Research, or CheatingBy Elizabeth Bennett | Posted 2005-12-05 Print
2005 definitely goes down as an interesting year. But who were the heroes of the IT universe and who were the goats?
360: Number of yet-to-be-published business wire press releases partially viewed by two Estonian-based stock traders looking for big gains.
It can be quite profitable to know that news is about to hit.
LHV (Lohmus Haavel & Viisemann), an investment banking firm located in Tallinn, Estonia, and two of its employees, Oliver Peek, 24, and Kristjan Lepik, 28, traded stocks based on press releases about to be distributed through Business Wire, according to a civil complaint filed by the Securities and Exchange Commission.
The SEC named LHV, Peek and Lepik in a civil complaint seeking the return of ill-gotten gains and a fine.
The SEC describes Peek as a day trader with a computer science background. Lepik served as head of LHV's trading department. According to the civil complaint, filed in the U.S. District Court for the Southern District of New York, Peek and Lepik viewed more than 360 press releases prior to distribution from more than 200 publicly traded U.S. companies.
And Peek and Lepik used the information to trade stocks between January and October, and pocket $7.8 million, says the SEC. Amy Greer, district trial counsel for the SEC's Philadelphia district office, says Peek and Lepik are under a preliminary injunction, which means they can't trade stocks. LHV's lawyer didn't return phone calls.
The lawyers for Peek and Lepik wouldn't comment. Greer said LHV is cooperating with the SEC on the investigation and is conducting its own internal probe on the matter.
LHV, which signed on as a Business Wire customer in June 2004 but has never itself issued a press release, got access to a secure Web site for Business Wire clients, according to the SEC.
Through a site called Business Wire Connect, customers disseminate public statements, which are edited and moved through a queue and then published on the Web and through Business Wire partners.
The SEC says "LHV, Peek and/or Lepik" launched a "spider," a computer program that regularly grabbed sensitive, secure, password-protected information about client press releases scheduled for public dissemination by Business Wire.
Phyllis Dantuono, senior vice president for Business Wire, says Peek and Lepik entered the Business Wire system through what she described as a "side door" in its information systems, but never got access to full press releases, their contents, the names of those distributing the news and headlines.
Instead, the duo got file names and release dates, and apparently pieced together information from elsewhere to make trades.
"At no point did they get full press releases," Dantuono says. According to Dantuono, Business Wire has found the area Peek and Lepik breached and secured it.
"We found out where they were able to get in and fixed it as soon as the SEC gave us permission," she says. "We've gone over the entire system with a fine tooth comb and feel confident it is secure."
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