Two Defendants Convicted on All Counts for International Computer Hacking and Securities Fraud Scheme

Defendants Were Part of a Scheme that Made $30 Million in Profits by Trading on Press Releases Stolen by Hackers from Major Newswire Companies

  Vitaly Korchevsky, a former hedge fund manager, and Vladislav Khalupsky, a securities trader, were convicted today in federal court in Brooklyn of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusion, conspiracy to commit money laundering and two counts of securities fraud in connection with their roles in an international scheme to hack into three business newswires and steal yet-to-be published press releases containing non-public financial information, which was then used to make trades that generated approximately $30 million in illegal profits.  The verdicts followed a four-week trial before United States District Judge Raymond J. Dearie.  When sentenced, each defendant faces a maximum of 20 years’ imprisonment.

Richard P. Donoghue, United States Attorney for the Eastern District of New York, William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Michael Breslin, Deputy Assistant Director, United States Secret Service, Office of Investigations (USSS), announced the verdict.

“The defendants teamed up with cybercriminal co-conspirators to hack pre-distribution press releases and then traded in the stock market based on that stolen information, making massive profits as a result,” stated United States Attorney Donoghue.  “Today’s verdict sends a powerful message that this Office, together with our law enforcement partners, will work tirelessly to disrupt any scheme, no matter how sophisticated, that threatens the integrity and fairness of our markets.”  Mr. Donoghue expressed his grateful appreciation to the United States Attorney’s Office for the District of New Jersey (USAO-DNJ), the Department of Homeland Security (DHS) and the U.S. Securities and Exchange Commission (SEC) for their significant cooperation and assistance in this case.

“Conspiring with hackers overseas, Korchevsky and Khalupsky worked swiftly to trade on stolen press releases, illegally profiting millions of dollars,” stated FBI Assistant Director-in-Charge Sweeney.  “Such a massive criminal operation called for massive cover-ups, but their attempts to cover their tracks were done in vain.  Devoting much time to the execution of this sneaky scheme, upon sentencing, the defendants will now rightfully face time in prison.”

“This case represents the core of the U.S. Secret Service’s commitment and strategy to aggressively pursue cyber-enabled financial criminal enterprises through our proven taskforce model of global partnerships,” stated USSS Deputy Assistant Director Breslin.  “The guilty verdict delivered today represents a win for the country and for all law enforcement agencies who worked together to ensure that justice was served.”

The evidence at trial established that between February 2010 and August 2015, computer hackers based in the Ukraine gained unauthorized access into the computer networks of Marketwired L.P., PR Newswire Association LLC, and Business Wire, via a series of sophisticated cyberattacks.  At one point, one of the hackers sent an online chat message in Russian to another individual stating, “hacking prnewswire.com.”  The hackers moved through the computer networks and stole press releases about upcoming announcements by public companies concerning earnings, revenues and other material non-public information.  Over the course of the scheme, the hackers stole more than 100,000 press releases.

In order to monetize the material non-public information in the stolen press releases, the hackers shared those stolen press releases with a network of traders, including Korchevsky and Khalupsky, via overseas computer servers controlled by the hackers and/or through secure email accounts.  Once they received the stolen press releases, Korchevsky and Khalupsky generally traded ahead of the public distribution of the stolen releases.  In order to execute their trades before the releases were made public, Korchevsky and Khalupsky often had to execute trades in extremely short windows of time between when the hackers illegally accessed and shared information, and when the press releases were disseminated to the public by the newswires, usually shortly after the close of the markets.  As a result, the trading data often showed a flurry of trading activity around a stolen press release just prior to its public release.  The defendants traded on stolen press releases containing material nonpublic information about publicly traded companies that included, among hundreds of others: Align Technology Inc.; CA Technologies; Caterpillar Inc.; Hewlett Packard; Home Depot; Panera Bread Co.; and Verisign Inc.

The illegal trading by the criminal network resulted in gains of more than $30 million, much of which was routed back to the hackers.  Korchevsky traded on the stolen press releases both in accounts that benefited the criminal network as well as in his own personal accounts, and ultimately netted more than $15 million in profits over the course of the scheme.  Khalupsky primarily traded in accounts that benefited the criminal network, and received a percentage of the profits he generated by trading on the stolen press releases, totaling at least $500,000 over the course of the scheme. 

