The Securities and Exchange Commission today obtained an emergency asset freeze to halt an Estonia-based "account intrusion" scheme that targeted online brokerage accounts in the U.S. to manipulate the markets.
In an emergency federal court action filed in the United States District Court for the Southern District of New York, the Commission charged Grand Logistic, S.A., a Belize corporation located in Tallinn, Estonia, and its owner, Evgeny Gashichev, a citizen of Russia, with conducting a fraudulent scheme involving the manipulation of the prices of numerous stocks by the unauthorized use of other people's online brokerage accounts (account intrusions). The Commission alleges that, between Aug. 28, and Oct. 13, 2006, Grand Logistic and Gashichev made $353,609 in unlawful profits by conducting at least 25 separate manipulations, involving the securities of at least 21 companies.
Acting on the Commission's request, the Court today issued a temporary restraining order which, among other things, freezes the defendants' assets and orders the repatriation of funds taken out of the United States.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Account intrusions combine securities fraud, identity theft and hacking. Our action today demonstrates, once again, that the Commission will seek out and stop those who would prey on investors, in whatever manner."
Daniel M. Hawke, District Administrator of the Commission's Philadelphia District Office, stated, "Recently, the SEC has become aware of a dramatic increase in the number of intrusions into online brokerage accounts. We have been working closely with other regulators and brokerage firms in an effort to ensure that online brokerage trading is safe and secure. Thus far, brokerage firms are typically covering the intrusion-related losses of their customers. Today's action shows that the Commission will aggressively pursue individuals and entities who seek to harm innocent investors through such conduct."
Ethiopis Tafara, Director of the SEC's Office of International Affairs, commented, "We are working with our colleagues in Estonia and elsewhere around the world to heighten awareness of this new form of fraud and help ensure that those engaged in this illegal activity do not use international borders to escape detection and prosecution."
The Commission's complaint alleges that, to effect his "pump and dump" manipulations, Gashichev purchased shares of small, thinly-traded companies, with low share prices, through an online trading account he opened in the name of Grand Logistic at an Estonian financial services firm that has an omnibus account at a U.S. broker-dealer through which the defendants traded. Often within minutes of the purchase, Gashichev used electronically stolen usernames and passwords to gain unauthorized Internet access to one or more online brokerage accounts (the intruded accounts) for the sole purpose of pumping up the price of the stock he had just purchased at lower prices. He also used electronic means to hide his identity, and mask the means by which he intruded into accounts.
The complaint further alleges that, without the knowledge or consent of the victimized accountholders, and using the victim's own funds, Gashichev placed orders through these intruded accounts to purchase large blocks of the same stock at artificially inflated prices -- often many times the volume of his initial purchases. These purchases created buying pressure and the false appearance of legitimate trading activity, which caused the price of the stock to greatly increase. Gashichev then sold, at a profit, the shares he had earlier purchased in the Grand Logistic account. The share prices of the manipulated stocks invariably fell sharply, and the victims suffered losses in their accounts.
The Commission's complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and, as permanent relief, seeks permanent injunctions against future violations, disgorgement of all ill-gotten gains, prejudgment interest, and civil penalties.
The SEC's Office of Investor Education and Assistance has issued an investor alert, which is available on the SEC's website, that provides tips for avoiding becoming a victim of an intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm.
The Commission would like to acknowledge the assistance of the NASD in this matter.
Additional materials: Litigation Release No. 19949 and Complaint
