3 Chinese men caught trading with insider information gained from hacking

The 3 Chinese men made more than $4 million from these trades. While Hong, 26, has been arrested in Hong Kong, Zheng, 30, and Hung, 50, are yet to be taken into custody.

U.S. prosecutors have criminally charged three Chinese citizens of obtaining confidential corporate information by hacking corporate networks servers of law firms and using the information gained from there for trading purposes.

Bo Zheng of Changsha, Iat Hong of Macau and Chin Hung of Macau, have been charged in an indictment filed in a Manhattan federal court with computer intrusion, wire fraud, conspiracy and insider trading.

As per prosecutors, the 3 Chinese men made more than $4 million by placing trades in the stock of at least five companies. These trades were based on inside information obtained from, yet-to-be-named, law firms.

In a related civil suit, the 3 men had listed themselves as working at IT companies, said the SEC in a statement.

While Hong, 26, was arrested in Hong Kong, Zheng, 30, and Hung, 50, are yet to be taken into custody, said prosecutors.

Defense lawyers for the trio could not be immediately identified.

This case is the latest episode of U.S. insider trading prosecution which involves hacking, following warnings by U.S. law enforcement agencies stating that law firms could become targets for cyber criminals.

“This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals,” said Preet Bharara, a U.S. Attorney in Manhattan.

Hacking methodology

According to the prosecution, the 3 Chinese men had obtained inside information by hacking into two U.S. law firms sometime in April 2014.

They had targeted the e-mail accounts of one of the parners of the law firm, who was working on mergers and acquisitions.

Although the prosecution has yet to identify the law firms in question, their description matched NY-based Cravath, Swaine & Moore LLP, which represented Pitney Bowes in its 2015 acquisition of Borderfree Inc, which again is one of the mergers in question.

According to the indictment, by using an employee’s credentials the cyber criminals were able to install malware on the law firm’s servers and get access to their e-mails, including those from a partner who was responsible for the Pitney deal.

In March, Cravath had confirmed discovering a “limited breach” of its systems in 2015.

Prosecutors have also accused the 3 Chinese men of trading on stolen information stolen from a law firm which represented Intel on its acquisition of Altera Inc. in 2015.

The NY-based law firm Weil, Gotshal & Manges LLP had then acted as Intel’s counsel on the merger.

Weil, Gotshal & Manges declined to comment.

The spokeswoman for China’s Foreign Ministry, Hua Chunying, said she was aware of the reports regarding the case but knew no further details on it.

The case is U.S. v. Hong et al, U.S. District Court, Southern District of New York, No. 16-cr-360.

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