The evidence at trial also demonstrated that the defendants went to great lengths to conceal their roles in the criminal scheme.  The conspirators used separate phones, computers and hotspots to conduct their illegal trading activity, and routinely deleted emails and/or destroyed hardware that contained evidence of their crimes.  The conspirators also directed that payments received for the illegal profits they generated for the criminal network be made to offshore shell companies.

The charges against Korchevsky and Khalupsky were set forth in an indictment that was unsealed in August 2015 in connection with a broader investigation conducted by this Office, the USAO-DNJ, the FBI, the USSS and the DHS, as well as a parallel investigation by the SEC.  In total, nine defendants were charged criminally for their roles in the scheme.  All those defendants have either pleaded guilty or been convicted at trial except for three, who remain at large.

The Defendants:

VITALY KORCHEVSKY
Age: 53
Glen Mills, Pennsylvania

VLADISLAV KHALUPSKY
Age: 47
Brooklyn, New York and Odessa, Ukraine

UPDATED - Remarks as prepared for delivery by Police Commissioner James P. O'Neill - RE: Brooklyn Police Officer Shooting From Kings County Hospital

  Joining me today are: Chief of Department Terry Monahan, Chief of Detectives Dermot Shea, Chief Maddrey, Chief Lear, Brooklyn District Attorney Eric Gonzalez, 1st Deputy Mayor Dean Fuleihan, NYPD Chief Surgeon Dr. Eli Kleiman, Mike Palladino of the Detectives Endowment Association, and Dr. Budarakis of Kings County Hospital.

This information is only about three (3) hours old, is preliminary, and is subject to change.

At about 6:40 this morning, officers assigned to our Brooklyn North Warrants Squad were driving in an unmarked police vehicle, westbound on Fulton Street, between Kingston and Tompkins Avenues.  

While driving, the officers recognized a man walking eastbound on the sidewalk who they knew was wanted for a domestic violence robbery involving a firearm.

The officers made a U-turn and the suspect started to run. The suspect ran onto Tompkins, and then made a right onto Decatur Street.

The officers were able to get in front of the suspect, got out of their vehicle, and chased him on foot. 

The police identified themselves and told the man to show them his hands. The suspect then displayed a gun and shot at the officers, striking a detective once in the leg. The detective returned fire, as did two other officers – and the suspect ran away.

After a search of the immediate area, responding officers located and apprehended the suspect inside a hallway at 39 Kingston Avenue.

A firearm was recovered nearby [in a garbage can].

The suspect is identified as 33-year-old Kelvin Stichel of Brooklyn. He has numerous prior arrests, including for assaulting the police. He is currently being treated at another hospital for an apparent gunshot wound, is expected to survive, and will be charged shortly.

Our detective is a male who has seven (7) years with the NYPD. He is conscious and alert and talking to doctors. At this point, it appears the bullet passed straight through his upper right thigh – in and out.

I want to thank the staff here at Kings County Hospital for the highly-skilled medical care they provided us today, and every time we need to come here. 

And Mayor de Blasio spoke with our injured detective by telephone a short while ago.

This morning’s incident highlights the extremely dangerous work the men and women of the NYPD perform on a daily basis on behalf of New Yorkers in all five boroughs, in every neighborhood. 

We should all be grateful for the outcome today, particularly as we come off yesterday’s one-year anniversary of the murder of Detective Miosotis Familia in the Bronx.

UPDATE:

Police Officer Miguel Soto left the Hospital in the afternoon with his young son on his left thigh, with his wife walking and holding his arm.

The man identified as the shooter Kevin Stichel (age 33) also wounded in the shoot out is in custody with a bullet wound in his arm.

Manhattan U.S. Attorney Files Civil Injunction Lawsuit Against Convicted Tax Preparer To Prevent Him From Continuing To Engage In Tax Preparation Business

  Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced the filing of a civil complaint against SAMUEL GENTLE, who was previously convicted of preparing fraudulent federal tax returns through a tax preparation business, to prohibit him from preparing tax returns for others or engaging in activities that substantially interfere with the administration of federal tax laws. 

