SEC Obtains Order Freezing $3 Million in Proceeds of Suspected
Foreign-Based Account Intrusion Scheme
FOR IMMEDIATE RELEASE
2007-33
Washington, D.C., March 7, 2007 - The Securities and
Exchange Commission today announced that on Tuesday, March 6, 2007,
it won an emergency court order freezing assets in a Latvian-based
bank's trading account being used to conduct a hi-tech market
manipulation scheme. The Commission's enforcement action is the
third filed in as many months involving market manipulation schemes
conducted through online account intrusions.
In an emergency federal court action filed in the United States
District Court for the District of Columbia, the Commission alleged
that the account, maintained by relief defendant JSC Parex Bank
based in Riga, Latvia, had been used by one or more unknown offshore
sub-account holders to launch a "pump and dump" manipulation scheme
involving the stocks of fifteen different public companies. As part
of the scheme, the unknown traders hacked into unsuspecting
investors' online brokerage accounts at seven different brokerage
firms, selling off investors' positions and using the proceeds to
pump up the market for the stocks subject to the scheme. Through
this technique, the unknown traders generated at least $732,941 in
illicit profits and cost U.S. brokerages some $2 million in losses.
In response to the Commission's motion, the Court issued a
temporary restraining order freezing the defendants' fraudulent
profits held in JSC Parex's omnibus trading account.
SEC Enforcement Deputy Director Peter Bresnan stated, "In today's
global economy, where con artists can misuse computer technology to
defraud innocent U.S. investors from far beyond our borders,
freezing the unlawful profits of those behind these intrusion
schemes is especially important. Working to prevent injury to U.S.
investors from intrusions into online brokerage accounts is a top
priority of the Enforcement Division."
"Using sophisticated computer hacking and identity theft
techniques to break into the accounts of innocent online brokerage
customers," said SEC Office of Internet Enforcement Chief John Reed
Stark, "these perpetrators effectively cut out the middleman of the
old fashioned pump-and-dump scheme, eliminating phony stock
promotions, creating their own artificial trading demand, and
consummating their frauds in as little time as a couple of hours."
The Commission's complaint alleges a complex scheme that combines
electronic intrusions into online brokerage accounts with a
traditional market manipulation. From at least December 2005 through
December 2006, one or more foreign-based unknown traders purchased,
through four sub-accounts of an omnibus trading account titled in
the name of Relief Defendant JSC Parex Bank and held at Pinnacle
Capital Markets LLC of North Carolina, shares in 15 U.S.-based
Nasdaq-traded companies. These unknown traders then hacked into
unsuspecting investors' online brokerage accounts at seven major
online broker-dealers and sold off investors' existing securities
holdings. They then used the proceeds to buy shares on the open
market of the thinly traded issuers the unknown traders had
previously purchased in their own sub-accounts. This illicit account
activity artificially heightened the share price and trading volume
for each of the thinly traded issues and enabled the unknown traders
to sell their holdings at a substantial profit, realizing at least
$732,941 in ill-gotten gains, and possibly more. The unknown traders
also used electronic means to hide their identities and mask the
means by which they intruded into accounts.
The Commission's complaint further alleges that the unknown
traders violated Section 17(a) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder and seeks permanent injunctions against future violations
by the unknown traders, and disgorgement of all the unknown traders'
ill-gotten gains, including prejudgment interest and civil
penalties. The complaint also seeks a final judgment requiring Parex
to disgorge any assets it may have obtained as a result of the
unknown traders' scheme.
The SEC's Office of Investor Education and Assistance has issued
an investor alert, which is available on the SEC's website, that
provides tips for avoiding becoming a victim of an intrusion. See
http://www.sec.gov/investor/pubs/onlinebrokerage.htm.
The Commission acknowledges the assistance of the NASD in this
matter.
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For more information, contact:
John Reed Stark
Chief, Office of Internet Enforcement
U.S. Securities and Exchange Commission
(202) 551-4892
Additional materials:
Litigation Release No. 20030
