A New York federal judge on Tuesday sided with the Securities and Exchange Commission and froze the assets of Broco Investments, believed to be a one-trader operation based in St. Petersburg, Russia. The SEC said Broco capitalized by artificially moving prices of more 38 thinly traded securities — enabling Broco to profit from up-or-down price swings.
“These transactions have created the appearance of legitimate trading activity and have artificially affected the prices of at least 38 issuers,” (.pdf) the Securities and Exchange Commission said in court filing.
The so-called “hack, pump and dump” scheme is among the latest illicit methods of gaming the market though hacking.
An Indian man was sentenced to two years in prison for undertaking a similar scam in 2008. That same year, a Ukrainian hacked into Thomson Financial to get a peek about an upcoming negative earnings report for IMS Health, earning nearly $300,000 for a few minutes’ work.
In the latest case, the affected stocks ranged from Akeena Solar, Magellan Petroleum to Xerium Technologies. The prices fluctuated more than 20 percent in some instances.
Broco would purchase these and other stocks in its own portfolio and immediately place unauthorized buy orders at inflated prices of the same securities in hacked Scottrade accounts, the SEC said.
“Immediately or shortly thereafter, the defendants capitalized on the artificially inflated share prices of the targeted securities by selling the shares previously acquired in their account,” the SEC alleged. “In other instances, the defendants profited by covering short positions previously established in their account while placing unauthorized sell orders through the compromised accounts at substantially lower prices.”
Along the way, victims lost $600,000 in market value the last few months alone, the SEC said. And Broco, believed to be a one-person company run by Valery Maltsev, reaped $255,000 in ill-gotten gains during the same time.
Daily trading volume in Pennsylvania-based financial services company AmeriServe Financial averaged about 11,300 shares in from Dec. 1 to Dec. 20, the SEC said. The next day, volume increased 20 times. At least 200,000 shares were bought and sold through Broco or hacked Scottrade accounts, allowing Broco to leverage the prices for its own profits.
“Broco grossed $141,500 in approximately 15 minutes,” the SEC said.
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