A Russian national with ties to the Kremlin exploited stolen upcoming financial filings belonging to hundreds of companies to help him and his associates net more than $90 million.
A US federal jury in Boston on Tuesday found Vladislav Klyushin – who owned an IT biz based in Moscow called M-13 – guilty of wire and securities fraud and conspiracy after two weeks of testimony and ten hours of deliberations.
Prosecutors in the case argued that Klyushin and four others broke into the networks of Donnelley Financial Solutions and Toppan Merrill, through which publicly traded entities electronically file their quarterly earnings reports with America’s financial watchdog, the Securities and Exchange Commission (SEC).
The intrusions between 2018 and 2020 gave the men access to the undisclosed financial information of organizations, allowing the gang to game the market and make trades before the earnings were publicly announced.
They basically stole copies of financial reports companies were required to file to the SEC – things like quarterly profit and sales – and used that non-public info to buy or sell stock in anticipation of the filings being eventually made public to investors.
According to the Department of Justice, Klyushin and his co-conspirators used credentials stolen from employees of the two firms to access their networks and view and download the pre-released financial filings from hundreds of corporations.
The targets included Tesla, Snap, Roku, Avnet, Cytornx Therapeutics, Horizon Therapeutics, Puma Biotechnology, and Capstead Mortgage.
Prosecutors painted Klyushin’s group as a bunch of “stock-trading nobodies” before the intrusions. After the gang accessed systems at Donnelley Financial and Toppan Merrill, “all of a sudden … the defendant became the GOAT of earnings trading. The greatest of all time,” prosecutors said during the trial.
In the two years following the security breach, the 42-year-old Klyushin relied heavily on earnings reports filed by companies with the two firms, the court heard.
It would have been nearly impossible for Klyushin to have the kind of success he did without having illegal access to information, prosecutors argued. According to reports, a statistician with the SEC put the probability of the defendant randomly trading on earnings collected by Donnelley Financial and Toppan Merrill at less than a trillion-to-one.
In all, prosecutors said Klyushin traded correctly on earnings reports 86 percent of the time – a record the statistician said was equally improbable.
Klyushin himself used the stolen information to spin a $2 million investment into $21 million in returns. The group eventually made $90 million on a $9 million investment.
Defense lawyers argued that “gaping holes” existed in the prosecution’s case, saying there was no evidence linking Klyushin to inside information or to the attacks on Donnelley Financial or Toppan Merrill. Rather, Klyushin had relied on news reports and information on social media collected by his company, they said.
The lawyers said Klyushin was a “convenient target” because he is Russian, wealthy, and owned a business that provided cybersecurity and media monitoring services to the Russian government and officials.
They also alleged that both US and British intelligence agencies tried to recruit Klyushin in 2019 and 2020.
Klyushin was arrested in Switzerland on March 21, 2021, after disembarking his private jet during a ski trip with his family. Russia asked Swiss authorities to return Klyushin to Moscow, but the Swiss instead responded to a request from US authorities to send him stateside to stand trial.
He was jailed in Massachusetts while awaiting trial and will stay there until sentencing in May.
Klyushin’s alleged associates in this caper remain at large. They include Ivan Ermakov, 35, an M-13 employee and former officer in Russia’s GRU military intelligence branch. He also is wanted in connection with his alleged involvement in Russia’s interference in the 2016 presidential election and anti-doping agencies.
The other suspects in this case are Vladimirovich Irzak and Igor Sergeevich Sladkov, both of St Petersburg. Nikolai Rumiantcev, Klyushin, and Ermakov, are all of Moscow. ®