On April 9, 2020, the US Securities and Exchange Commission announced settlements with two of the nine defendants charged in a civil complaint in January 2019 with participating in a scheme to hack into the SEC’s online Electronic Data Gathering, Analysis and Retrieval system (EDGAR), and then trading on the nonpublic documents obtained in the hack. According to the complaint, beginning in May 2016, David Kwon and Igor Sabodakha and others used various deceptive methods to obtain test filings from the EDGAR servers, which contained earnings results and other material information that had not yet been made public; the information was transmitted to traders, who are also defendants in the case, and monetized through the purchase or short sale of relevant securities during the narrow window of time between extraction of the files from EDGAR and release of the information to the public. According to the complaint, the defendants earned over $4.1 million from this scheme.
The SEC sought injunctive relief, disgorgement and penalties pursuant to Section 20(b) of the Securities Act of 1933, 15 U.S.C. § 77t(b) and Sections 21 and 21A of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78u and 78u-1. Kwon and Sabodakha consented to the entry of final judgments requiring the payment of disgorgement and prejudgment interest of $181,728 by Kwon, and disgorgement, prejudgment interest and a civil penalty by Sabodakha totaling $318,553. The civil penalty applicable to Kwon has not yet been determined.
The SEC agreed to move to dismiss the charges against Victoria Vorochek, Sabodakha’s spouse in whose name he traded. The SEC’s case against the other defendants remains pending.