## Facts

- Vladislav Khalupsky (a securities trader) and Vitaly Korchevsky (a hedge fund manager/investment adviser) participated in a multi-year scheme to trade securities using nonpublic, pre-publication press releases.
- Hackers based in Ukraine obtained login credentials and infiltrated three newswire services—PR Newswire, Marketwired, and Business Wire—to steal press releases before publication.
- The stolen releases were stored on a server accessible to intermediaries, including Arkadiy and Pavel Dubovoy.
- The intermediaries paid hackers for stolen releases, provided the releases to the defendants, and funded brokerage accounts used to place trades.
- Korchevsky was recruited after being given credentials to review stolen releases and concluding the information could be traded on profitably.
- The defendants executed trades based on the hacked, nonpublic information over an extended period.
- The illicit trading produced profits exceeding $18 million.
- After a jury trial in the Eastern District of New York, both defendants were convicted of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusions, securities fraud, and conspiracy to commit money laundering.

## Issues

1. Whether the evidence was sufficient to prove (a) Korchevsky’s participation in a conspiracy with Khalupsky and (b) the elements of securities fraud based on trading on hacked, misappropriated press releases.
2. Whether venue on the securities-fraud counts was proper in the Eastern District of New York given the dispersed, online nature of the scheme.
3. Whether the government’s proof or the jury instructions constructively amended the indictment or caused a prejudicial variance.
4. Whether the district court erred by giving a conscious-avoidance (willful blindness) instruction, and whether the wording was improper.
5. Whether the district court abused its discretion in responding to a jury note during deliberations.

## Decision

- The Second Circuit affirmed the judgments of conviction in full.
- The evidence was sufficient for a rational jury to find an agreement and knowing participation in the conspiracies and to find securities fraud based on trading on stolen, nonpublic information obtained through hacking.
- Venue in the Eastern District of New York was proper because it was foreseeable that acts constituting securities fraud would occur there.
- The trial proof and jury instructions did not constructively amend the indictment and did not create a prejudicial variance.
- The conscious-avoidance instruction was warranted by the record and was properly phrased.
- The district court’s response to the jury note was within its discretion and non-prejudicial.

## Legal Principles

- Trading on confidential, nonpublic information misappropriated through computer hacking can constitute a deceptive scheme actionable as securities fraud under § 10(b) and Rule 10b-5.
- In continuing offenses such as securities fraud and conspiracy, venue may lie in any district where part of the offense occurred or where acts in furtherance were reasonably foreseeable.
- A constructive amendment occurs only when the indictment’s terms are effectively altered to change an essential element or basis for conviction; differences between indictment allegations and trial proof that do not broaden the charged offense, and that do not prejudice the defense, do not require reversal.
- A conscious-avoidance instruction is permissible when the defendant disputes knowledge and the evidence supports a finding that the defendant was aware of a high probability of the unlawful fact and deliberately avoided confirming it.
- Appellate review of a trial court’s response to jury communications is deferential; reversal requires an abuse of discretion causing prejudice.

## Conclusion

The Second Circuit upheld convictions arising from a scheme to trade on hacked, pre-publication press releases, holding that the proof supported the conspiracies and securities fraud, venue in the Eastern District of New York was proper, the indictment was not constructively broadened at trial, the conscious-avoidance charge was appropriate, and the jury-note response was not an abuse of discretion.


United States v. Khalupsky, 5 F.4th 279 (2d Cir. 2021)