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Illicit use of victims' brokerage accounts

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The US Securities and Exchange Commission put a suspected Russian brokerage-account thief's money on ice last week, after he allegedly used illicit access to people's online portfolios to drive up stock prices.

The SEC charged Grand Logistic SA, a Belize corporation located in Estonia, and its owner Evgeny Gashichev of Russia, with breaking into victims' computers and using the illicit access to their brokerage accounts to drive up stock prices. Between August 28 and October 13, 2006, the illegal scheme made the company at least $353,609, according to an SEC estimate.

Unlike stock spam, which generally results in modest gains for the fraudsters, the illicit use of victim's stock accounts resulted in massive increases, according to the SEC's court filings.

"This is the lazy man's pump-and-dump," Amy J. Greer, district trial counsel for the Philadelphia District Office of the SEC, told SecurityFocus. "It doesn't require them to tout anything."

Stock scams and account intrusion have become increasingly popular schemes for cybercriminals intent on turning a profit. An increase in spam e-mail emanating from bot nets has partially been due to bulk email messages touting stocks as part of a typical scheme to drive up prices. Studies have shown that stock spam can result in an increase in stock price, bumping up the value of volatile over-the-counter stocks by 1.5 to five per cent.

The U.S. Securities and Exchange Commission prosecuted its first account intruder in 2004, when 20-year-old Van T. Dinh was found guilty of compromising a victim's computer and using the account to buy Dinh's $90,000 in "put" options that had become worthless. In October, two US brokerage firms - TD Ameritrade and E*Trade Financial -announced that such scams resulted in more than $22 million in losses in the third quarter of 2006.

In the latest scheme, labeled by the SEC as a "high-tech version of a 'pump-and-dump' manipulation scheme," Grand Logisitics allegedly bought stock in 21 different companies and then used buy orders placed through compromised accounts to drive up the price of those firms' stock.

"These purchases through the intruded accounts created buying pressure and the false appearance of legitimate trading activity, which caused the price of the targeted stock to greatly increase," the SEC stated in court filings. "Once the price had increased, Gashichev then sold, at a profit, the shares he had earlier purchased in the Grand Logistic account."

The scheme was lucrative, according to the SEC.

Choosing thinly-traded penny stocks--in every case the stock traded as less than $1.50 a share - Gashichev allegedly purchased anywhere between 6,000 and 71,000 shares of the targeted stock. The suspect then used access to compromised accounts at E*Trade Securities, TD Ameritrade, Scottrade and other online brokerages to sell existing assets and use the proceeds to buy the targeted stock, according to the SEC filings. By the time the suspect sold the stock, typically on the same day, the price had increased anywhere from four per cent to 158 per cent, the SEC stated.

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