January 16, 2019

SEC Busts Edgar Hackers: “So, Mr. Ieremenko, We Meet Again. . .”

In light of the government shutdown, I really wasn’t expecting any bombshell announcements from the SEC any time soon. Well, that shows you what I know, because yesterday the SEC announced that it had snagged the alleged perpetrators of the infamous 2016 hack of the Edgar system. Here’s an excerpt from the SEC’s press release:

The Securities and Exchange Commission today announced charges against nine defendants for participating in a previously disclosed scheme to hack into the SEC’s EDGAR system and extract nonpublic information to use for illegal trading. The SEC charged a Ukrainian hacker, six individual traders in California, Ukraine, and Russia, and two entities. The hacker and some of the traders were also involved in a similar scheme to hack into newswire services and trade on information that had not yet been released to the public. The SEC charged the hacker and other traders for that conduct in 2015.

The SEC’s complaint alleges that after hacking the newswire services, Ukrainian hacker Oleksandr Ieremenko turned his attention to EDGAR and, using deceptive hacking techniques, gained access in 2016. Ieremenko extracted EDGAR files containing nonpublic earnings results. The information was passed to individuals who used it to trade in the narrow window between when the files were extracted from SEC systems and when the companies released the information to the public. In total, the traders traded before at least 157 earnings releases from May to October 2016 and generated at least $4.1 million in illegal profits.

Here’s the SEC’s complaint – which lays out how the hackers allegedly exploited Edgar test filings for fun & profit. The SEC’s press release notes that this isn’t its first go-around with Oleksandr Ieremenko. This guy was allegedly one of the masterminds behind one of the largest securities frauds schemes of all time. As Broc blogged at the time, Iremenko and others hacked into 150,000 earnings releases over a 5-year period, & the info they obtained resulted in over $100 million in illicit profits. Check out this article for more details on Oleksandr Ieremenko & how that scam came to be.

Parallel criminal charges have been brought against the defendants by the New Jersey US Attorney’s office. Criminal charges also were brought in connection with the newswire hack – which raises the question of why Mr. Ieremenko isn’t making big rocks into little rocks as a guest of the US government? Well, it turns out that he’s in Kiev, and the Ukraine does not extradite its citizens.

Gun Jumping: “I’m Not Dead. . . I’m Getting Better”

I hope you aren’t getting tired of my Monty Python references – but after reading this blog from Bass Berry’s Jay Knight about some recent Staff comments on “gun jumping,” I couldn’t resist borrowing from  The Holy Grail’s “Bring Out Your Dead” scene for this blog’s title. Jay says that, like the old man in the movie, gun jumping’s not dead yet:

Despite the trend toward a more relaxed approach on offering related  communications, gun jumping in some form or another is still alive and well for most offerings conducted, and securities lawyers continue to provide counsel to management on how to navigate the potential minefield.

For example, in monitoring SEC comment letters I came across this SEC comment letter recently made public, which asks the issuer to explain why gun jumping laws were not violated when two of its shareholders issued press releases with respect to the issuer’s confidential IPO submissions and an article on the same matter was published in the Israeli business newspaper Globes.

Jay says that the company’s response appeared to satisfactorily address the Staff’s concerns (it appears no follow-up comments were issued).  He also reviews the still hale & hearty ground rules for avoiding potential gun jumping issues in securities offerings.

ICOs: The Crypto’s Blowin’ Up on Reg D

Although at least one token sponsor has publicly filed an S-1 & a few others have made confidential draft S-1 filings in preparation for registered ICOs, MarketWatch’s Francine McKenna reports that Reg D remains the preferred path for coin offerings:

MarketWatch counted 287 ICO-related fundraisings accepted by the SEC with a total stated value of $8.7 billion in 2018, peaking at 99 in the second quarter. That’s a significant increase from 44 fundraisings filed with a total stated value of $2.1 billion in 2017.

As we blogged early last year, Francine previously reported that reliance on Reg D skyrocketed following the SEC’s issuance of guidance on coin offerings in 2017, and it looks like it that trend remained strong throughout 2018.

John Jenkins