(Bloomberg) -- Prosecutors say Vitaly Korchevsky is a savvy trader who used stolen information to make millions of dollars on the stock market. His lawyer says Korchevsky is a “selfless” pastor who was “in the dark” about where the information came from.
Korchevsky, a former Morgan Stanley vice president and a pastor of a Slavic Evangelical Baptist Church in the Philadelphia area, is on trial in federal court in Brooklyn, New York on charges of fraud and conspiracy for his alleged role in a sweeping insider-trading scheme.
Prosecutors claim that he and another trader, Vladislav Khalupsky, teamed up with Ukraine-based hackers to obtain corporate press releases before they were made public, and used them to place profitable trades. The conspiracy netted more than $20 million for the group, including $14 million for Korchevsky, according to prosecutors.
Korchevsky, who is in his mid-50s, “lives his life with a deep and abiding faith,” his lawyer Steven Brill told jurors during opening statements. He came to the U.S. at age 24 from the Soviet Union, seeking to practice his faith and make money as an “earnings trader,” Brill said.
The pastor was lured into dealing with a corrupt business man, Arkadiy Dubovoy, who didn’t tell him his information came from hackers, Brill said. Korchevsky made millions of dollars, but much of it went to his flock, including purchasing homes for some members, Brill said. Dubovoy pleaded guilty in 2016 and is expected to testify for the government in the case.
Prosecutors allege that Korchevsky and Khalupsky knew what they were getting into with Dubovoy and sought to make money from the stolen releases, which came from organizations such as PR Newswire Association LLC, Marketwire Holding LP and Business Wire.
The traders used coded messages and “a lot of different computers and phones” to communicate with other conspirators, Assistant U.S. Attorney David Gopstein told jurors. Korchevsky had conspirators buy him multiple cell phones, Gopstein said. Khalupsky’s email was found to contain a stolen press release for software company Oracle Corp., Gopstein said.
Agents collected more than 70 devices during searches in Georgia in August 2015, said Alan Davis, a U.S. Secret Service special agent who was called to the witness stand Wednesday.
A picture of a note found on one of the cell phones, a Samsung Galaxy 4S, showed a hand-written email address and password prosecutors allege connect back to email accounts used in the scheme. Email-login information to another involved account was sent in a group chat from that phone in early 2015. One of the recipients was a relative of Arkadiy Dubovoy, Igor Dubovoy, who also pleaded guilty to his involvement in 2016.
Versions of the stolen press releases were found in both email accounts. Most of the releases found were “essentially identical” to those later published to the public, although a few may have been further edited before release, Secret Service special agent Katherine Pierce testified.
Further evidence will include trading and bank records, emails and testimony from alleged conspirators, Gopstein said during opening statements.
“You’ll see evidence linking the hackers to the defendants’ network,” he said.
The men are accused of participating in a scam from 2011 to 2014 that involved as many as 10 traders and hackers, and represents an unusual intersection of securities fraud and cybercrime. Using as many as 150,000 press releases, they made money by trading in stock such as Panera Bread Co., Caterpillar Inc., Home Depot Inc. and Advanced Micro Devices Inc., according to prosecutors.
The case has resulted in two other guilty pleas. At least two of the four are cooperating with prosecutors.
Khalupsky’s attorney said that like Korchevsky, the former broker-dealer was picked off as an “easy target” by Arkadiy Dubovoy. Khalupsky ran a trading company and thought Dubovoy offered a promising business relationship, his attorney, LaKeytria Felder, told jurors. Khalupsky, a trader who lived in Brooklyn and Ukraine, also allegedly earned millions of dollars.
Korchevsky, a U.S. citizen born in Ukraine, was arrested in August 2015 at his home in Glen Mills, Pennsylvania.
The case is U.S. v. Korchevsky, 15-cr-000381, U.S. District Court, Eastern District of New York (Brooklyn).
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