Kevin McCoy

USA TODAY

Chinese traders hacked into the computer systems of U.S. law firms that handle mergers, then used the data for insider trading that generated more than $4 million in illegal profits, federal prosecutors and regulators charged Tuesday.

The suspects in the alleged criminal marriage of cyber-hacking and securities fraud targeted at least seven law firms and other entities that handle the sensitive and often lucrative legal work of advising companies pursuing mergers and acquisitions, according to a 13-count superseding indictment unsealed in New York.

Operating from April 2014 through late 2015, the alleged scheme ultimately gained access to secret information from two law firms about pending corporate deals, prosecutors charged.

The suspects allegedly prized, targeted and gained access to the emails of attorneys directly involved in the deals. Prosecutors charged they exchanged a list of partners who performed such work at one of the firms before hacking into that firm's computer system.

Using that information, the suspects allegedly bought stocks in the companies involved in the deals, and ultimately sold the investments at a profit when the mergers or acquisitions were announced.

Preet Bharara, the U.S. Attorney for the Southern District of New York, in a formal statement said the allegations spotlight the vulnerability of highly-sensitive law firm records to the efforts of determined cyber criminals.

"This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals," said Bharara, whose office has successfully prosecuted dozens of insider-trading cases.

USA v. Iat Hong Et Al. S1 Indictment

The Securities and Exchange Commission filed a parallel civil lawsuit that seeks an asset freeze aimed at preventing the alleged suspects from cashing in on their alleged trading gains.

SEC investigators used trading surveillance and analysis to identify the alleged scheme, which was carried out through the use of both U.S. and offshore accounts, said Stephanie Avakian, acting director of the SEC's enforcement division.

The defendants include Iat Hong, a resident of Macau who was arrested in Hong Kong on Christmas Day. He is being held pending extradition to the U.S. Prosecutors identified Hong's alleged co-conspirators as Bo Zhen and Chin Hung, and said they remain at large. All three are charged with conspiracy to commit securities fraud, wire fraud, computer intrusion and other criminal counts.

The law firms whose computer systems the suspects allegedly targeted were not identified in the indictment. However, a March report by The Wall Street Journal said federal investigators were examining whether hacking attacks at such prestigious law firms as Weil Gotshal & Manges LLP and Cravath Swaine & Moore LLP involved theft of secret information for use in insider trading.

The deals outlined in the charges included the prospective 2014 acquisition of InterMune, a Brisbane, Calif.,-based biotech company. Although the contemplated acquisition was never completed, InterMune ultimately agreed to an $8.3 billion transaction with Swiss biotech giant Roche in Aug. 2014.

Roche to buy biotech firm InterMune for $8.3B

The suspects allegedly cashed in on the announcement, selling 18,000 InterMune shares they had acquired twelve days before the deal became public for roughly $380,000 in profits, the indictment charges.

Similarly, the accused traders in Jan. 2015 allegedly targeted emails of a law firm that had been retained by computer chip giant Intel (INTC) for a contemplated acquisition of chip partner company Altera. According to investigators, the suspects downloaded approximately 2.8 gigabytes of data from the law firm, including records from a law partner working on the deal.

The traders amassed more than 210,000 in Altera shares, prosecutors allege. They allegedly sold the shares for roughly $1.4 million in profits — the result of sales carried out days as the Altera shares soared approximately 26% after The Wall Street Journal reported the Intel-Altera talks.

Additional cyber hacking of law firms' data yielded secret information that allegedly enabled the suspects to ring up roughly $841,000 in illegal profits from the $395 million deal announced in May 2015 by Stamford, Ct.-based technology company Pitney Bowes (PBI) and Borderfree, a market leader in e-commerce solutions.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc