Rogue Code

by Mark Russinovich

  He went back outside, bought a kosher hot dog from a cart, then ate standing up, savoring the moment. When he was finished, he returned to his cubicle and his own computer. One of the users he hacked was in the process of accessing the jump server as Campos had anticipated. Break time was over, time to get back to work. He piggybacked into the secure zone, leaving no trace of himself.

  Now Campos meticulously searched for signs of Red Zoya and the specialized tools Jeff and Frank used in their work. He smiled slightly as he did. Satisfied at what he saw he planted in a version of Iyers’s trade manipulation malware very similar to the one used for Vacation Homes. Once that was in place, he dropped in the program he’d configured to blatantly manipulate trades, making no attempt at concealment. He set it up so the money skimmed from trades was moved into the brokerage account that he’d established earlier for Jeff. As an automated security measure the malware was programmed to delete part of itself and in so doing it extracted one of Jeff’s free cybersecurity tools, exposing it to view. This behavior Campos knew would trigger the antivirus program when it performed its next routine scan.

  From this moment on, Vacation Homes would look as if it was Jeff Aiken’s pride and joy. Gotta love computers, Campos thought as he backed out of the secure zone. Now it was up to the Exchange’s IT sleuths and the software they had implanted, which hunted for just this sort of thing.

  With this done Campos went in search of Iyers to discuss Carnaval. Everything had to move like clockwork from this point on.

  DAY FOUR

  THURSDAY, SEPTEMBER 13

  HIGH-FREQUENCY TRADING UNDER SCRUTINY

  HFTs Alleged to Harm Markets

  By Frederick Z. Isaacs

  September 13

  Computers have reduced costs, increased participation, and improved the efficiency of stock markets the world over, according to the annual report of the Institute for Market Awareness. In its just-released report, institute president Arlene Bliss wrote that computers have linked exchanges, streamlined trading, and accelerated the flow of information, all of which has served the best interests of investors. But the report also cautioned that for all the good computing has brought to securities trading, it is now being used in ways not previously anticipated. The primary culprit is high-frequency trading while the driving principle is unparalleled greed.

  HFT, as it is known, exploits the ability of supercomputers to execute trading opportunities in nanoseconds. Their highly sophisticated algorithms seek out price differences, then buy and sell at unbelievable speeds. The secret algorithms are referred to as Black Boxes.

  Now that they dominate most major trades high-frequency trading companies are seeking new ways to leverage their advantage. The NYSE for one makes this easy by allowing new algos to be tested on their system without notifying them. More than once, such tests have caused serious disruptions in regular trading yet they are still permitted. In addition the NYSE allows HFTs to buy proximity location beside its super engines, giving them an advantage that others cannot exploit.

  Competition with other exchanges is cited as the reason for NYSE behavior. “Administrators believe that if they do not allow proximity location or the testing of sophisticated algos other exchanges will and the NYSE will lose its advantageous place in world trading,” the report says.

  Critics point out that such measures create tension between the need for security within the trading platform and the desire by the NYSE to serve the demands of its major, and favored, players. “While playing favorites raises the issue of fundamental fairness,” Clara Derns of the Investors Action League says, “its willingness to accept freewheeling algos and to grant favored access is courting disaster. The day is coming when the system will suffer a cataclysmic collapse because of high-frequency trading. It is inevitable given the current practices of the NYSE.”

  According to the report, “NYSE is confident that high-frequency trading can be effectively managed. There is no reason for undue alarm.” The report concludes that such optimism is unwarranted.

  Everyone in the industry knows that new regulatory controls are coming. While it is unlikely they will end the abuses of HFTs they will certainly make their current practices more difficult. In retrospect, these may well be seen as the halcyon days. The consequence is that greed is sure to drive these mysterious traders to even more extreme actions, which could create worldwide economic instability.

  Bliss declined comment beyond what is contained in the institute’s annual report, adding only that she has grave personal concerns about the future for traditional market investors.

  Internet News Service, Inc.

  22

  GRUPO TÉCNICO

  RUA ADOLFO MOTA

  GRANDE TIJUCA

  RIO DE JANEIRO, BRAZIL

  11:46 A.M.

  Pedro Bandeira entered the company office and was taken at once by the sense of urgency. His three employees were in their cubicles, each working intensely on their computers. He nodded in satisfaction as he passed through to his corner office opposite the door. Preparations to launch Carnaval were in full swing now. What had been a new dimension of the ongoing effort, one intended to be brought out for each major IPO, had in a single conversation become the primary effort. And his father’s orders were explicit: Get as much as possible, then vanish and cover their tracks. He wanted no less than a $10 billion payday in under one week.

  Ten billion dollars.

  Pedro could scarcely conceive of such a sum. To take so much, in so short a time, to move it away safely, all was a challenge and no one involved was convinced it was possible. But he was determined to do this right, to make it the crowning success his father wanted.

