US authorities have charged three Indian nationals for an elaborate pump-and-dump scheme that used hijacked brokerage accounts to manipulate the prices of 14 securities including Sun Microsystems and put options for Google.
The men were charged criminally in a 23-count indictment for conspiracy, securities fraud, wire fraud, aggravated identity theft and computer fraud. They were also sued in civil court in connection with the alleged conspiracy, which netted the perpetrators $121,500 in profit and cost victims a combined $875,000.
Each count for wire fraud and securities fraud carries a maximum of 25 years in prison. Counts for conspiracy and computer fraud carry sentences of up to five years each. The civil action seeks preliminary and permanent injunctions, disgorgement of proceeds and monetary penalties.
This is the fourth account-intrusion case the Securities and Exchange commission has brought since December, each involving defendants based in overseas locations including Estonia and Latvia and now Hong Kong and Malaysia. The computers used in the most recent scheme, which lasted from February to December, 2006, were based in Thailand and India.
According to court documents, Jaisankar Marimuthu, 32, Chockalingam Ramanathan, 33, and Thirugnanam Ramanathan, 34, repeatedly hijacked the online brokerage accounts of unwitting investors and purchased at least 14 securities at above-market prices. Having driven up the stock prices, the men then sold positions of the same securities, which had been purchased with their own online accounts prior to the intrusions.
Two men were were arrested in Hong Kong in December and January. Chockalingam Ramanathan remains at large.
In one instance, Marimuthu used his own E*Trade account to buy almost 23,000 shares of Sun at prices of $4.99 to $5.01 each during after-hours trading on Aug. 31. The following morning, one of more of the defendants used compromised accounts to make unauthorized purchases of about 24,000 shares. Minutes later, Marimuthu sold the 23,000 shares purchased with his E*Trade account, netting him a little more than $1,000 in ill-gotten gains. The trio manipulated Google put options and 12 other thinly traded securities in a similar manner, according to the criminal and civil complaints.
The alleged scheme not only victimized investors, it also harmed the holders of the accounts that were breached. In one instance an account holder who left for five-day fishing trip to Alaska with $180,000 in his online purse returned to a $200,000 deficit. ®