Two men have been charged by the Texas Attorney General's Office with organized criminal activity and money laundering. The case follows an investigation by the Securities and Exchange Commission (SEC) into the illegal use of pump-and-dump spam e-mails to artificially inflate the share prices of at least 13 penny stocks between May 2005 and December 2006.

According to reports, the SEC's complaint charged Darrel Uselton and his uncle, Jack Usleton, both from Texas, with orchestrating a series of spam e-mail campaigns designed to con unwary investors and to manipulate the stock market. The men are alleged to have used a zombie network of hijacked computers across the country to distribute these e-mails and ultimately to defraud unsuspecting computer users out of an estimated $4.6 million. The investigation began after an SEC lawyer is said to have received one of the fraudulent e-mails at work.

Linda Chatman Thomsen, SEC Director of Enforcement, said, "The scheme executed by the Useltons reflects a widespread contempt for investors and the marketplace. We will track down the swindlers engaged in these fraudulent schemes and hold them accountable."

Media reports claim that both men have been in trouble with the authorities before in connection with pump-and-dump stock frauds.

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. Experts report that pump-and-dump stock campaigns account for approximately 25 percent of all spam.

"This latest step in the Commission's anti-spam initiative is intended to protect investors from fraud artists who would treat the investing public as their personal ATM machines," said SEC Chairman Christopher Cox. "The use of bots to spread investment spam at exponentially higher rates is making this type of fraud an even more virulent threat to ordinary investors ... Given estimates that up to one-quarter of all personal computers connected to the Internet are part of a botnet, and the thriving market in selling lists of compromised computers to hackers and spammers, the SEC is taking this very seriously. We remain aggressively committed to tracking down anyone attempting to use bots to prey on investors with false or misleading spam about securities."

"Unfortunately for the SEC, pump-and-dump spam campaigns don't seem likely to go away any time soon," said Graham Cluley, senior technology consultant at Sophos. "The use of compromised networks of computers to spread these illegal spam messages can result in quick fortunes for the scammers, and can have serious detrimental effects on the stock involved. But, it seems that these criminals were in such a rush to make their millions that they forget to pay any attention to which e-mail addresses were being spammed and in the end, this looks likely to be their downfall."

The action against Darrel and Jack Uselton by the SEC is part of a larger anti-spam initiative that aims to crack down on the use of stock spam campaigns. In March this year, the Commission suspended trading of 35 companies which had been the subject of pump-and-dump e-mails.
Gina M. Scott  |  Writer