The U.S. Securities and Exchange Commission has filed a market manipulation lawsuit against Valery Maltsev, 36, of Russia. The regulator claims that Mr. Maltsev manipulated 38 stocks by hijacking brokerage accounts of unwitting investors, and made at least $255,532 selling his shares of those companies. (All figures are in U.S. dollars.) The companies identified in the suit include Enterra Energy Trust and Compton Petroleum Corp., both of Calgary.
The case is an emergency action, as Mr. Maltsev has attempted to withdraw $220,000 in proceeds from the scheme out of his account at New York brokerage Genesis Securities LLC. According to the SEC, he has requested that Genesis wire the money to a bank account in Cyprus. The brokerage has not yet processed the request.
The SEC filed its brief suit against Mr. Maltsev on March 15, 2010, in the Southern District of New York. It identifies him as a Russian citizen who lives in or near St. Petersburg. The complaint also names a private company he controls, BroCo Investments Inc., as a defendant.
The scheme, as described by the SEC, began in August, 2009, and continues to the present. With each of the 38 companies, Mr. Maltsev followed a pattern of buying shares in the companies, and then using the hijacked accounts to manipulate them. He first buys shares at the current price, using his on-line brokerage account at Genesis, which is in the name of BroCo. He then uses stolen user names and passwords to intrude into the on-line brokerage accounts of unsuspecting investors, the SEC says. Once into the accounts, he places unauthorized buy orders at prices well above the prevailing market price, and at or near the same time he sells the shares in his own account.
The SEC says losses to investors totalled more than $600,000. In many cases, Mr. Maltsev would sell other shares in a victim's account to finance the unauthorized buying. In addition, the unauthorized trading attracted abnormal attention to the stocks, causing other unwitting investors to buy those companies.
The complaint cites one example in which Mr. Maltsev made a $17,760 profit in 15 minutes using this procedure. On Dec. 21, 2009, he bought shares of AmeriServe Financial Inc., a Pennsylvania bank, at $1.51. Then, using three hijacked accounts at Scottrade Inc., he manipulated the stock to $1.82. He simultaneously sold his shares at prices between $1.70 and $1.80. The account holders suffered $20,355 in losses.
In addition to Enterra, Compton and AmeriServe, the complaint identified the other stocks as: ExpressJet Holdings Inc., Icagen Inc., Catalyst Pharmaceutical Partners Inc., Akeena Solar Inc., American Technology Corp., Comstock Homebuilding Companies Inc., Magellan Petroleum Corp., Amcore Financial, Inc., Majesco Entertainment Company, Akorn Inc., Synthesis Energy Systems Inc., iGo Inc., Biofuel Energy Corp., WPT Enterprises Inc., BMB Munai Inc., China INSOline Corp., Alliance Fiber Optic Products, 8x8 Inc., Active Power Inc., Ante4 Inc., Antigenics Inc., China Direct Industries Inc., EF Johnson Technologies Inc., dELIA*s Inc., Arotech Corp., First M & F Corp., NewBridge Bancorp, Endwave Corp., Rosetta Genomics Ltd., Cybex International Inc., Vestin Realty Mortgage II Inc., Clearfield Inc., Parlux Fragrances Inc., Xerium Technologies and Newcastle Investments Corp.
The SEC is seeking an order freezing all of Mr. Maltsev's assets, and an order that he repatriate any money held at institutions not subject to the jurisdiction of the court. The regulator is also seeking appropriate disgorgement of ill-gotten gains and civil penalties.
Similar case
The case is somewhat similar to that of Aleksey Kamardin, the 21-year-old Florida student who manipulated 17 stocks in 2006. Just like Mr. Maltsev, the SEC claimed that Mr. Kamardin hacked into on-line brokerage accounts to manipulate stocks that he had previously purchased. He then sold the shares, and sent the proceeds to an offshore account in the name of his Russian-born roommate.
One month after the SEC filed civil fraud charges against him, Mr. Kamardin fled the U.S. by flying to Kalingrad, Russia. The SEC later won a default judgement against him, in which a Florida judge ordered him to disgorge $88,045 in ill-gotten gains and to pay a $130,000 civil penalty.
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