The U.S. Securities and Exchange Commission, in an emergency federal court action, charged Estonia's Lohmus Haavel & Viisemann financial services firm and two of its employees with conducting a fraudulent scheme. Oliver Peek and Kristjan Lepik are alleged of stealing and trading in advance more than 360 confidential press releases issued by more than 200 U.S. public companies, the commission reported on Nov. 1.
The defendants took the e-documents from the Business Wire Web site, a leading commercial distributor of news releases and regulatory filings. Since January of this year, the site has made at least $7.8 million in illegal profits.
The United States District Court for the Southern District of New York froze the defendants' assets with a temporary restraining order, which also demands that Lohmus Haavel & Viisemann repatriate the stolen funds.
"Our action today demonstrates that we will seek out and stop securities fraud wherever we find it. Whether in an old-fashioned boiler room or, as in this case, in the high-tech environs of the internet, such conduct will be met with a swift and vigorous enforcement response," said Linda Chatman Thomsen, Director of the Commission's Division of Enforcement.
Daniel M. Hawke, Associate District Administrator of the Commission's Philadelphia District Office, said the case proved the commission's efficiency and thoroughness.
"We acted today to stop a clever and pernicious securities fraud and to preserve funds for investors," he said. "This case highlights that even when fraudsters invent new ways to violate the securities laws, the Commission will track them down and stop them, wherever they are located."
In June 2004, Lohmus became a client of Business Wire in order to access Business Wire's secure client Web site, the SEC complained. Once the defendants gained access, they were able to use a "spider" software program to provide unauthorized access to confidential information.
The complaint also alleges that the stolen information enabled the businessmen to coordinate their trades with the release of news on mergers, earnings, and regulatory actions. Using several U.S. brokerage accounts, the defendants either "bought long" or "sold short" the stocks of those firms whose confidential press release information was stolen. Finally, they used this information to purchase options to increase their profits.
Peek is an Estonian citizen currently residing in Tallinn who works in Lohmus' investment services branch. Lepik, a partner at Lohmus, is also an Estonian living in Tallinn.
A hearing on the SEC's request is set for Nov. 8.