Hack To Trade Conspiracy With Vladislav Klyushin

Join us to hear the “Hack To Trade” conspiracy between Vladislav Klyushin, Ivan Ermakov, and Nikolai Rumiantcev at a Russian cybersecurity firm named M-13. Fun fact, Ermakov was also indicted for meddling in the 2016 United States elections. This is eCrimeBytes.com Season 2 Episode 12 Act 3: Hack To Trade Conspiracy With Vladislav Klyushin – Act 3: Punishment.

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Transcript:

00:00:10:08 – 00:00:16:18
Keith
Hey, welcome back to eCrimeBytes. This is season two, episode 12.

00:00:16:18 – 00:00:42:01
Keith
All right, so we last left you with three individuals in Russia that are using this insider trading information in order to make money because they’re breaking into these filing companies where these publicly traded, quarterly and yearly reports are stored. They’re stealing them before they’re made public, and then they’re capitalizing on whatever would happen in the stock market based upon that information.

00:00:42:04 – 00:00:56:22
Keith
And we took you through the scheme in act two, and this one, we’re now going to take you in the punishment. So in March of 21, our main individual here, Vlad Klyushin, he’s arrested.

00:00:56:22 – 00:01:03:18
Keith
This is interesting. I had to put this in word for word because this wasn’t your normal arrest. It wasn’t like Vlad was going to work.

00:01:03:18 – 00:01:41:18
Keith
And they’re like, Hey, I’m catching you on your way to your painting job. Oh, shit, you caught me. And he gets in the cop car. No, Vlad just had landed by private jet in Switzerland. As he landed, there’s a helicopter waiting there to take him to him and his party to Zermatt, an exclusive ski resort nearby. So this is like, picturesque James Bond shit, this guy getting out of a private airplane into a helicopter to go to the ski resort.

00:01:41:20 – 00:01:59:14
Keith
It just blew my mind. And of course, from there, once they arrest him in Switzerland, he then vigorously tried to not be extradited to the U.S. because he knew he was in a lot of trouble in the U.S. Could get probably a pretty stiff sentence that we’re going to talk about now. So

00:01:59:14 – 00:02:03:06
Keith
one of the things that we’ve been bringing to you is kind of the arguments.

00:02:03:08 – 00:02:34:20
Keith
So up before there is a trial, the defendant says, hey, I shouldn’t be detained. I’m a good guy, don’t detain me. And here’s all the reasons why. I’m going to post a 2.5 million bond that’ll make me come back. That’s secured by a 1 million in cash to be funded by a loan on my property in Russia and a $1.5 million secured loan through an apartment owned by the defendant in London.

00:02:34:20 – 00:02:59:09
Keith
So already you’re going to holy shit, this guy owns some serious assets, and then he talks about he wants home detention with electronic monitoring. I won’t get a new passport. I will have daily contact with pretrial services. I will stay in a small residential apartment. I you know, I’ll even he says, I will even higher private guards to make sure I make it to court.

00:02:59:11 – 00:03:00:29
Keith
And the court comes back and says,

00:03:00:29 – 00:03:06:09
Keith
Yeah, we don’t trust you. We don’t think you’re going to show up, you’re going to be detained and detained from that point forward.

00:03:06:09 – 00:03:08:22
Keith
So from there they have the indictment,

00:03:08:22 – 00:03:09:04
Keith
Right?

00:03:09:04 – 00:03:30:07
Seth
So let’s talk about the indictment here. This came down April six, 2021, for all three individuals. Right? So Klyushin, Ermakov and Rumiantcev. Klyushin is the only one, however, that was in U.S. custody. Right. The other two were somewhere in Russia. We’ll come back to that. So you had a count of conspiracy to obtain unauthorized access to computers.

00:03:30:07 – 00:03:51:13
Seth
So we know about that. And to commit wire fraud and securities fraud. They did that to. Count two is specific wire fraud aiding and abetting. This is so I guess they could enrich their colleagues not to colleague excuse me enrich their customers rather. Count three was unauthorized access to computer is also aiding and abetting and then count four was securities fraud aiding and abetting.

00:03:51:13 – 00:04:12:22
Seth
So basically they got them on really it two broader categories of the conspiracy to commit fraud and then the aiding and abetting on the wire fraud as well. So pretty comprehensive. So in February of 23, so very recently, there’s a jury trial and this was an eight day trial. And guess what? They found him guilty.

00:04:12:22 – 00:04:23:25
Seth
Evidence presented at trial demonstrated that the times in which the filing agents were hacked corresponded with the times in which collusion and his coconspirators made profitable trades.

