March 8, 2007
SEC Freezes $3 Million in Market Manipulation Scheme
The SEC obtained an asset freeze on the U.S. based account of a bank in Latvia that the Commission alleged was part of a scheme to hack into the accounts of on-line brokerage customers and engage in a market manipulation scheme. The complaint (here) does not identify the defendants, and the U.S. District Court for the District of Columbia granted issued the freeze order. According to the SEC Litigation Release (here) describes what the Commission called a "modern-day, technological version of the traditional pump-and-dump":
The Commission's complaint alleges a complex scheme that combines electronic intrusions into online brokerage accounts with a traditional market manipulation. From at least December 2005 through December 2006, one or more foreign-based unknown traders purchased, through four sub-accounts of an omnibus trading account titled in the name of Relief Defendant JSC Parex Bank and held at Pinnacle Capital Markets LLC of North Carolina, shares in 15 U.S.-based Nasdaq-traded companies. These unknown traders then hacked into unsuspecting investors' online brokerage accounts at seven major online broker-dealers and sold off investors' existing securities holdings. They then used the proceeds to buy shares on the open market of the thinly-traded issuers the unknown traders had previously purchased in their own sub-accounts. This illicit account activity artificially heightened the share price and trading volume for each of the thinly-traded issues and enabled the unknown traders to sell their holdings at a substantial profit, realizing at least $732,941 in ill-gotten gains, and possibly more. The unknown traders also used electronic means to hide their identities and mask the means by which they intruded into accounts.
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