Chinese ‘corporate hackers’ accused of attacking US law firms

The three, including two suspects from Macau, charged with stealing information on corporate deals, allowing them to profit from share trading

PUBLISHED : Wednesday, 28 December, 2016, 11:20am
UPDATED : Wednesday, 28 December, 2016, 11:40pm

The US Securities and Exchange Commission yesterday charged three Chinese citizens with fraudulently trading on information they had obtained from hacking into the email networks of two New York City law firms, hauling in almost US$3 million in illicit profits.

In a complaint unsealed on Tuesday, the commission said that between April 2014 and late 2015 Iat Hong and Chin Hung from Macau, and Bo Zheng from Changsha, Hunan province, installed malware on the law firms’ networks, thereby gaining access to the email accounts of attorneys advising corporate clients on mergers and acquisitions. Armed with proprietary information on these clients, the trio traded big.

The commission said the three spent roughly US$7.5 million on shares of semiconductor company Altera before news of it being in talks to be acquired by Intel Corporation became public.

In addition, hours after extracting emails about a deal involving an e-commerce company, Hong and Hung purchased shares that amounted to 25 per cent of the company’s trading volume on certain days in advance of the 2015 deal’s announcement.

Hong and Zheng are also accused of trading in 2014 ahead of a merger announcement of a pharmaceutical company. They also stole schematic designs of a robot vacuum cleaner made by an American company, the commission’s complaint said.

Hong, 26, and Hung, 50, were employed at a robotics company founded by Zheng, 30, to develop robot controller chips and provide control system solutions, according to authorities.

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The trio was accused of copying and transmitting dozens of gigabytes of emails to remote internet locations.

Hong was arrested in Hong Kong on Christmas Day with extradition proceedings scheduled to begin in mid-January.

Hong’s mother was also named as a relief defendant for the purpose of recovering money in her accounts from her son’s illicit trading, the commission said.

It is the first time the commission has charged anyone with hacking into a law firm’s computer network.

The Securities and Futures Commission of Hong Kong has assisted with the ongoing investigation.

In Beijing, Foreign Ministry spokeswoman Hua Chunying said in a daily press briefing that she was aware of the reports, but did not know the details.

The commission has asked for a judgement ordering the three to pay penalties and relinquish their illegal gains, plus interest.

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The commission is also seeking to freeze an account opened in Hong’s mother’s name.

The US Attorney’s Office for the Southern District of New York also announced a 13-count indictment against the three stemming from the hacking.

Each count carries a maximum sentence of five to 20 years.

“This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world,” said Manhattan US Attorney Preet Bharara in a statement.

“You are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”

Additional reporting by Bloomberg and Reuters