00:04:23:25 – 00:04:53:15
Seth
And I love this Jones. That’s why I wanted to read it. Of the more than 2000 earning events around which collation and allegedly his coconspirators traded between January 2018 and September of 2020, more than 97% were filed with the SEC by the victim filing agents. Testimony at trial indicated that the odds of this trading pattern occurring in the absence of a relationship between the trading parties and the identity of the filing agent was around one in a trillion.

00:04:53:17 – 00:05:17:11
Seth
So essentially the jury agreed that there was zero possible way that they could have been this good at predicting the market. So in total Klyushin and his coconspirators earned about $100 million trading from roughly 9 million and investments. So they essentially operated like a really, really profitable bank for their customers. That’s why they’re able to charge 60%.

00:05:17:11 – 00:05:29:23
Seth
And even though they lost about $10 million in non earnings trading, that represented a return of more than 900% during a period in which the broader stock market was really around like 25%.

00:05:29:23 – 00:05:59:13
Seth
By the way, 25% is amazing. It’s an amazing stock market return. And they’re like, we think we can do a little better than that. Would you like 900%? So of that amount, Klyushin individually netted more than $34 million, which is why Jones you could put up three, four or $5 million in collateral related to his bond. Nearly 22 and a half of that million of that money, rather, was on his personal trading and trading for his company.

00:05:59:15 – 00:06:12:24
Seth
And there was on another 11 and a half million on the money he invested for others. Further escalations a sophisticated cyber attack hostage to victims, more than $8 million, although we don’t get any information about how they came to that amount.

00:06:12:24 – 00:06:37:14
Keith
So we’re now in August 2nd of 2023. This is just a month or two ago. The government, they say they want 168 months. And I go, oh, I can’t do the math, which is about 14 years. I did it for you. And then they want three years of supervised release. Three years is usually pretty standard. Usually if if they’re really good, it’s less than three years and the really bad is more than three years.

00:06:37:14 – 00:07:04:06
Keith
But three years is yeah, average in a lot of these these cases. So there’s a $5 million fine that they want on top of this and they want $8 million in restitution. So those two together, you’re looking at about 13 ish million dollars. You’re going to see the number’s a little different. So the defense comes back and they say, yeah, we would like less than three years, please.

00:07:04:08 – 00:07:11:12
Keith
So then the judge goes back, does the judge type of thing. What does he come back with, Seth, he or she? I don’t know if they’re a he or she.

00:07:11:14 – 00:07:35:20
Seth
Did so on September 11. So this is really recent. We get a final sentencing and the defendant is committed for a total of nine years. And how they broke it down was fairly interesting. Right. So this was five years on counts one in three, which I believe was wire fraud and the conspiracy. But nine years on, counts two and four, But they’re to be served concurrently.

00:07:35:20 – 00:07:58:03
Seth
So the five years basically gets absorbed into the nine years. Now, interestingly, here, no supervised release. I’ve never seen that before, by the way, in any of our cases so far Jones. Now, yeah. In terms of monetary penalties, this is interesting. There was a standard assessment of 400 bucks. Nothing in restitution here, though. We know about the. But here’s what we actually find.

00:07:58:06 – 00:08:06:22
Seth
The defendant was ordered to forfeit over $34 million. That was pursuant to US Code.

00:08:06:22 – 00:08:08:03
Seth
Yeah. So.

00:08:08:05 – 00:08:17:14
Keith
Yeah, the number I gave you earlier was, what, like $13 million, what the government was going for. And then at the end of the day, the forfeiture was $34 million.

00:08:17:14 – 00:08:28:29
Seth
The judge went all in. The judge basically wasn’t having that that half assed number and wanted him to go all in quite a lot, actually. An amazing amount of money to do away with.

00:08:29:01 – 00:08:45:18
Keith
So that’s it. That’s the end of our case. I hope you enjoyed it. I have a few final thoughts each of us are going to talk about here and then I’ll give you a quick preview of next week. But let me just get into it. So I thought nine years was it didn’t seem like a lot. I mean, it’s a lot. Nine years.

00:08:45:18 – 00:09:05:24
Keith
Don’t get me wrong, it’s a lot to spend in prison, but didn’t seem like a lot for the amount of benefit that they got out of it. I mean, we were talking like almost $100 Million figure at the end nine years seemed kind of to the next person looking at that would probably go wait I get $100 million and only have to go to prison for nine years?

00:09:05:26 – 00:09:06:09
Keith
You know.

00:09:06:14 – 00:09:27:07
Seth
Well, not only that, I think we can assume, like any hopefully intelligent prisoner or a prisoner criminal, let’s just say he had to give back 34 million. I don’t buy for a second that if he had it to give back, he didn’t have more money somewhere else. So then he had to do the calculus of, well, how much money is it worth walking back into versus how much prison time did to spend to get to it.

