Wednesday, March 23, 2011

Fraudster uses Hackers and Spammers in "Pump and Dump" securities scam

It is quite common to read about circular trading by small groups of stock brokers to pump up the price of a stock which they later dump at a sizeable profit. Many small investor caught in the dizzying growth of the stock price lose money. In one instance, I was a victim and found that when the stock fell, it was so quick, that exit was virtually impossible until the time it reached a point where I lost a big chunk of my investments.

The SC magazine recently reported in an article titled "Texas ringleader of pump-and-dump scam arrested" that a fraudster used the services of hackers, email spammers and botnet operators to disseminate misleading information to create a market buzz, as well as break into third-party brokerage accounts, liquidate stocks and use the balance to purchase shares of the manipulated stocks.

The fraudster acted on behalf of a set of promoters who wished to manipulate their companies stock.

I found this fraud to be a truly ingenious and sophisticated way to make money. It demonstrated that a clever person acting as a middlemen between unscrupulous operators and hackers can find several ways to custom create scams for select audiences. This type of scam is more sophisticated than the more common lottery and advanced fee frauds.

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