U.S. Attorney Geoffrey S. Berman said:  “A tax return preparer who has repeatedly cheated the tax system by filing fraudulent tax returns should not be permitted to continue business as usual.  This Office is committed to ensuring the integrity of the federal tax system that depends on truthful, accurate reporting.”

As alleged in the Government’s complaint filed in federal district court today:

From 2008 to 2014, GENTLE systematically and intentionally filed fraudulent federal tax returns on behalf of customers through his tax return preparation business, GenGen, Inc.  In preparing these tax returns, GENTLE repeatedly invented charitable donations, claimed phony business losses for nonexistent businesses, and fabricated unreimbursed employee business expenses.  GENTLE, who filed an average of 3,200 federal tax returns each year and whose profits depended on word-of-mouth referrals, prepared and fraudulently filed false tax returns in order to reduce his customers’ tax liabilities or obtain tax refunds to which his clients were not entitled.  GENTLE’s conduct caused the United States to lose millions of dollars in understated taxes and fraudulent refunds.  In 2016, a jury found GENTLE guilty of 38 counts of aiding and assisting in the preparation of false and fraudulent federal tax returns.  The Government is now seeking an injunction against GENTLE that would, among other things, permanently bar him from preparing or filing federal tax returns on behalf of others.

Mr. Berman thanked the Internal Revenue Service for its assistance with this case.

Vice President Pence Attacks Cynthia Nixon Over Her Call to #AbolishICE

In a speech to ICE agents this morning, the VP called Cynthia “appalling”

  Today, in remarks to Immigration and Customs Enforcement (ICE) agents, Vice President Mike Pence slammed Cynthia Nixon and her statement that ICE has become a terrorist organization. Cynthia issued the following statement in response.

“If Mike Pence is attacking me, we must be doing something right. What’s really appalling is how ICE tears children away from their parents. Parents who came to this country, fleeing deadly violence, to provide a brighter future for their families. Parents who have lived here for decades, paying taxes, building small businesses. Parents whose children are legal U.S. citizens. Parents who have no criminal record. ICE's mere existence causes many New Yorkers to live in daily fear that they will lose their family. I can think of no better description than to call ICE a terrorist organization, and I will wear any criticism from Mike Pence as a badge of honor. ”

 

REPRESENTATIVE ADRIANO ESPAILLAT STATEMENT ON PROTECTING IMMIGRANTS SERVING IN U.S. MILITARY

  Today, Representative Adriano Espaillat released the following statement in response to a report by the Associated Press (AP) that the U.S. Army is discharging immigrant recruits.

“For the love of country and in defense of freedom, immigrants have served in the U.S. armed forces since the American Revolution and turning them away now is shameful,” said Rep. Espaillat. “Dreamers serve and help keep our nation safe, while the Trump administration has shut the door on their hopes and aspirations in the only nation they have ever called home.

“Hundreds of thousands of reservists and enlisted recruits have given their all to protect and defend our nation, while some have even made the ultimate sacrifice in giving their lives like Sgt. Ryan Tejeda, a 26-year-old U.S. Marine from my district who was killed in Baghdad in 2003.

“Many immigrant servicemen serve while dreading their loved ones may be deported from the nation they vowed to protect. Today’s report highlights another effort by the Trump administration to sow fear and hate across America and criminalize immigrant communities. These men and women have honored our nation with their service and now it is time that we honor them by keeping our word in ensuring their rightful path to citizenship.”

