How to Engineer a Stock Market Crash

Russian spies working on Wall Street?  FBI agents swooping in to round up soviet operatives and diplomats whose aim is to crash the Stock Market?  It sounds like the plot for a Tom Clancy novel, doesn’t it?  But I’m afraid the conspiracy was all too real.  Even worse, the majority of the American public was totally unaware of how close this diabolical plan came to succeeding, much less what it means to the security of the country’s financial markets.

To bring you up to speed, I’ll need to take you back in time one decade…

Image courtesy Pixabay

That’s because, it was in 2009 that Soviet banker Evgeny Buryakov came to New York, along with trade representative Igor Sporyshev and Victor Podobnyy, an attaché connected to the Russian Mission to the U.N.  In a true-life version of the Joseph Weisberg TV series The Americans, the conspiracy all began with the arrest of 10 Russian illegal agents. All of the illegals posed as American citizens who hobnobbed with politicians and infiltrated US think-tanks to steal technology vital to the defense of this country.  It was only after rolling up the nest of spies that the FBI learned about another plot involving Buryakov, Sporyshev and Podobnyy.

During the course of the next three years, the feds tailed and surveilled the three while trying to learn more about their nefarious scheme.  During one wiretap, the FBI heard Buruyakov ask his handler about the best ways to approach stock exchange employees in order to glean intelligence regarding Exchange-Traded Funds. Why would a Russian banker be interested in ETFs, they wondered?   Back in 2013, ETFs were worth about one and a half trillion dollars.  Today, they’re worth more than $5 trillion.  Buryakov’s call became even more revealing when he specifically asked his contact about trading robots that could be used for market destabilization. 

Realizing they were onto something big, the feds brought this information back to FBI headquarters.  There they learned about several flash crashes that had occurred both here and abroad.  While most were attributed to software glitches, one that occurred three years before had been traced to a British day trader who caused stock prices to plummet by using off-the-shelf computer software to execute a series of high-speed bearish trades.  This in turn triggered other trading robots to begin spewing thousands of sell orders.  At the height of the sell-off, these high-frequency trading bots executed more than 27,000 sell orders in less than 14-seconds.

Image courtesy needpix

When it was all said and done, the DOW plunged nearly 1,000 points in a single day, which at the time represented nearly 9% of the market’s value.  Additionally, the wild ride caused a handful of blue-chip stocks to briefly plummet to one cent per share, while others soared to astronomical heights as high as $100,000 per share.  According to the Wall Street Journal, the net effect of this market instability was the immediate loss of more than $1 trillion in market value.  It was also responsible for a longer bearish trend that lasted for nearly a year and a half after the flash crash.

It didn’t take the FBI long to realize if a day trader could inadvertently spawn a crash, what could a foreign power do to the US stock market if they really put their mind to it.  More importantly, the feds didn’t want to throw a net over Buryakov until they discovered all the players in the game. This meant letting him continue with business as usual in the hopes he’d lead them to his handlers.  From March 2012 until September 2014, the FBI followed the spy to fifty meetings.  During some of them, he met with and passed along information to Sporyshev.  Sometimes this involved handing the supposed trade representative a slip of paper or a magazine.  Other times federal agents photographed him passing a bag to his handler.

Image courtesy flickr

Fortunately for the FBI’s counterintelligence division, Sporyshev and Podobnyy made their job easier by routinely calling Buryakov on a non-secure phone and by using his given name rather than a code-name.  Eventually, the feds realized all three worked for the SVR, the foreign intelligence service of the Russian Federation.  When the FBI finally decided to drop the net over the three operatives, the NY Times reported that,

Preet Bharara, the United States attorney for the Southern District of New York, said Mr. Buryakov, “under cover of being a legitimate banker, gathered intelligence on the streets of New York City, trading coded messages with Russian spies who sent the clandestine information back to Moscow.” 

While diplomats Sporyshev and Podobnyy were soon expelled from the US, Buryakov was left holding the bag since he had been deemed a foreign agent operating under non-official cover.  The complaint filed by US attorney Bharara noted that Buryakov and his handlers worked for SVR Directorate ER, which was tasked with economic espionage.   Presented with the overwhelming amount of evidence gathered during the three-year investigation by the FBI, the NOC pleaded guilty, only to be sentenced to two and a half years in prison as well as being fined $100,000. The reason the sentence was so light was because Buryakov was never charged with espionage.  The State Department feared the Russians would retaliate if they sought a more draconian sentence.

What was even more ludicrous was the diplomatic outrage espoused by Russian Foreign Ministry spokesman, Alexander Lukashevich, who accused the US State Department of using the incident to incite spy hysteria. In April of 2017, Buryakov was released from federal prison and promptly deported back to Mother Russia.

While the White House considers the incident closed, it’s apparent that the American public was lucky to have dodged an economic bullet that could have caused the economy to take a tumble.  However, even after a number of other flash crashes occurred at stock and commodity markets around the globe, the US stock exchange has made no move to distance itself from automated high-speed trading robots that proved to be the tail that can wag the dog. 

As for foreign agents engineering a stock market crash, all I can say is, “Nyet this time, comrade!”

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