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Articles Posted in Cyber Crime

Manhattan federal agents arrested Archegos Capital Management founder Sung Kook “Bill” Hwang on April 27, 2022 on fraud charges, roughly one year after the investment firm’s huge losses back in March 2021.  Department of Justice prosecutors are charging both Hwang and Patrick Halligan, the firm’s chief financial officer, with racketeering conspiracy, securities fraud and wire fraud offenses as part of schemes allegedly designed to “unlawfully manipulate” the price of publicly traded securities.

The 59-page indictment, filed in federal court in Manhattan, alleges the men and others at Archegos sometimes timed their trades to drum up the interest of other investors, while borrowing money to make bigger and bigger bets. The Department of Justice states, “Hwang and his co-conspirators invested in stocks mostly through special contracts with banks and brokers called “swaps.” As alleged, these swaps allowed Hwang to cause massive buying of certain stocks, including at carefully selected days and times, to artificially pump up stock prices. Hwang, Halligan, and their co-conspirators lied to banks and used a series of manipulative trading techniques to keep those prices high and prevent them from falling. The lies fed the inflation, and the inflation led to more lies. The scale of this alleged fraud was stunning.  In one year, Hwang turned a $1.5 billion portfolio and fraudulently pumped it up into a $35 billion portfolio.” The effective size of the firm’s stock positions swelled to $160 billion — rivaling some of the biggest hedge funds in the world.  The case marks the biggest financial-crime charges to come out of the Southern District of New York under the leadership of Mr. Damian Williams, who was sworn in October 10, 2021.

The SEC has also filed a civil complaint stating that Mr. Becker, the former chief risk officer at Archegos, and Mr. Tomita, the firm’s former top trader, had led discussions with the banks about the firm’s trading positions but that Mr. Hwang and Mr. Halligan had directed and set the tone for those discussions.

Attorney General Merrick Garland made recent comments about what he considered to be the Department of Justice’s top priorities for 2022.  Since taking office in March 2021, Garland has tried to combat crime in a tumultuous time.  He has been criticized for his handling of January 6 investigation and has stated it’s the most urgent probe in history.

With all of this going on, the US Attorney’s office increased its prosecutions of individuals of white collar crimes in the year 2021.  White collar charges like fraud, theft, corruption, bribery, environmental crime, tax fraud, health care fraud, procurement fraud, money laundering, PPP loan fraud, etc will continue to get more attention from the Department of Justice.

What does this mean?  It means that investigations of any sort need to be taken seriously and that you should contact a lawyer immediately if any wrongdoing is alleged.

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The IRS has just announced that Operation Hidden Treasure will seek to find taxpayers with unreported income from currency transactions.  Did you notice the new question on page 1 of the Tax Form 1040?  It states, “At any time during 2020 did you receive any financial interest in virtual currency?”  Last year this question was only on Schedule 1.

The IRS Criminal Investigation Division (“CID”) will look for typical “flags” in money transactions.  That may include “structuring” (transactions in increments of less than $10,000 to avoid reporting requirements), “the use of nominees, shell corps” (entities used solely for moving money around) or “getting on and off the chain.” (On chain transactions – blockchain is modified to reflect the transaction on a public ledger. Off chain transactions are those that that go off the blockchain.  They work by swapping private keys to an existing wallet instead of transferring funds.)

The IRS identifies and investigates these tax evasion flags.  Operation Hidden Treasure is “all about finding, tracing, and attributing crypto to U.S. Taxpayers.” Do not be fooled into thinking that since it’s cryptocurrency the government does not have the know how to investigate.   Charges for tax evasion, false information on a tax return or even money laundering or structuring can be forthcoming.  Call Conaway & Strickler, PC if you have had a friendly visit from an IRS CID Agent or if you think you might be facing some issues with the IRS.  Carolyn Schenck, national fraud counsel in the IRS Office of Chief Counsel states, “Operation Hidden Treasure is designed to find, trace and attribute such transactions to taxpayers. These transactions are not anonymous.  We see you.”

After the Hack: A Data Breach Post Game Show

As chair of the Cyber Crime committee at iTechlaw, Meg Strickler gives her insight on data breaches from various perspectives on an iTechlaw webinar this week.  She and the other panelists discuss:

  1. The criminal charge of BEC (Business email compromise) fraud

Cyber extortion threats are on the rise. The threat the hacker uses is that if a certain amount of money is not paid, then information of some sort will be exposed. Hackers gain access through a digital break in. Cyber extortion is different then ransomware attacks. Ransomware will render a hard drive/server/file unreadable/unaccessible until a ransom is paid. Extornists threaten to expose sensitive material and people are paying them. But, in some cases the threats are just that – threats, and the hackers are bluffing.

Cyber extortion can take many forms. The below, is by no means, an exhaustive list.

*Denial-of-Service attacks – attack happens, and then hackers demand money to stop the attack.

Cyber Crime: Bitcoin is fast becoming a player in the online marketplace. People are starting to make investments in electronic currency in hopes of cashing in on its wealth-building opportunities. Criminals seeking to scam others out of hard earned cash are also in the mix because Bitcoin’s blockchain technology lends itself to anonymous transactions.

Cyber Crime: WannaCrypt hackers malware ransom scheme 

What’s new in cyber crime? In May, 2017, hackers stole private data in a large malware attack affecting more than 300,000 computers and taking down systems all over the world. In order to receive a code to “decrypt” their scrambled data, users were asked to send ransom money through Bitcoin.

The rise of “big data” has been one of the most important developments in the internet era.  What exactly is big data? It has been defined as a “term describing the storage and analysis of large and or complex data sets using a series of techniques”.  And big data is infiltrating every aspect of our lives.  The number of things now connected to the internet has reached at least 8.7 billion in 2012.

One result of the vast reach of the Internet is that law enforcement is now attempting to combat cyber crime globally.  Law enforcement agencies in many countries hope to utilize a coordinated and collaborative cross-border approach in order to respond to growing cyber threats. This means that multi-national corporations and law enforcement are attepting to cooperate with one another on a greater basis to achieve this goal.

With the increased cooperation between the corporate world and law enforcement, privacy rights are being eroded, especially by United States corporations as recent revelations by Edward J. Snowden show.  How can the benefits derived from cooperation between corporations and government be balanced with the individual’s interest in keeping their personal and financial lives private?  Where is the line between cyber security and individual privacy and what role do governments and corporations play in maintaining this delicate balance? The United States is not taking into account the far-reaching negative impact the changing definition of privacy is having on other states around the globe. Some countries are responding by considering data localization laws, and there is also a movement to give control of the Internet to the United Nations or to individual governments.  There are also calls for reform to the Electronic Communications Privacy Act (ECPA).  T

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