When running a botnet to spam millions with emails touting your illegal stock-scalping scheme, it's rarely a good idea to include a US Securities and Exchange Commission lawyer's work address on the mailing list.
Alas, these kinds of oversights sometimes need to be learned the hard way, as allegedly is the case of two Texas men who recently settled a civil lawsuit with the SEC.
Darrel Uselton and his uncle Jack Uselton were charged with fraud by US regulators in 2007 based on claims they orchestrated a series of spam email campaigns using an array of botnets. The Useltons allegedly flooded inboxes across the country with spam emails pitching near-worthless penny stock using baseless price projections and other unfounded claims.
According to the Commission's complaint, the Useltons bilked investors out of more than $4.6m between May 2005 and December 2006 with their fraudulent activities. The SEC said the Useltons typically received unrestricted shares from penny-stock companies for little or no money in return for purported promotional activities.
The SEC pins the swindle as scalping - which it defines as purchasing a security for oneself, recommending that same stock to another (typically posing as a "market specialist"), then immediately selling the stock when the market price goes up following the recommendation. Running a botnet is also a big no-no.
The Useltons' scheme, as the SEC puts it, allegedly began to "unravel" when a Commission enforcement attorney received one of the email messages at work with the subject line "Experts are jumping all over this stock..." Shortly after, the attorney's inbox was filled with them.
Without admitting or denying the SEC's allegations, the Useltons agreed to be permanently banned from selling penny stock in the future. Out of $4.2m seized by authorities, Darrell Uselton will pay more than $2.8m in disgorgement and prejudgement interest. The SEC will also collect a $1m penalty.
Darrel Uselton still faces charges for engaging in organized criminal activity. ®