Indictment Issued in Stock Manipulation Botnet Operation

Wednesday, March 23, 2011



Federal authorities have made another arrest and issued an indictment in an elaborate case involving efforts to inflate penny stock prices in a "pump and dump" scheme that operated between 2007 and 2009.

The scam employed botnets to distribute emails pushing stocks on potential investors with the intention to raise the stock's value before the operators sold off their holdings at a profit, leaving unwary investors with a loss.

James Bragg of Chandler, Arizona, was arrested in October of last year and plead guilty "for his role in hiring botnet operators and engaging in mass email campaigns to pump up the value of stock prior to dumping shares."

Bragg named Christopher Rad of Cedar Park, Texas, as a co-conspirator.

Rad, who was arrested by authorities on Monday and charged with securities and wire fraud, faces a possible $500,000 fine and up to five years in federal prison.

The indictment asserts that "Rad acted as a middleman between stock promoters seeking to pump shares of stock, and computer experts located inside and outside of the United States who used various means, including 'spam' email campaigns, 'botnets,' and hacking to pump the stock."

Two other non-U.S. residents were also indicted in the case, though they are not currently in custody.

The stocks in question were for VShield Software (VSHE) and Remote Surveillance Technologies (RSUV). Both companies now appear to be out of business.

The indictment also alleges that "the perpetrators further hacked into the brokerage accounts of unsuspecting third parties, liquidated the existing holdings, and used the balance to trade in a particular stock, thereby pumping up the stock price."


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