The US Securities and Exchange Commission accused a Russian man of earning more than $255,000 in illegal stock sales by using hijacked brokerage accounts to artificially manipulate the price of shares in more than three dozen companies.
Valery Maltsev used a legitimate account to buy positions in 38 thinly traded stocks, and then use compromised brokerage accounts to buy or sell huge numbers of the same companies, agency attorneys alleged. The 36-year-old resident of St Petersburg, Russia would then turn around and sell his holdings at a sizeable premium, according to a lawsuit filed in US District Court in Manhattan.
The scheme earned at least $255,532 from August to December at a cost of $603,000 to broker-dealers, which had to reimburse customers. Maltsev, who is the president and only officer of a company called BroCo Investments, has tried to withdraw $310,000 out of his account at Genesis Securities and have the money wired to a bank in Cyprus. Genesis has not yet processed the requests.
The lawsuit seeks an order freezing the Genesis accounts and requiring Maltsev to repay the lost funds.
To appreciate the havoc the scheme wreaked on some stocks, consider the following: Between December 1 and December 20, AmeriServe Financial (ticker ASRV) traded an average of about 11,300 shares per day. Then on December 21 - the same day Maltsev allegedly executed his manipulation scheme - trading volume skyrocketed to 277,567 shares, thanks largely to purchases made by three compromised accounts from Scottrade.
In less than a half-hour's time, Maltsev was able to earn $17,760, first by driving up the price of the stock and selling 6,500 shares at an artificially high price, and then, once the sell-off began, selling another 80,000 short positions he had at artificially low prices. Short positions are trades that bet a security will decrease in value.
"The unauthorized purchase and sale orders in the intruded accounts during the ASRV intrusion resulted in losses of $20,355.63 to the holders of the intruded accounts," the complaint states. "In addition, Maltsev's manipulative trading caused damage to market participants who purchased shares of ASRV during the intrusion period."