Russian businessman made millions of dollars on stock fraud in Massachusetts

On February 14, a federal jury in Boston convicted a Russian businessman of involvement in a fraudulent scheme that illegally obtained about $100 million in securities transactions based on classified information stolen from US computer networks, reports US Department of Justice.

Photo: IStock

Muscovite Vladislav Klyushin, 42, was convicted after a 10-day jury trial for conspiracy to gain unauthorized access to computers, wire fraud and securities fraud. US District Court Judge Patti B. Saris has scheduled sentencing for May 4, 2023. Klyushin was arrested in Zion, Switzerland in March 2021 and extradited to the US in December 2021 to face federal charges in Boston.

Klyushin was charged along with two Russian accomplices: Ivan Ermakov and Nikolai Rumyantsev. For others, Mikhail Vladimirovich Irzak and Igor Sergeevich Sladkov, separate indictments were issued. All four accomplices remain at large. In October 2018, Yermakov was also indicted in federal court in Pittsburgh for his alleged role in hacking and related disinformation operations. These operations have targeted international anti-doping agencies, sports federations and anti-doping officials.

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“The jury saw Klyushin exactly as he is - a cybercriminal and fraudster. He repeatedly played with the system and was finally caught. He is now a convicted felon. For almost three years, he and his accomplices repeatedly hacked into US computer networks. They used non-public information to illegally trade shares of hundreds of publicly traded companies. He made huge financial profits from stolen inside information. Klyushin compromised the integrity of our securities markets and defrauded individual investors and pension funds,” said U.S. Attorney Rachel S. Rollins. “Cybercriminals are warned: we will use every tool at our disposal to track you down, and you will ultimately end up as a defendant in a courtroom.”

"Today's verdict proves that Vladislav Klyushin used various illegal and malicious means to hack into computer systems to obtain insider information to generate tens of millions of dollars in illegal profits," said Federal Bureau Special Agent Joseph R. Bonavolont.

Details of the criminal scheme

Klyushin, Ermakov and Rumyantsev worked for M-13, a Moscow-based information technology company owned by Klyushin. M-13 offered penetration testing and "Advanced Persistent Threat (APT)" - both services look for vulnerabilities in a computer system. They can also be used for hacking methods.

The M-13 website states that the company's "IT solutions" were used by "the administration of the President of the Russian Federation, the Government of the Russian Federation, federal ministries and departments, regional executive authorities, commercial companies and public organizations." In addition to these services, Klyushin put the money of several investors into his hack-to-trade scheme and received a 60 percent share of their profits.

Forensic evidence showed that, at least between January 2018 and September 2020, Klyushin, Yermakov, Irzak, Sladkov and Rumyantsev conspired to use stolen information to trade in the companies' securities. These companies are publicly traded on US national stock exchanges, including the NASDAQ and NYSE, prior to public earnings announcements.

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Using the same malicious hacking techniques that M-13 advertised to clients, Klyushin and his associates obtained insider information by hacking into the computer networks of two U.S. registration agents. These agencies were used by public companies to file quarterly and annual reports.

In particular, Klyushin and his accomplices deployed a malicious infrastructure capable of collecting and stealing employee registration data. They used proxy (or intermediate) computer networks outside of Russia to hide the origin of their activities. With this access, Klyushin and his co-conspirators viewed and downloaded non-public information, such as quarterly and annual income statements that had not yet been filed with the SEC or disclosed to the public, for hundreds of companies, including Capstead Mortgage. Corp., Tesla, Inc., SS&C Technologies, Roku and Snap, Inc. Many illegally obtained income statements were downloaded through a computer server located in downtown Boston.

Armed with this information before it was made public, Klyushin and his associates knew in advance whether the company's financial performance would meet, exceed, or fall short of market expectations. Hence, they knew whether the stock price would rise or fall after the earnings announcement. Klyushin then traded on the basis of this stolen information in brokerage accounts opened in his own name and in the names of others. Klyushin and his co-conspirators also spread their trading across accounts they opened with banks and brokerage houses in several countries, including Cyprus, Denmark, Portugal, Russia, and the United States. They misled brokerage firms about the nature of their trading activities.

Evidence presented in court showed that the time when the agents were hacked corresponded to the time when Klyushin and his accomplices made lucrative deals.

illegal income

In total, thanks to this criminal scheme, Klyushin and his accomplices earned about $ 100 million. Of this amount, Klyushin personally earned more than $ 38 million.

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The conspiracy charge carries penalties of up to five years in prison, three years of probation, and a $250 fine. Securities and wire fraud charges carry penalties of up to 000 years in prison and a $20 fine. Each of the charges also provides for forfeiture if convicted.

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