Two Defendants Settle SEC Charges for Hacking into EDGAR System

The SEC reached separate settlement agreements (see here and here) with two of the nine defendants previously charged with hacking into the SEC's online Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system.

As previously covered, the SEC claimed that a Ukrainian hacker used deceptive techniques to obtain access to material nonpublic information contained in "test filings" from the SEC's EDGAR system. According to the Complaint, the hacker sent the material nonpublic information to traders who monetized it by "purchasing or selling short the relevant securities" and reaping gains from the market reaction after the information was sent to the public. The traders then allegedly kicked back a part of their profits to the hacker.

The SEC alleged that the scheme reaped over $4 million in ill-gotten gains from trading on the material nonpublic information contained in the EDGAR "test filings."

The settlements filed by the SEC are with David Kwon and Igor Sabodakha, both of whom were traders in the alleged scheme. Under the settlements, both defendants agreed to permanent injunctions prohibiting them from violating the anti-fraud provisions of the federal securities laws. Mr. Kwon agreed to pay $165,474 in disgorgement and $16,254.04 in prejudgment interest, and to a civil penalty to be determined by the Court. Mr. Sabodakha agreed to pay $148,804 in disgorgement, $20,945 in prejudgment interest and a civil penalty of $148,804. The settlement agreements are subject to Court approval.