Botnet Pump And Dump Ends With Prison

May 14, 2013

Starting as early as May 2008 and continuing through February 2009, Christopher Rad, Cedar Park, TX, James Bragg, Chandler, AZ, Doyle Scott Elliott, James Bragg, and others conspired with stock promoters in a pump and dump scheme that targeted about 39 stocks, including ticker symbols RSUV, QRVS, VSHE, SVXA, and ASIC. 

Botnets

After the stock promoters were on board with the scheme, spammers and hackers were recruited.  Using the expertise of the online artistes, computer viruses were transmitted to targeted computers in an effort to hijack the remote system, thus creating a "botnet." Using command and control servers located, among other places, in Russia and China, the conspirators infected computers in New Jersey, Europe, Russia, and elsewhere. Hoping to dupe the unsuspecting recipients into a buying frenzy for the subjects shares, the conspirators used the botnets to send spam touting the stocks. Rad paid the spammers over $1.4 million during the conspiracy's 22 months of operations.

Hacked Accounts

In furtherance of this scheme, third parties' brokerage accounts were hacked into and then utilized to purchase shares in the manipulated stocks held by the conspiracy.  The shares were purchased through funding accomplished by the unauthorized liquidation of securities in the compromised accounts.  Not only were the targeted accounts used to fuel the purchases of the pumped securities, but they helped to create the false appearance of increased activity and volume for the subject shares.  

In addition to using the hacked accounts, the conspirators also traded the subject stocks among themselves; in some instances, the conspirators' trades occurred just prior to the spam campaign in order to present those targeted with the appearance of rising activity in the touted stocks. In one instance, Rad and his co-conspirators held more than 70 percent of the outstanding shares in a stock, yet fraudulently disclosed in their mailings that that they held only about 20 percent.

Legal Opinion

In addition to the manipulated trading, stock promoter Elliott falsified documents submitted to attorneys in order to obtain legal opinions for the purpose of obtaining millions of freely-traded shares based upon the misrepresentation that certain conditions permitting the lifting of restrictions had been satisfied. 

Falling Dominoes Defendants

On October 20, 2010, Bragg pleaded guilty in federal court in Trenton, NJ to securities fraud and transmission of spam through falsely registered e-mail addresses.

On March 21, 2011, Rad was arrested by FBI special agents on a federal Indictment charging him with one count of conspiracy to commit securities fraud and transmit multiple commercial e-mail messages with fraudulent information. Rad purportedly made $2.8 million from the conspiracy.  READ the Full-Text Rad Indictment

On July 24, 2012, Elliot pleaded guilty to securities fraud and transmission of spam through falsely registered e-mail addresses.

Following a nine-day jury trial in federal court in Trenton, NJ, on November 30, 2012, Rad was convicted of:
  • conspiracy of furthering securities fraud by transmitting spam using false e-mail headers and transmitting spam using falsely registered e-mail addresses; 
  • conspiracy to transmit spam by gaining unauthorized access to computers and using those computers to transmit spam; and 
  • four counts of transmission of spam by gaining unauthorized access to computers and using those computers to transmit spam.
On May 13, 2012, Rad, 44, was sentenced to 71 months in prison, five years of supervised released, and ordered to pay a $30,000 fine. The amount of restitution will be determined in the future. 

Bill Singer's Comment

The Indictment notes on pages 16-17 the following exchange between Rad and one of his hacker recruits:

[D]efendant RAD warned D.S. not to tell him about the bots:

Rad: if you ever tell me you use bots I will block you
Rad: I will go to jail for that
Rad: you are f_cking stupid
D.S.: ohh sorry
D.S.: man
Rad: tell your friend no bots 
D.S.: never tell (about) this again

Notwithstanding the fact that D.S. told RAD about the use of botnets, seconds later defendant RAD again engaged D.S.'s services for another spam campaign . . .

As BrokeAndBroker often notes, whatever the message that regulators and prosecutors think is getting sent to Wall Street about engaging in fraud, it's just not getting delivered -- or, if it is, it's apparently not getting read and understood.  Time and time again, we witness the taped phone conversations and discoverable emails of criminal defendants confirming their awareness of the illegality of their conduct, BUT, nonetheless, they go about their nefarious deeds with the apparent belief that they have come up with an undetectable solution -- yet another iteration of the perfect crime, which, obviously, isn't and wasn't.

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