  Located a few blocks from the famous Maracanã football stadium, the office for the generically named Grupo Técnico was housed in a former mansion. Built at the turn of the last century it was a simplified form of the classic Portuguese Baroque style. When the wealthy abandoned this quarter of Rio, the building had been converted into apartments for a decade, then reconverted into office space. One of the cartel’s legitimate companies had acquired the building, then remodeled it for Grupo Técnico, which used only the second floor.

  A reception desk sat before the two enormous French doors of the main entrance. It was here the interior guard normally sat with his surveillance monitor. Behind his chair was a waiting area with two burnt orange–colored overstuffed chairs and a matching couch. To the left were doors to break and storage rooms. The right side consisted of the wall, still displaying the original murals of romantic country scenes, the colors now faded to irregular pastels, with long windows overlooking the exterior, where an English-style garden had once been. To the rear of the salon and to the left of the couch was a rear door. On the other side was the staircase, which turned once at an angle to the right, leading up to a landing. Around the second floor was a narrow mezzanine that led to the former bedrooms and living quarters. The Grupo Técnico offices were at the immediate top of the landing, where they had a clear view to the large room below.

  The building was set just back from the center of a large square parcel of green. For security concerns, the overgrown trees had been removed along with the shrubbery. Nothing remained of the former luscious garden but a flat expanse of grass broken only by a single asphalt driveway ending in a circle at the front doors. In the rear, to one side, was a helicopter landing pad, occasionally used by Victor Bandeira. On the opposite side of the lot was a long low structure, once a horse stable, that now stored gardening tools.

  The grounds were surrounded in typical Brazilian practice by a high block wall topped first with glass and metal spikes, then with four feet of electrified wire. The building itself was visible from the street only through the oversized ornate automatic metal doors for cars. Beside them was a door for pedestrians while just inside was a sentry box, concealed within the compound.

  Security cameras, with night-vision capability, covered both the exterior and interior. The monitors were m
anned on the first floor twenty-four hours a day. In addition to the sentry there was always at least one guard on foot on the grounds of the mansion and within able to respond on a moment’s notice. Three in all, four if you counted the entrance sentry present during the usual workday. For all this, the security was discreet and nothing to the outward eye brought attention to the company.

  Pedro lived within walking distance of his office near the Quinta da Boa Vista, the park where the historic Imperial Palace was located. This wasn’t the very best part of Rio but it was nice enough for his taste. He disdained the ostentatious lifestyle of some of those he’d grown up with and often found his father’s pretension an embarrassment.

  Pedro had successfully managed to keep surveillance cameras out of the work area and the rear patio, where he and his staff took breaks. César came by from time to time for a security inspection. There was nothing Pedro could say to prevent that.

  For all this the security was not really all that much greater than for many businesses in Rio, where theft was institutionalized. Uniformed armed guards were a common sight and Pedro could have named any number of businesses with significantly greater security.

  Lunch with his father had brought no new information, though perhaps a bit of insight. Pedro’s mother had already told him the truth about his father years before. Even then, it had come as no surprise. He’d known since childhood that his father was senior in the Nosso Lugar cartel in São Paulo, later chefe. His school friends told him, and at first, it had been like being told there was no Papai Noel. He respected and adored his father. To learn he was a criminal had been the cause of more than one school fight.

  In the end, he’d decided that it was of no concern to him. He led his own life, let his father live his. Then, like a thunderbolt, had come the divorce. There’d been some divorces among the parents of other students but it was rare, and frowned upon. The children of such families were taunted.

  Angry, and over his father’s objections, Pedro had dropped out of school. The more the man insisted he return, the more determined Pedro was to stay out. More than once, he’d dared his father to hit him as Brazilian fathers had a right to do but the man resisted, though clearly he’d been tempted. The worst times were at the family house, which his father had kept in the divorce on a day when one of his mistresses was there. These were women younger than Pedro, women who’d given him the “look” as his friends called it, telling him they were available if he was interested.

  It was disgusting. How could his father abandon his wife for such women? To keep them on the side, out of sight, that was tolerable, but this …

  Pedro had been more driven than ever, spending his nights in upscale nightclubs, drinking and smoking too much, indulging in soft drugs, engaging in careless sex, angry, headed for trouble. Finally, his mother had confronted him, persuaded him to return to school, then later, to work for his father.

  “You are his only son,” she said. “You must.”

  “The only son you know about,” he’d answered, his eyes slipping away from hers as he spoke, regretting his words at once.

  Esmeralda hadn’t missed a beat. “You are his only son by his wife and that is what matters.”

  Pedro had consented as much out of curiosity as obedience. Anyway, he was sick of the life he was leading. What, he wondered, did his father really do? Yes, he was a criminal but in Brazil that could mean many things. Were the stories of drugs, prostitutes, and extortion true? His classmates had no doubt. His father said he was a banker. At least that’s where his office was. Pedro had met the president of the republic there. He’d met other important figures as well. Did such men associate with chefes? And why his interest in computers? Could his claim that he wanted Pedro to run a legitimate company be true?

