BOSTON — The fate of a Kremlin-connected Russian tech businessman accused of directing an $82 million hacking scheme of non-public reports of U.S. companies and then illegally trading off this information is now in the hands of a federal jury.
Attorneys made their closing arguments Friday following the two-week trial of Vladislav Klyushin in federal court in Boston’s Seaport District.
The defense argued that the case was politically motivated and built on “predetermined conclusions.” The prosecution argued that Klyushin’s trading activities had only a “one-in-a-trillion chance” of being coincidental and unconnected to the hacking.
Klyushin was a director of Moscow, Russia-based M-13, a company, according to court documents, which provided services including the “monitoring and analytics of media and social media messages” and penetration testing — a service in which a company tests for security vulnerabilities in IT infrastructure. The company claimed it was used by Russian government agencies and even by President Vladimir Putin’s office.
He was arrested while on a ski trip in Switzerland in March 2021 and then extradited to the U.S. to face four counts related to conspiracy and wire and securities fraud.
Klyushin was indicted alongside alleged co-conspirators Ivan Ermakov and Nikolai Rumiantcev on April 6, 2020. Two others, Mikhail Irzak and Igor Sladkov, have also been charged in the case. All of the alleged conspirators, excepting Klyushin, remain at large.
Ermakov, the alleged lead hacker, is a former officer in the Russian Main Intelligence Directorate (GRU) also wanted by the FBI after he and 11 others were indicted by a federal grand jury in Washington D.C. in July 2018 for allegedly interfering in the 2016 presidential election.
“What’s not in dispute is that the hackers were sophisticated, they were experts,” said Assistant U.S. Attorney Stephen Frank during the prosecution’s rebuttal, the last of the arguments heard before the jurors were given instructions by Judge Patti B. Saris.
Prosecutors allege Klyushin directed a scheme in which hackers at his company obtained quarterly and annual reports of major companies before they were made public by breaking into the systems of two vendors that file those required reports to the U.S. Securities and Exchange Commission on behalf of those companies. The crew would then trade off this “material non-public information” to great riches, which the SEC in a related case said amounted to $82 million in profit.
The companies involved include well-known ones like IBM, Tesla and Snap Inc., the company behind Snapchat, as well as a slew of lesser-known companies like Cytomx Therapeutics and Puma Biotechnology.
The case was tried in Massachusetts, the prosecutors say, because those reports were largely obtained through a Virtual Private Network — a service in which internet traffic is encrypted and redirected through disperse internet addresses — that used an IP address based in a Boston server.
Defense attorney Maksim Nemtsev argued Friday that the government has “failed to prove their case with convincing quality evidence like witnesses and documents” but relied on “theories and inferences” based on their “predetermined conclusion” that Kyushin was guilty.
“M-13’s prominence in the tech sphere unfortunately also made him a convenient government target. He’s wealthy, he’s Russian and he owns an IT company that provides media monitoring and cybersecurity service for the Russian government,” Nemtsev said.
He later added, “The truth is Vlad and M-13 was such a convenient target that the government didn’t even bother to think about any other explanation since the start of this criminal investigation.”
Frank gave a sarcastic rebuttal, in which he said Klyushin is “the unluckiest man in the world” to have so much evidence point in his direction.
Those “one-in-a-trillion” coincidences, he said, include that 96% of his earnings trades were at the companies whose earnings reports were hacked and that his trading “invariably happens after the hack and before the news is announced,” and that the “hacks can be traced back through VPNs and Bitcoin transaction to the IP address of his company that specializes in innovating hacks.”
The jury is expected to convene on Monday.
