exchange Commission.
Iat Hong, Bo Zheng, and Hung Chin made almost $3 million in illegal profits by tapping into non-public information relating to upcoming mergers and acquisitions.
The three defendants gained access to all e-mail accounts at the unidentified firms and downloaded gigabytes of data after installing malware on their corporate networks. Five other law firms were targeted but the culprits failed to penetrate their defences.
The SEC said that they spent approximately $7.5 million in a one-month period buying shares in semiconductor company Altera Inc. in advance of a 2015 report that it was in talks to be acquired by Intel Corporation.
Within 12 hours of emails being extracted from one of the firms, Hong and Chin allegedly began purchasing shares of e-commerce company Borderfree so aggressively that they accounted for at least 25% of the company’s trading volume on certain days in advance of the announcement of a 2015 deal.
Hong and Zheng also allegedly traded in advance of a 2014 merger announcement involving InterMune, a pharmaceutical company.
“We used enhanced trading surveillance and analysis capabilities that we developed over the last few years to identify the broad scope of the defendants’ alleged scheme, including the use of both US and offshore accounts to carry it out,” says Stephanie Avakian of the SEC’s Enforcement Division. “This action demonstrates our commitment and effectiveness in rooting out cyber-driven schemes no matter how sophisticated.”
The men remain at large, having failed to respond to the charges.