He seems like an American success story: an ambitious Russian who came to the U.S. and went from business school to Wall Street to his own hedge fund.
But somewhere along the way, U.S. authorities say, Vitaly Korchevsky began orchestrating a new type of financial crime.
Korchevsky, 50, was one of several men arrested Tuesday morning in the biggest case of insider trading linked to the fast-growing threat of global cybercrime. Charges against him were unsealed Tuesday in Brooklyn, New York federal court.
The alleged scheme stretched from the affluent suburbs of Philadelphia, where Korchevsky ran a small investment fund, to the darkest realms of the Internet.
Working from Russia or Ukraine, hackers infiltrated several computer systems used by corporations to report sensitive information like earnings and then, allegedly with Korchevsky’s help, made millions of dollars trading on the confidential data, people familiar with the matter say.
Little that is known about Korchevsky seems to hint at his alleged role in bringing together these two illicit worlds. Less than prominent in financial circles, he has spent a decade and a half moving from one mid-level job to the next.
After completing university in Russia, Korchevsky collected an MBA in 1995 from Regent University, a private Christian institution founded by the televangelist Pat Robertson. He also passed the Chartered Financial Analyst exam, considered the gold standard among financial professionals.
By 1999 he was working in the asset management division of Morgan Stanley, where he helped manage several Invesco American Value funds, according to Morningstar. From there he joined Victus Capital in New York and then Investment Counselors of Maryland in Baltimore. He left in 2009, two years before registering his own hedge fund, NTS Capital Fund, in Glen Mills, Pennsylvania.
Other than traffic violations, Korchevsky’s U.S. legal record appears clean, as is his official Wall Street record filed with the Financial Industry Regulatory Authority.
In an era of high-profile Wall Street scandals, the scheme laid out by prosecutors is relatively small in dollar terms. U.S. prosecutors said the nine men charged netted $30 million.
However, a broader, parallel lawsuit filed Tuesday by the Securities and Exchange Commission listed 17 men, including the nine charged, and 15 companies as defendants in a scheme that allegedly earned more than $100 million.
The regulator said Korchevsky made about $17.5 million in illicit profits. By comparison, the insider trading scheme hatched by Galleon Group LLC co-founder Raj Rajaratnam netted about $72 million, while the $275 million insider trading case of SAC Capital Advisors LP portfolio manager Mathew Martoma was called the biggest ever against a single person.
Ukraine’s Hackers: What Do We Know?
- An international police operation into the “Shylock” banking malware, which infected more than 100,000 computers, led to properties in Ukraine being searched and computers seized in 2014.
- In June, Ukrainian police arrested five people suspected of links to ZeuS and Spyeye, two viruses that target online bank accounts around the world.
- The country's Department on Combating Cybercrime, part of the Ministry of Internal Affairs, deals with online offenders.
Kit Chellel, Bloomberg News
Nonetheless, the confluence of computer hacking and insider trading raises the stakes for investors and federal authorities.
Thought to be in Ukraine, the hackers infiltrated the computer servers of PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett’s Berkshire Hathaway Inc., according to a person familiar with the matter. They stole more than 150,000 press releases over the length of the scheme.
They then allegedly fed the information to Korchevsky and others in the U.S. who used it to buy and sell shares of dozens of big companies, including Panera Bread Co., Boeing Co., Oracle Corp., Hewlett-Packard Co. and Caterpillar Inc., ahead of the news.
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The defendants traded in personal brokerage accounts and then siphoned the money offshore through Estonian banks, the person said.
Korchevsky was taken into custody at his home in Glen Mills, where he operated NTS Capital. NTS has made no filings since its initial one four years ago, and it’s unclear if the fund is still in operation. Korchevsky is now facing securities fraud and conspiracy charges by federal prosecutors in Brooklyn.
Korchevsky was freed on $100,000 bond Tuesday after appearing before a federal magistrate in Philadelphia. He is scheduled to appear in court again Friday.