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Computer Hacker to Pay $10 Million in Options Fraud Case

A federal judge in New York has ordered a Hong Kong company and its CEO to pay more than $10 million in a stock-options trading scheme involving the theft of confidential corporate earnings forecasts through computer hacking.

U.S. District Judge Charles S. Haight Jr. of the Southern District of New York issued the order after the company, Blue Bottle Ltd., and CEO Matthew Stokes, 30, of the English Channel island Guernsey, failed to respond to a complaint the Securities and Exchange Commission filed in February.

According to the SEC, the defendants earned about $2.7 million in the scheme. Judge Haight ordered them to disgorge the money and pay an $8 million fine.

Beginning in January Blue Bottle and Stokes made numerous trades in the stock of 12 different U.S. companies just before they released news of their forecasts, the complaint said.

The defendants allegedly got the news early by "hacking into computer networks or otherwise improperly obtaining electronic access to systems that contain information about imminent news releases."

The SEC did not name the networks or systems the defendants allegedly hacked.

Blue Bottle and Stokes structured their trades to profit from earnings news, whether good or bad, according the SEC.

They used call options, essentially betting that share prices would rise on good news, and put options, betting the opposite, the suit said.

The SEC said the defendants carried out the scheme using fake documents to open an account with Greenwich, Conn.-based Interactive Brokers, an online brokerage.

Through Interactive, which was not named in the suit, the defendants allegedly traded on several U.S. options and stock exchanges, including the New York Stock Exchange.