Risk & Compliance

Chinese Hackers Accused of Insider Trading

The SEC says the hackers generated $3 million in illicit profits by stealing nonpublic information from law firms' computer networks.
Matthew HellerDecember 28, 2016
Chinese Hackers Accused of Insider Trading

U.S. authorities have charged three Chinese traders with stealing nonpublic information about corporate mergers from the computer networks of two prominent New York law firms involved in the deals, racking up almost $3 million in illicit profits.

The U.S. Securities and Exchange Commission said the traders installed malware on the networks to gain access to the email accounts of law firm employees including the chairman of one firm’s mergers and acquisitions practice group.

They allegedly used the information they stole to purchase the shares of three companies ahead of public announcements that those companies had entered into agreements to merge. The deals included Intel’s $16.7 billion takeover of Altera last year.

The case is the first SEC enforcement action to allege hacking into a law firm’s computer network. The three defendants — Iat Hong, Bo Zheng, and Chin Hung — are also facing parallel criminal charges.

“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,” Preet Bharara, the U.S Attorney in Manhattan, said in a news release.

The SEC said the defendants began targeting one of the law firms in July 2014. In addition to installing the malware, they allegedly compromised the user account of an IT employee who had access to all the email accounts within the firm’s email network.

The data stolen from the firm, the commission said, enabled the traders to acquire shares of drugmaker InterMune before the company announced on Aug. 25, 2014 it would be acquired by Roche AG. That same day, they allegedly sold the shares for a profit of about $393,000.

In the case of Intel’s takeover of Altera, the defendants allegedly made a profit of more than $1.63 million.

Prosecutors said the defendants also targeted five other law firms between March and September 2015, attempting to cause unauthorized access to the firms’ networks and servers on more than 100,000 occasions.

Hong, a resident of Macau, was arrested in Hong Kong on Sunday.