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14 Sep 2007

Guilty: The $20 million spammers who manipulated stock market

Pump-and-dumpers face up to ten years in jail

Behind bars
The pump-and-dump stock spam gang face hefty jail sentences.

IT security and control firm Sophos has welcomed news that four men have pleaded guilty to being part of an international gang that used spam to manipulate the stock market, raising more than $20 million from investors.

According to the US Department of Justice, 47-year-old Michael Saquella (also known as Michael Paloma), 63-year-old Lawrence Kaplan, 38-year-old Henry Zemla and Justin Medlin, were members of a gang which spammed out fraudulent news stories to create artificial demand in stocks, pumping up the share price of 15 small companies (Beverly Hills Film Studios; Body Scan; Cor Equity Holdings; Courtside Products; eDollars, IFINIX; Integrity Messenger; Latin Heat Entertainment; Motion DNA; PokerBook Gaming; TKO Holding; Trans-Global Holdings; V3 Global; Xtreme Technologies; and Zuma Beach Entertainment).

The pump-and-dump gang then sold off their stock, netting more than $20 million in profits, some of which was shared with the companies that were having their share prices manipulated. Astonishingly, these firms were involved in the operation, although it is not believed they realised anything illegal was taking place.

26-year-old Medlin, from Paris, France, was one of the people hired by the rest of the gang to send out the spam messages.

Sophos experts report that pump-and-dump stock campaigns like this account for approximately 25 percent of all spam, up from 0.8 percent in January 2005.

All four men have pleaded guilty to counts of fraud and are facing between 5-10 years in prison when sentenced later this year. Saquella and Kaplan have also admitted multiple Securities and Exchange Commission (SEC) violations. Three other defendants, Steven P. Luscko, Gregory A. Neu, and Brian G. Brunette, have already been sentenced to between 1-5 years in prison.

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). The spammers then sell off their stock at a profit. Sophos experts report that pump-and-dump stock campaigns account for approximately 25 percent of all spam, up from 0.8 percent in January 2005.

"The facts of this case should make it clear to everyone that there are fortunes to be made from spam, but that the penalties if caught are considerable," said Graham Cluley, senior technology consultant at Sophos. "Pump-and-dump spam is a scourge in people's inboxes - not only does it clog up email servers but it risks putting the livelihoods of innocent individuals and small businesses in jeopardy."

According to Sophos, the public must also learn to exercise caution when deciding which companies to invest in and must learn to never trust an anonymous internet tipoff.

Earlier this year, Sophos reported how the US Securities and Exchange Commission (SEC) had suspended trading in 35 companies as they were found to be commonly referenced in pump-and-dump stock email campaigns.

In July, Sophos published its Security Threat Report, examining the latest trends in spam, malware and hacking.

Download Security Threat Report: Update 2007

Graham Cluley, Senior Technology Consultant, reviews the mid-2007 Security Threat Report, looking at the most widespread security threats during the first half of the year and advises listeners on how they can keep themselves safe online. Download now

Sophos recommends companies protect themselves with a consolidated solution which can control network access and defend against the threats of spam, hackers, spyware 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.