An Arizona man described by the FBI as a computer specialist pleaded guilty Oct. 20 to participating in a scheme to artificially inflate stock in a pump and dump scam.
James Bragg of Chandler, Ariz., pleaded guilty to a count of conspiracy to commit securities fraud and fraud in connection with electronic mail-in this case, spam messages containing falsified information. According to his plea, Bragg agreed with others to try to manipulate the price and volume of particular stocks in order to sell them later at a higher price, a scheme known as "pump and dump."
"Securities fraud committed through computer intrusions is an imminent and growing threat," said Michael B. Ward, special agent in charge of the FBI's Newark Field Office, in a statement. "Every time we make an arrest in a case like this and disrupt or dismantle such schemes, it levels the playing field for honest investors and restores faith in our markets. I thank the Securities Exchange Commission and the U.S. Attorney's Office on our collaborative efforts to confront this threat."
The scheme began as early as November 2007 and continued through February of 2009. According to information filed in federal court in Trenton, N.J., Bragg was hired by an individual referred to in information filed in federal court in Trenton as "C.R." to promote certain stocks. To help with this, Bragg spammed out e-mails to promote the stocks and falsified information so that the e-mails could not be traced to him or C.R. He also altered the contents of the e-mail to avoid spam filters, authorities said.
From there, Bragg hired hackers and spammers, including an individual in Russia referred to as "B.T." The cyber-criminals created a botnet, which was then used to promote the stocks. Some of the targeted victim-investors were residents of New Jersey, authorities said.
The hackers also hacked into the brokerage accounts of third parties, liquidated the stocks in those accounts, and then used those accounts to purchase shares of the manipulated stocks. Bragg also agreed with C.R. to trade the manipulated stocks. All this was done to create the impression the stocks were active, authorities said. In some instances, this was done before spam campaigns were initiated so that recipients of the spam would perceive active trading in the promoted stocks.
In addition, a stock promoter who was also part of the conspiracy falsified documents submitted to attorneys in order to obtain opinion letters to secure millions of freely trading shares in the stocks. The letters certified that trading restrictions on shares of the manipulated stocks could be lifted because certain conditions set forth in securities regulations were met, authorities said.
"The conspirators may have updated the fraud with technology, but strip away the army of computers and this is a classic pump and dump scheme," said U.S. Attorney Paul Fishman, in a statement. "As criminals increasingly use new technology to commit crimes, federal law enforcement will continue to rely on equally sophisticated methods to track and thwart evolving schemes."