00:09:27:10 – 00:09:38:24
Seth
So if he’s got to do nine years and he’s got like $10 million socked away somewhere and he does have to work for the rest of his life, I’m not saying I would do it, but I’d certainly have to pause for a second and think about it.

00:09:38:26 – 00:09:48:09
Keith
Yeah, In his situation, it’s probably a probably one of the best, best choices he can make. Now he’s he’s caught up with the law. So

00:09:48:09 – 00:09:59:05
Keith
Another thought I had was they didn’t hide their IP addresses and M13 showed up at one of the victim’s logs and that was the thread of the sweater that got pulled by the investigators that unraveled everything here.

00:09:59:07 – 00:10:23:24
Keith
So if you’re from the U.S., you would go, oh, my God, you wouldn’t want to leave your address in the logs because then the U.S. authorities will find me. Well It doesn’t really matter to you if you’re overseas, right? I mean, what can the U.S. authorities do to you? In most countries, it’s not much. You know, if you have a cooperating country, which there’s only a few of you might get the person sent back to the U.S..

00:10:23:24 – 00:10:25:14
Seth
Well, it wouldn’t be Russia.

00:10:25:16 – 00:10:27:25
Keith
It wouldn’t be Russia. But a lot of times.

00:10:27:25 – 00:10:28:29
Seth
All right.

00:10:29:02 – 00:10:29:18
Keith
The

00:10:29:18 – 00:10:57:02
Keith
what they have to do is trick that person back to the U.S. with some kind of ruse to get them on U.S. soil in order to arrest them under U.S. law. It’s pretty interesting. In some cases, that’s the most difficult part. So two of Klyushin’s coconspirators Ivan and Nikolai, they’re both still at large. They’re still in Russia. And they may stay at large in Russia if they just never leave, because what can the U.S. do really?

00:10:57:02 – 00:11:00:03
Keith
Right. Do you have any thoughts, Seth?

00:11:00:05 – 00:11:05:28
Seth
Well, I mean, a few. One is I’d be curious to see the logging. In other words, were they

00:11:05:28 – 00:11:15:05
Seth
was M13 just not cautious enough about leaving a log in, you know, the agent number ones you computer system

00:11:15:05 – 00:11:26:27
Seth
and I mean like anything else right. How long are the logs you know oppression for You know, if you’re doing an investigation, you know would you even know to look and see that that specific IP address, you know, which doesn’t doesn’t belong there.

00:11:26:27 – 00:11:40:22
Seth
Right. Because they have to back into how this even happened. Right. So they seem they figured it was a hack, you know, I mean, it would be a it would be a lot of work to figure out what IP address should or shouldn’t be there, depending on the volume of IP addresses that would be in that log. Right.

00:11:40:22 – 00:11:58:20
Seth
I just would be curious to kind of get more detail in terms of the nitty gritty of how they investigated that. But it was clearly a fingerprint that led to their downfall. I’m pretty sure the two coconspirators are not going to be sought after by Russian law enforcement here. Russia didn’t give a shit just because it wasn’t Russia companies.

00:11:58:20 – 00:12:06:19
Seth
It was apparently this is like U.S. companies. What did Russia care that they were ripped off? So I don’t think they’re going to be extraditing them any time soon.

00:12:06:19 – 00:12:25:18
Keith
All right. So with that hold on a second, because I got a great preview of next week. Let me tell you real quick how to reach us two ways. Well, the best way is go to our Web site eCrimeBytes dot com. Bytes spelled the computer way. Y as in yellow milk. It has all the social media across the top there.

00:12:25:20 – 00:12:26:08
Keith
The other way.

00:12:26:08 – 00:12:50:16
Keith
Please like unsubscribe subscribe there or whatever mechanism it is that you can, you know, follow us and enjoy our our new material and with that, come back next week because I actually just got done researching this right before we recorded this episode, which is next week, which is Cyberstalking with Julyen Alonzo Martin.

00:12:50:18 – 00:13:13:04
Keith
And oh boy, I texted Seth partway through this last night and I was like dude this guy. This guy rivals Jason Leidel. And there’s so many there’s so many parallels in here. There’s teachers involved and stuff just like the other one. And his ex-wife’s involved in the schools. And there’s impersonation going on and that we have all the evidence, probably even more than we had in the Jason Leidel case.

00:13:13:04 – 00:13:22:24
Keith
And we’re going to be showing it to you on the screen as we go through it. So hope you come back next week and join us on that episode. And thanks for sticking with us this week. All right. Thanks. Bye.

00:13:22:27 – 00:13:23:25
Seth
Thanks.

DrKeithJones.com

Hack To Trade Conspiracy With Vladislav Klyushin – Act 3: Punishment

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