January 14, 2010
Trading Stocks - The Latest Bold Stock Trading Scam
Waldemar Puszkarz asked:
It has recently been revealed that a few so-called clever individuals scammed quite a few other individuals in a stock scam operation. It was a high tech operation involving hackers and the people affected by it had apparently no clue of what was going on for quite a while. At least 60 people, probably more, were victimized, their brokerage accounts having been broken into and their funds having been used for trading by the perpetrators.
The leader of the group of hackers, a 35 year old man, is from India. He was sentenced to two years in prison by a U.S. judge for starting the whole scheme. He pleaded guilty and agreed to pay a restitution and to cooperate. He worked with two other perpetrators who have also been indicted in the overseas conspiracy to defraud U.S. investors.
It is not known how exactly this scam was conducted, but here is one plausible scenario.
1. Suppose that Joe Doe owns an account at Ameritrade or at some other online broker.
2. Suppose that the hackers get Joe Doe’s account information along with the same information of 59 other people just like him.
3. Suppose that the hackers purchase 100,000 shares of company ABC at 2 cents a share using their own funds, which would cost them only $2000 plus commission and could likely push the price of the stock to 4 cents a share and alert many penny stock fortune seekers that there is action in the stock. They might now join the perpetrators and unwittingly inflate the price of the stock even more, to, say, 5 cents a share.
4. Suppose that the hackers use their 60 infiltrated accounts to purchase 5000 shares in each of them, now at 5 cents a share. The owners of hacked accounts are not likely to notice this quickly as it’s only a $250 transaction and it’s unlikely to be flagged as unusual.
5. Suppose that this sudden coordinated purchase of 300,000 shares at 5 cents a share pushes their price to 10 cents a share, which is quite likely considering others pumping this stock at this point as well.
6. Suppose that the hackers sell their original 100,000 shares, purchased at 2 cents each, for 10 cents each. Notice that as a result of this operation, they would have gotten $10,000 on the initial investment of $2000 minus commissions that are not particularly significant, being probably only a few hundred dollars that would mostly come from the compromised accounts, anyway.
7. Now, since a lot of shares would have been sold, and there was really no fundamental reason for this hypothetical penny stock to rise, its price is likely to drop back to 2-3 cents a share.
8. The whole operation can be repeated again until the owners of the hacked accounts eventually figure out that something wrong is going on here.
But by then they might have lost a grand or two. Eventually though, hackers usually get caught for sooner or later, greed leads to the downfall of such operations. Had those hackers stopped after one or two pump and dump schemes like that, they might have escaped the long arm of justice. Perhaps… Fortunately, this was not the case.
Antwan
It has recently been revealed that a few so-called clever individuals scammed quite a few other individuals in a stock scam operation. It was a high tech operation involving hackers and the people affected by it had apparently no clue of what was going on for quite a while. At least 60 people, probably more, were victimized, their brokerage accounts having been broken into and their funds having been used for trading by the perpetrators.
The leader of the group of hackers, a 35 year old man, is from India. He was sentenced to two years in prison by a U.S. judge for starting the whole scheme. He pleaded guilty and agreed to pay a restitution and to cooperate. He worked with two other perpetrators who have also been indicted in the overseas conspiracy to defraud U.S. investors.
It is not known how exactly this scam was conducted, but here is one plausible scenario.
1. Suppose that Joe Doe owns an account at Ameritrade or at some other online broker.
2. Suppose that the hackers get Joe Doe’s account information along with the same information of 59 other people just like him.
3. Suppose that the hackers purchase 100,000 shares of company ABC at 2 cents a share using their own funds, which would cost them only $2000 plus commission and could likely push the price of the stock to 4 cents a share and alert many penny stock fortune seekers that there is action in the stock. They might now join the perpetrators and unwittingly inflate the price of the stock even more, to, say, 5 cents a share.
4. Suppose that the hackers use their 60 infiltrated accounts to purchase 5000 shares in each of them, now at 5 cents a share. The owners of hacked accounts are not likely to notice this quickly as it’s only a $250 transaction and it’s unlikely to be flagged as unusual.
5. Suppose that this sudden coordinated purchase of 300,000 shares at 5 cents a share pushes their price to 10 cents a share, which is quite likely considering others pumping this stock at this point as well.
6. Suppose that the hackers sell their original 100,000 shares, purchased at 2 cents each, for 10 cents each. Notice that as a result of this operation, they would have gotten $10,000 on the initial investment of $2000 minus commissions that are not particularly significant, being probably only a few hundred dollars that would mostly come from the compromised accounts, anyway.
7. Now, since a lot of shares would have been sold, and there was really no fundamental reason for this hypothetical penny stock to rise, its price is likely to drop back to 2-3 cents a share.
8. The whole operation can be repeated again until the owners of the hacked accounts eventually figure out that something wrong is going on here.
But by then they might have lost a grand or two. Eventually though, hackers usually get caught for sooner or later, greed leads to the downfall of such operations. Had those hackers stopped after one or two pump and dump schemes like that, they might have escaped the long arm of justice. Perhaps… Fortunately, this was not the case.
Antwan