Bronx Borough President Ruben Diaz Jr. - ORCHARD BEACH SUMMER CONCERTS ARE BACK

Senator Luis Sepulveda - PUERTO RICO POWER GRID REBUILD A MISTAKE IN THE MAKING

PUERTO RICO RELIVES A MAJOR MISTAKE IN THE REBUILDING OF ITS POWER GRID By State Senator Luis Sepúlveda One short sentence on Puerto Rico in a recent report commissioned by the United Nations on poverty in the United States might have been overlooked if not for the current rebuilding of the power grid devastated by Hurricane Maria. NYU Law Professor Philip Alliston writes that in his travel documenting extreme poverty all over the United States, he visited a town in the south of Puerto Rico where residents live “next to a mountain of completely unprotected coal ash which rains down upon them bringing illness, disability and death.” This one sentence led to a question:  There are no coal mines in Puerto Rico.  So why is there toxic coal ash on the island?  The answer explains a past and future problem that unfortunately will continue to perpetuate Puerto Ricans’ second-class status as American citizens. Puerto Rico’s financial problems where in a big part created by the island’s huge borrowing strategy. At the top of the list of entities borrowing was the island’s power authority.  Well you see, Puerto Rico, even though gifted by God with over 300 days of sun each year, is completely reliant on fossil fuels for power. To make this worse is the fact that it imports nearly 100% of the coal, natural gas and petroleum it needs to provide the island with electricity. This policy by Puerto Rico is incredibly expensive and inexplicable. The revelation on the mountain of toxic ash in the scathing UN report documenting how 40 million Americans live in dire poverty comes at a time when the United States is spending some projected $18 billion to rebuild Puerto Rico’s power grid.  While it will be rebuilt to withstand a category 4 hurricane, Puerto Rico is again falling victim to a dependency on imported fossil fuels that will not only make it harder to address its financial crisis but contributes to the environmental factors that created Hurricane Maria and other such storms to come. Puerto Rico should not rebuild its electric grid using power producing and distribution models of towers, wires and fossil fuels.  Instead, Puerto Rico should be using this opportunity to build a 21st Century power grid rooted in micro-grids fueled by alternative energy like solar, wind, tidal and wave energy.  Hawaii, Madeira, Orkney and Iceland are islands with fully developed initiatives that harness clean, green and blue energy to power their communities and businesses while replacing expensive imports of fossil fuels. They have diverted those significant savings towards improving the health and education and economic opportunities of their residents.  These are models of energy production and clean fuel technology that Puerto Rico should be fully embracing. Allowing Puerto Rico to rebuild a power grid that will continue to rely on imports of toxic, global warming compounds is tantamount to agreeing to perpetuate its colonial status.  We can be assured that the current political status of Puerto Rico is been cemented for another century with every inch of power transmission wires and foot of steel towers deployed in the current rebuilding efforts.

Mayor Of The Municipality Of Sabana Grande Indicted For Conversion Of Federal Funds, Fraud, And Money Laundering

In a separate indictment, two ex-employees of the municipality of Toa Baja indicted and arrested

  SAN JUAN, Puerto Rico– Miguel G. Ortiz-Vélez, a.k.a. “Papín”, mayor of the municipality of Sabana Grande has been indicted and arrested for his participation in a conspiracy to steal federal funds involving fraudulently obtained contracts from the PR Department of Education (PR DOE), announced U.S. Attorney Rosa Emilia Rodríguez-Vélez of the District of Puerto Rico. In a separate unrelated indictment, Victor Cruz-Quintero, former Director of Finance, and Ángel Santos-García, former interim Director of Finance of the Municipality of Toa Baja were charged with theft, conversion, and misappropriation of funds from the US Departments of Housing and Urban Development and Health and Human Services. The United States Department of Education, Office of Inspector General, and the Federal Bureau of Investigation are handling the Sabana Grande investigation. The Federal Bureau of Investigation, the United States Department of Housing and Urban Development, Office of Inspector General, and the United States Department of Health and Human Services, Office of Inspector General, are handling the Toa Baja investigation, with the collaboration of the PR Comptroller’s Office.

The indictment charging Ortiz-Velez, returned on July 2, 2018 by a federal grand jury in the District of Puerto Rico, includes six counts: two counts for theft of government money and property, one count for conspiracy to commit wire and mail fraud, two substantive counts of mail fraud, and one count for money laundering. He is also facing forfeiture allegations and a potential money judgment of $2,904,920.00, the value of the two contracts fraudulently obtained from the PR DOE.

According to the indictment, the defendant conspired with Irving Riquel Torres-Rodríguez (who previously pled guilty in two different cases), and others, to engage in deceptive conduct designed to fraudulently obtain federal funds from the US Department of Education and Puerto Rico Department of Education. As part of the agreement, those federal funds would be distributed to: the Municipality of Sabana Grande; Administrative, Environmental and Sports Consultants Corp. (AESC); Torres-Rodríguez- who was the owner of AESC; and others.

