Stock scammer gets coal for the holidays
Illicit use of victims' brokerage accounts
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.
The evidence against Grand Logistics appears to mainly be the overwhelming circumstances of each of its trades. The company repeatedly profited from the unauthorized activities of an intruder on each of the compromised systems, according to the SEC filing.
"There is no innocent explanation for the pattern and timing of Gashichev's trading, and the way in which they match up to trades in the intruded accounts," stated the filing. "His trades on 25 occasions always win."
While the SEC has frozen the suspected thief's accounts and demanded the repatriation of funds transfered to the account, they will have more trouble tracking down the actual intruder, the SEC's Greer said.
"It is very difficult to identify and locate the perpetrators of these frauds," she said. "They mask their identities through the only means by which we can track them - their Internet addresses that they use to hack into these accounts."
While the Internet addresses used by the Grand Logistics account to execute trades traced back to Moscow and St. Petersburg, Russia, as well as Amsterdam, Netherlands, they differed from the Internet addresses used by the intruder who compromised the victims' brokerage accounts. The addresses also differed from those used by the legitimate account holders, according to the SEC's court filings.
The difficulty in tracking down the criminals makes prosecution an unlikely option, leaving civil remedies - such as the account freeze - as the best way to punish the fraudster, according to one legal expert.
"Sometimes pursing civil remedies against foreign nationals is actually easier," said James Aquilina, managing director of Stroz Friedberg LLC and a former federal prosecutor. "They don't have the same burden of proof as criminal prosecutions."
Yet, the SEC's Greer is not ready to give up.
"Law enforcement often benefits from the mistakes of those who commit crimes and commit fraud," she said. "They aren't the most careful people in the world, and often their carelessness ends in bringing them to justice."
This article originally appeared in Security Focus.
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