Texas ringleader of pump-and-dump scam arrested | SC Media
Architecture, Application security, Threats, Cybercrime, Malware

Texas ringleader of pump-and-dump scam arrested

March 22, 2011

Federal agents have arrested the alleged ringleader of an international securities fraud gang that used hackers, botnet operators and email spam to artificially drive up the value of stocks, the Department of Justice (DoJ) said Thursday.

Christopher Rad, 42, of Cedar Park, Texas, was arrested by FBI agents Thursday on one count of conspiracy to commit securities fraud and transmit email messages containing fraudulent information for allegedly orchestrating a pump-and-dump scheme to manipulate stocks.

Pump-and-dump scams generally involve the manipulation of the price and volume of a particular stock so the shares can later be sold at an inflated price. False and misleading spam typically is used to tout the stock and encourage unwitting individuals to buy it, which also drives up the share price. Perpetrators then profit by “dumping,” or selling, their shares at the newly inflated prices.

Beginning as early as November 2007 through February 2009, Rad allegedly acted as a middleman between stock promoters seeking to inflate the value of stocks and computer experts who used various techniques to do so. As part of the scheme, hackers, including at least one in Russia, were hired to distribute viruses and create a botnet to distribute spam promoting manipulated stocks.

The hackers also broke into third-party brokerage accounts, liquidated the stocks and used the balance to purchase shares of the manipulated stocks, the DoJ said. In doing so, the stocks looked to be more desirable than they actually were.

“Rad also agreed with others to trade the manipulated stocks between themselves, creating the impression that the stocks were active,” the DoJ said in a statement. “In some instances, this was done prior to the spam campaigns so that recipients of the spam would perceive active trading in the promoted stocks.”

One other individual has been charged in connection with the scam. James Bragg, 42, of Chandler, Ariz., pleaded guilty in federal court this past October for his role in hiring botnet operators and engaging in mass email campaigns to pump up the value of stock.

For the conspiracy charge, Rad is facing a maximum penalty of five years in prison and a $250,000 fine.

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