  The only real surprise at the lunch was learning how his grandparents had died and that he’d once had an aunt. He’d been shocked to hear his father speak in that gutter dialogue of the favelas, impressed with the way he shed it so easily and returned to his usual speech. Leaving the house afterwards, he’d wondered which was real. In which language did his father think?

  Renata Oliveira entered his office. “We’re already having trouble with Carnaval. I’m really concerned.” In her early thirties, Renata was a single mother. She was nothing but business in the office. With average looks she was in no danger of turning heads and neither of the two male employees had ever shown an interest in her, for which Pedro was grateful. She was steady and very hardworking.

  “What kind of trouble?”

  She took a chair and scanned her notes. “The trade matching engine code in New Jersey has been updated, and we’re having to take time away from Carnaval to adapt our code.”

  “We’ve done that before.”

  “Yes, but never with so much more that has to be done and very little time. The major problem with Carnaval is we have to wait for the next update to get our revised code in. There’s only one scheduled between now and next Wednesday. There might be more given the problems they seem to be having, but we have only one definite shot and have to hit that mark.”

  “Can we?”

  Renata looked uncertain, then said, “I think so. We’re also busy creating dozens of holding accounts with multiple layers of misdirection through which to funnel the money. But it’s a lot, much more than Carnaval was intended for originally, and we almost can’t have too many of these. I’d feel better if we had hundreds. But I worry about mistakes with that and the coding. Everyone’s tired and going to get even more tired before we are finished. Most of the team has been up since you told us the new priority.”

  “The confusion and activity of the IPO will help to hide us.”

  “Of course, but we can’t depend on that alone.”

  No news there, Pedro thought. “So how’s it coming?”

  Renata looked nervous. “Slowly I’m afraid. But we’re working flat out.”

  “Whatever you come up with will have to do.” His mouth turned dry. “What else?”

  “With the target number you’ve given us we can only get half from the IPO without having the Exchange shutting it down. We’re running analysis to identify the high-volume, highly volatile stocks we need for the non-IPO companies we can exploit through Vacation Homes. Again, we need a lot of them so when we pull out money, it will appear anomalous. We require very specific stocks to make this part work. I could use ten more people.”

  “That’s not possible. But I’m back and will work with you. We’ll make it. You’ll see.”

  Renata nodded, looking doubtful, then returned to her desk and went to work.

  It was times like this when Pedro really felt in charge of the company. At first, Abílio Ramos had been the actual boss. No one had said it, but Pedro understood. He’d set up his father’s gambling operation, even spending time in Costa Rica until he had run afoul of authorities. After that the operation had become fully computerized with operations spread worldwide, serving more as the middlemen for the major online gaming operations. Ramos had done a good job from what Pedro knew, and at first, he’d been a bit in awe of the man.

  Even after Ramos had left Brazil, the two had talked nearly every day and still did before Pedro’s team did anything significant. Pedro’s father required it. “We must be on the same page,” he said.

  Pedro could see the truth of that as what they did was complicated; not just the doing, but the concealing. Yet it still irritated him that he had to check in with Ramos. Now that they were in the final phases of the biggest operation yet he and Ramos communicated every few hours.

  Pedro leaned back in his chair. Ten billion dollars. Was such a sum even possible? He’d expected to work at Casas de Férias, Vacation Homes, for at least another four or five years and anticipated taking perhaps a billion dollars over that time. That had seemed like a lot to him.

  Now to learn he must increase the take ten times and set it up within one week, execute it on a single day, within the window of a few short ho
urs, was almost overwhelming. But he’d been fascinated at the prospect. The systems were in place. They had plenty of experience moving the money and hiding their tracks. And the code his people had devised was elegant, beautiful to watch operate.

  What would taking such an amount do to the world financial markets? Casas de Férias had been created on the assumption that money would be removed from many unrelated transactions, spread over time and distance. Any one company would feel the pinch but the high volume of trading activity, the usual fluctuations in price, would serve to mask what was going on. If anyone suspected what had happened, they’d be a lone voice complaining about it. The Exchange wasn’t going to admit that an operation like Casas de Férias was possible, that their Holy Grail, their servers, had been hacked. Not even if they found the code, not even then would they acknowledge it. No, the beauty of what NL did was that their primary target would ultimately work just as hard to hide what they’d done as they did. It was like burglarizing a mansion knowing the owner would never call the police.

  But Pedro’s gut, his common sense and his experience, told him that $10 billion in a single day was too much, too risky. Even Ramos, so devoted to his father, had expressed reservations. Would the Exchange conceal a loss of such magnitude? Could it even manage to?

  But this wasn’t his concern, Pedro reminded himself. He had his instructions. What rankled was the necessity. He still had no idea what had gone wrong. Ramos had said nothing to him nor had his father but something had. Five years they’d been at this, four of them to set it up, to begin earning, and now this.

  It was someone, Pedro thought. Not code error but human error. It had to be. That was nearly always the way. The fewer people involved with an operation like this, the less likely there’d be a mistake. But they’d never have pulled it off without inside help and that was always the weakest link.