Pumping And Dumping Is Much Faster When You Can Do Both Yourself With Hacked Accounts

from the much-more-efficient-that-way dept

Fri, Jan 26th 2007 10:55am — Mike Masnick

Back during the first dot com bubble, the stock pump and dump scam worked by buying some stock, and then sending out a bunch of spam promoting the stock, then quickly selling your own stock. While a lot of the new deluge of spam seems to be trying that same thing (and, apparently, it's working), some organized crime groups apparently found a much more efficient way of doing things. As mentioned late last year, some scammers hacked a bunch of accounts at various popular online brokers for use in a pump and dump scam. The Washington Post has some more details on exactly how it worked, as the SEC has brought charges against one man involved in the scam. It's basically exactly what you'd expect. The guy bought a bunch of a certain penny stock with his account. Then logged into a bunch of other accounts, sold all their stock and used the proceeds to buy the stock that he had just purchased, pumping up the price. Then, quickly sell the stock in his own account and cash out. The article details one example of this, where he cleared about $13,000 in less than 2 hours.

Two additional interesting things come out of the article. The first is that at least some of the brokerages seemed to catch on to the fraud pretty quickly (though, not quickly enough). In the example case given, Charles Schwab catches onto the fraud less than 10 minutes after one of their accounts is involved, and blocks another transaction. The other interesting point, is that the Washington Post followed up with a CEO at one of the companies whose stock was pumped and dumped. As we've noted in the past, it's often quite a hassle for those companies, but in this particular case, it's now made it very difficult, as the fraud helped blow a business deal, and at least one of the brokerages will no longer let anyone trade that stock. Oh yeah, as for the man being charged by the SEC? He fled the country and no one actually seems to know where he is. The money is also long gone.

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6 Comments

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misanthropic humanist, 26 Jan 2007 @ 1:09pm

hmmm
I only vaguely understand this, but it's interesting. Surely the chap is guilty of computer misuse, identity fraud and theft even before he embarked on the pump-and-dump scam. It seems very sophisticated. One wonders if this isn't something quite unique and unlikely to happen again.

Question for the stock market wizards. Could the trading system recognise this as an anomoly and freeze the accounts ? Or is this intrinsically what the system is designed to do when traders operate.

Would a time limit between trades help in any way?
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SPR, 26 Jan 2007 @ 1:35pm

What makes the authorities think he was in this country in the first place?
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Justin Pakosky, 26 Jan 2007 @ 1:40pm

good idea, but
the main problem with this is that sometimes there are massive mounts of money being put into a penny stock(for legit reasons such as a big discovery or a take over) and if a brokerage blocked it when it was real not very many people would be with that brokerage for long. especially conceding the gains that would be blocked.

p.s. buy ADVR:OTC .032 could it hit 23.75 a share
i get these faxes all the time.
(but not with ADVR i really own that one lol)
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another, 26 Jan 2007 @ 1:52pm

Wow
Lets take a look at how many regulations were possibly violated by the trading companies. Hmmm, Know Your Customer, Anti-Money Laundering, Failure to secure customer, failure to provide general oversight. All of the trading companies involved will be fined, probably within 6 months or so.

This is just so lame. If people really understood how much crap like this really goes on, they would just take their money and bury it in their back yard (of course, then maybe AOL would try to dig it up looking for more treasure.)
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Michael, 26 Jan 2007 @ 2:10pm

Unacceptable
My first reaction was just shock that someone would do something that would be so easily traceable (until you escape the country), but then my anger turned from the boy to the brokers. How were these brokers accounts logged into? The criminal was able to access brokers accounts then pull up several individual's users files to make the trades.

I had recently been thinking about beginning to use online trading instead of going in to talk with a broker. Will I now? I doubt it if they cannot prove they have changes the security measures there is no way I will trust my money and identity to them. Heck if they can't protect their own files how will they protect mine.
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|333173|3|_||3, 29 Jan 2007 @ 4:36pm

Re: Unnaceptable
teh brokers accounts were problalby logged into from the net, simply by using thier log in page and entering phised data. simple, and not really thier fault. If the crook was stupid enough to be in the US then, he won't be now.
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