Key Insider Trading Ring Suspect Freed on Bond as U.S. Appeals

Nine Charged in International Hacking Scheme

Dressed in blue jeans and a button-down shirt, Vitaly Korchevsky made his first court appearance on insider trading-related charges after being hauled out of his Glen Mills, Pennsylvania house by the FBI.

Despite government protests, he was allowed to go home.

Korchevsky is described by authorities as a linchpin of a global insider trading scheme broken up by U.S. investigators. In dual indictments unsealed Tuesday in New York and New Jersey, prosecutors described how hackers worked with traders in an “unholy alliance” to tap corporate press releases before they became public.

The SEC said the scheme involved dozens of men and companies in the U.S., Ukraine and Russia, and netted $100 million in illicit profits.

Having run a mutual fund and worked on Wall Street before starting his own hedge fund, Korchevsky was the only professional U.S. trader arrested. He faces charges of conspiracy to commit securities fraud and money laundering.

First Hearing

At his bail hearing in Philadelphia federal court, Assistant U.S. Attorney David Ignall requested the trader be held in custody, noting his $5 million in assets and penchant for travel overseas -- 42 times since 2010.

Korchevsky’s wife, sitting in the back row of the courtroom, stated that most of her husband's travel was tied to his work.

“My husband is the pastor of a big church here,” she said. “He would never leave.”

U.S. Magistrate Judge Linda Caracappa rejected the government request, releasing Korchevsky on $100,000 bond. She did order his passport held and that he stay in the court’s eastern Pennsylvania jurisdiction. Korchevsky, who has yet to hire an attorney, is to appear in court again on Friday.

U.S. Appeal

Federal prosecutors quickly filed a letter with U.S. District Judge Brian Cogan in Brooklyn, New York, where Korchevsky was charged and will likely end up. They asked Cogan to reverse Caracappa’s decision and order the defendant held without bail.

Nine men were charged Tuesday as part of the alleged insider trading scheme. Five were arrested while four remain at large.

Leonid Momotok and Alexander Garkusha appeared before U.S. Magistrate Judge J. Clay Fuller in Gainesville, Florida, and were ordered held pending a detention hearing, according to court records. Jerome Froelich, a lawyer for Garkusha, and Suzanne Hashimi, a lawyer for Momotok, didn’t immediately return calls seeking comment.

Arkadiy Dubovoy and Igor Dubovoy, both arrested in Georgia, were scheduled to appear Tuesday in Atlanta federal court before U.S. Magistrate Judge Alan J. Baverman. It was unclear if they had retained lawyers.

Unholy Alliance

Acting Brooklyn U.S. Attorney Kelly Currie, at a press conference Tuesday in New Jersey announcing the charges, called the criminal unification of hackers and traders an “unholy alliance” that companies should fear.

“Companies, law firms, and financial institutions -- all of which possess sensitive information not only about the latest developments in their industry, but of their stakeholders as well -- are all at risk,” said Julian Moore, a former federal prosecutor who worked on the Bernard Madoff case. “The importance of taking preventative measures to combat cybercrime has never been more salient.”

U.S. Exposes Insider Trading Ring Based on PR Hack

Read this next:

Before it's here, it's on the Bloomberg Terminal. LEARN MORE