Organizer of International Securities Fraud Ring Perpetrated Through Botnets and Stock Manipulation Convicted
|U.S. Attorney’s Office November 30, 2012|
TRENTON, NJ—A federal jury today convicted a central organizer of a conspiracy to commit securities fraud that was perpetrated through the use of botnets located throughout the world, U.S. Attorney Paul J. Fishman announced.
The jury returned the guilty verdicts against Christopher Rad, 44, of Cedar Park, Texas, following a nine-day trial before U.S. District Judge Joel A. Pisano in Trenton Federal Court. Rad was convicted of six counts, including: (1) conspiracy of furthering securities fraud by transmitting spam using false e-mail headers and transmitting spam using falsely registered e-mail addresses; (2) conspiracy to transmit spam by gaining unauthorized access to computers and using those computers to transmit spam; and (3) four counts of transmission of spam by gaining unauthorized access to computers and using those computers to transmit spam.
Rad’s co-conspirators, Doyle Scott Elliott and James Bragg, previously pleaded guilty on July 24, 2012 and October 20, 2010, respectively, to securities fraud and transmission of spam through falsely registered e-mail addresses. Elliott will be sentenced on May 2, 2013. Bragg is awaiting a sentencing date.
According to documents filed in this case and evidence at trial:
Stock promoters in a scheme to manipulate the price and volume of approximately 39 stocks, including RSUV, QRVS, VSHE, SVXA, and ASIC (the “manipulated stocks”), engaged Rad in order to generate a market for the stocks so that they could dump them for a profit—a practice known as a “pump and dump” scheme. The scheme began as early as May 2007 and continued through February 2009. After conspiring with the stock promoters, Rad sought out and engaged “mailers,” which the evidence demonstrated were actually “spammers.” He then sent the spammers the precise language to include in their spam campaigns.
The spammers included two individuals who distributed spam through botnets. To create a botnet, viruses were sent out to infect computers around the world and create a virtual army of hijacked computers. The spammers then caused the botnets to distribute spam to promote the manipulated stocks. Infected computers included some found in New Jersey, Europe, Russia, and elsewhere. The botnet, in turn, was controlled from command and control servers located overseas, including in Russia and China.
Rad, who went by the alias “billy_sack,” communicated with the spammers by Skype, in most instances knowing them only by their aliases, such as “breg,” “ega,” “billybob6001,” and “be3ez12.”
Rad paid the spammers over $1.4 million during the 22 months of the conspiracy. These payments were made through e-Gold and money wires. Payments intended for a botnet operator in Russia were made through at least eight different countries. The wire instruction notations included false information such as payments for “Dell Monitors,” “touch panels,” and “transportation services.”
Rad also agreed with others to engage in bad faith purchases of RSUV to create the impression that the stock was active. This was done during the course of the spam campaigns of RSUV so that recipients of the spam would perceive active trading in the stock.
Doyle Scott Elliott, 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 traded shares in those stocks. Those letters certified that trading restrictions on shares of the manipulated stocks could be lifted because certain conditions set forth in securities regulations were met.
Finally, Rad and his co-conspirators put disclaimers in their mailings but misrepresented the amount of stock that would be dumped into the market. In one instance, Rad and his co-conspirators held more than 70 percent of the outstanding shares in a stock yet disclosed only that they held about 20 percent.
The investigation revealed that at the same time that Rad was engaging spammers to facilitate his pump and dump scheme, hackers hacked into the brokerage accounts of third parties, liquidated the stocks in those accounts, and then used those accounts to purchase shares of some of the manipulated stocks. This created trading activity in the manipulated stocks and increased the volume of shares being traded, further creating an impression that the manipulated stocks were worth purchasing.
Each count of conviction carries a maximum potential penalty of five years in prison and a $250,000 fine or twice the gross gain or loss from the offense. Sentencing is currently scheduled for April 4, 2013.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, with the investigation leading to today’s guilty verdicts. He also thanked the U.S. Securities and Exchange Commission’s Division of Enforcement, led by Director Robert Khuzami.
The government is represented by Assistant U.S. Attorney Andrew S. Pak of the U.S. Attorney’s Office Computer Hacking and Intellectual Property Section and Erez Liebermann, Chief of the Computer Hacking and Intellectual Property Section.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.