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21 Aug 2006

Married couple charged with $1 million stock spam scam

Jeffrey and Janette Stone are accused of artificially inflating stock prices by sending spam emails
Jeffrey and Janette Stone are accused of artificially inflating stock prices by sending spam emails.

Experts at SophosLabs™, Sophos's global network of virus, spyware and spam analysis centers, have warned users to be wary of emails offering unsolicited financial advice as a married couple are charged by federal regulators with making $1 million through a stock market pump-and-dump scam.

42-year-old Jeffrey Stone and his wife Janette Diller Stone of Greenwich, Connecticut have had civil fraud charges filed against them by the Securities and Exchange Commission (SEC). The two are accused of buying 288 million shares of WebSky Inc in September 2004, and weeks later making $1 million after artificially inflating the stock price through a fraudulent spam campaign.

According to the SEC, spam emails sent by the Stones stated that WebSky would have an annual revenue of more than $40 million because of a successful venture in Argentina. In reality WebSky was a start-up company with no revenues. The emails caused the firm's stock price to rise more than 300%, according to the SEC, with 234 million shares being traded. WebSky had forbidden the Stones from sending the emails, and told them that the Argentinian deal was not viable.

"Pump-and-dump stock campaigns work by spammers purchasing stock at a cheap price and then artificially inflating its price by encouraging others to purchase more - often by spamming "good news" about the company to others," said Graham Cluley, senior technology consultant for Sophos. "Stock spam is becoming increasingly attractive to internet criminals because of the large amounts of money that can be generated. Private investors need to be wary of believing financial advice they receive in their inbox, because it could be designed to only benefit the criminals who spammed it out."

Sophos experts report that pump and dump stock campaigns account for approximately 15% of all spam.

Charges were also brought against Douglas Haffner, CEO of WebSky, for selling stock to the Stones in a subsequent deal without registering the sale or obtaining an exemption from registration, according to the SEC. Without admitting or denying the action, Haffner and WebSky settled by agreeing to surrender the $35,000 gained from the sale and to a permanent injunction against violations of the registration provisions of federal securities laws, the SEC reported.

"The SEC is holding officers of micro-cap companies accountable if they improperly sell shares, as they may be fuelling the 'pump-and-dump' craze," continued Cluley.

Sophos recommends companies protect themselves with a consolidated solution which can defend against the threats of both spam and viruses.

About Sophos

More than 100 million users in 150 countries rely on Sophos as the best protection against complex threats and data loss. Sophos is committed to providing complete security solutions that are simple to deploy, manage, and use and that deliver the industry's lowest total cost of ownership. Sophos offers award-winning encryption, endpoint security, web, email, mobile and network security solutions backed by SophosLabs - a global network of threat intelligence centers.

Sophos is headquartered in Boston, US and Oxford, UK. More information is available at www.sophos.com.