Defendant Ortiz-Vélez used his position as Mayor of Sabana Grande to defraud the PR DOE and to fraudulently obtain federal funds as follows:

• Ortiz-Vélez utilized his position as Mayor of Sabana Grande to obtain federal funds from the PR DOE based on material misrepresentations regarding the Municipality’s ability to perform the activities and the scope of the activities subject to the proposals. Ortiz-Vélez, as Mayor of Sabana Grande, subcontracted with AESC and Company F for the complete financing and administration of the projects without the knowledge or consent of the PR DOE. AESC then financed and administered the project for Company F, with an agreement that all profits would be split 40% for AESC and 60% for Company F.
• The Sabana Grande contracts with the PR DOE did not reflect the actual expenses incurred by AESC and Company F in providing the services. As a result, Ortiz-Vélez obtained net proceeds for the municipality, as well as net proceeds for AESC and Company F. For the first project, Verano Educativo, the AESC obtained approximately $549,286.10 in net profits and the Municipality of Sabana Grande obtained net proceeds of approximately $363,686.40, despite the project’s actual cost of approximately $221,747.50.
• For the second project, Desarrollo Contínuo, the Municipality of Sabana Grande, Company F, and AESC split approximately $1,330,612.45 in net profits from the PR DOE contract. The Municipality obtained net proceeds of approximately $391,988 and AESC obtained a net profit of $375,449.78. Company F obtained a net profit of $563,174.67, despite the project’s actual cost of approximately $439,587.55.
• During the period of this scheme, from in or about 2013 to in or about 2016, defendant Miguel G. Ortiz-Vélez received approximately $22,900 in cash contributions from AESC and Torres-Rodríguez.

The second indictment charges Victor Cruz-Quintero and Ángel Roberto Santos-García for, at different times, making unauthorized deposits and transfers of federal funds into the general account and payroll account of the Municipality of Toa Baja in order to pay the municipal payroll and to pay municipal contractors.

On or about October 28, 2014, defendant Victor Cruz-Quintero, as the finance director of the Municipality of Toa Baja, deposited approximately $2,538,164.41 in HUD Section 108 Loan Guarantee Program funds into the municipality’s general fund. These funds were utilized to make payroll payments to municipal employees and to pay various municipal contractors.

On various dates from September 2014 through February 2016, Victor Cruz-Quintero made additional deposits and transfers of federal funds from HHS and HUD to the general and payroll accounts of the Municipality of Toa Baja for unauthorized purposes. The indictment identifies seven separate transactions totaling over $1,750,000.While interim finance director of the Municipality of Toa Baja in approximately August and September 2015, defendant Ángel Roberto Santos-García made various transfers of federal funds from HHS and HUD to the general and payroll accounts of the Municipality of Toa Baja for unauthorized purposes. The indictment identifies three separate transactions totaling $650,000.

“Mayor Miguel G. Ortiz-Vélez deceived the public’s trust and used his public office to fraudulently obtain federal funds in order to supplement the finances of the municipality of Sabana Grande,” said U.S. Attorney Rosa Emilia Rodríguez-Vélez. “Corruption and fraud at any level of government betrays the ideals upon which our democracy is built. In regards with the investigation in Toa Baja, we will continue to follow the evidence in order to determine if other municipal officials were involved in the fraudulent scheme announced today.”

“The public must be able to trust the officials who are put in charge of government funds. Anyone who violates that trust will be brought to justice, because the citizens of Puerto Rico deserve no less. The FBI is proud to share this commitment with its partners from the United States Attorney’s Office, the Inspectors General for the Departments of Education, Housing and Urban Development, Health and Human Services, and the Office of the Comptroller of Puerto Rico,” stated Douglas Leff, Special Agent in Charge of FBI, San Juan.

The cases are being prosecuted by Assistant U.S. Attorney Seth Erbe. If found guilty, the defendants are facing possible sentences of up to 10 years for theft of government funds, misappropriation of federal program funds, and money laundering and up to 20 years for mail fraud, and the wire and mail fraud conspiracy.

The charges contained in the indictment are merely accusations. The defendants are presumed innocent unless and until proven guilty.