All should check your accounts: U.S. Charges Indian Hackers In Stock Manipulation Scheme
Both the SEC and the Justice Department went after three Indian hackers who allegedly conspired to manipulate the stock prices of 14 companies, including Google and Sun.
By Sharon Gaudin
InformationWeek
March 12, 2007 03:28 PM
The Securities and Exchange Commission filed a civil suit on Monday against three hackers from India for allegedly conspiring to manipulate the prices of at least 14 securities, including Sun Microsystems(SUNW) and Google, through the unauthorized use of other people's online brokerage accounts
At the same time, the U.S. Department of Justice announced that a federal court in Nebraska unsealed a 23-count indictment against the same three people.
Jaisankar Marimuthu, Chockalingam Ramanathan, and Thirugnanam Ramanathan are the three Indian nationals being charged and sued.
"Hackers who prey on American investors -- no matter what continent they're operating from -- are meeting their match with powerful adversaries in the Department of Justice and the Securities and Exchange Commission," SEC Chairman Christopher Cox said in a written statement. "We will go anywhere on earth to stop these thieves and hold them accountable."
This is the fourth account intrusion case that the SEC has brought forth since December. The other three involved defendants in Estonia, Latvia, Hong Kong, and Malaysia.
According to the commission's complaint, between July and November, the three defendants bought options on 14 securities, including Sun and Google. They then allegedly repeatedly hijacked the online brokerage accounts of unwitting investors using stolen user names and passwords. Then, without the account holders' knowledge and using the victims' own money and accounts, the defendants allegedly bought options on these 14 stocks, driving the prices up. Then they sold the options they had bought with their own money, gaining more than $121,500 in the process.
These stock manipulation schemes are the result of phishing scams, says Paul Moriarty, director of content security at TrendMicro. Phishers lure online investors to malicious and fraudulent Web sites that purport to be E-Trade or other online brokerage sites. Thinking they're actually on an official site, they make trades, putting in their account numbers, along with personal and financial information. The phishers then sell this information, and the buyers then can use it to perpetrate a stock manipulation scam.
The SEC reports that one victim had $180,000 cash and equity in his online brokerage account before he took a five-day fishing trip. When he returned to check his account, he found that he had a negative $200,000 balance.
"They're manipulating prices with your money and then they just look like an innocent bystander who just happened to cash in at the right time and make money," says Moriarty. "The SEC is on the right track here. They're looking into who traded what when and who is making money here."
Last week, the SEC suspended trading on 35 companies that have been touted in recent spam campaigns. The trading suspensions -- the most ever aimed at spammed companies -- were ordered because of questions regarding the adequacy and accuracy of information about the companies.
The suspensions are part of what the SEC is calling a stepped-up effort -- code named Operation Spamalot -- to protect investors from the burgeoning number of pump-and-dump e-mail schemes that are buffeting the Internet. Pump-and-dump refers to potentially fraudulent spam that hypes penny stocks. The spammers invest in low-cost stocks before the spam campaign begins. Once people are duped into buying the stocks, the share prices go up and the spammers sell off and cash in. The sell-offs, though, usually drive the stock prices down, and the other investors lose their shirts.
While the SEC's crackdown on pump-and-dump trading is a different scheme than the one the three Indian men have been charged with, both scams are focused on taking advantage of online users and manipulating stocks.
"I thought the really interesting thing today is that we're not just talking about penny stocks but we're into the blue chips," says Moriarty. "The bad guys have a whole new scheme here."
"It is particularly troubling that, aside from profiting from their scheme, the defendants caused over $875,000 in damage to the brokerage firms whose customers' accounts were compromised," said Linda Thomsen, director of the SEC's Division of Enforcement, in a written statement.
Marimuthu was arrested on Dec. 20 by Hong Kong police on charges of computer fraud, money laundering, and possession of equipment to make a false instrument. These Hong Kong charges concern crimes similar to those charged in the U.S. indictment, according to the SEC. Thirugnanam Ramanathan was arrested by authorities in Hong Kong on Jan. 26 pursuant to a U.S. provisional arrest warrant. Chockalingam Ramanathan still is at large.
The U.S. government will seek the extradition of the defendants to face charges in Nebraska.
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