Four people have been arrested in Israel and Florida relating to a securities fraud scheme connected to the hacks of JPMorgan Chase & Co. and other financial institutions last year.
Law enforcement authorities in Israel arrested two men charged in the U.S. with running a multi-million dollar stock fraud scheme. However, a third suspect remains at large in Russia. In a related case in Florida, U.S. law enforcement arrested two men for operating an unlicensed bitcoin money-transfer business.
More on Tuesday’s arrests in JPMorgan hack
It turns out the individuals in these apparently separate cases are linked. One of the men charged in the securities-fraud scheme is a business associate and long-term friend of one of the two indicted in the Florida bitcoin operation.
Of interest, the two men are identified in a previously unreported FBI memo that connects them to the investigation of the JPMorgan hack and to network break ins at Fidelity Investments and E*Trade Financial Corp.
The court filings specifying the charges against the men does not mention the JPMorgan hack, and the securities fraud and money-transfer schemes are not also directly linked to each other.
A Bloomberg source with knowledge of the investigation claimed that data stolen from JPMorgan, which included millions of e-mails and the names of customers, was actually used to promote small cap stocks with a gigantic spam campaign.
Pump and dump stock fraud scheme
The stock pump-and-dump scheme had already been going on for some time when the Wall Street hacks went down. The grand jury indictment claims that five stocks were manipulated by the men in 2011 and 2012.
The scheme involved sending e-mails to victims encouraging them to buy “hot” stocks. The fraudsters then secretly sold their own holdings. The indictment alleges the men earned more than $2.8 million in illegal profits.
Two Israelis and one American have charged with stock manipulation: Gery Shalon and Ziv Orenstein, both Israeli citizens, and Joshua Samuel Aaron, a U.S. citizen who lived in the U.S. and Israel.
Aaron is alleged to have acted as the conduit between the unnamed U.S. conspirators and Shalon, the Israeli ringleader of the scheme.
Of note, Aaron was not arrested as he and his wife did not returned from a trip to Russia as scheduled, and is for now beyond the reach of U.S. or Israeli authorities.
Other JPMorgan developments
The fraud involving the hack is not all the bad news for JPMorgan. The Fed recently issued new GSIB guidelines and JPM had one of the highest scores (high here meaning bad – from the perspective of a bank which would not want to raise more capital). JPMorgan, needs to come up with an additional $12.5 billion in capital by January 2019.