According to the Department of Justice, Michael Saquella (also known as Michael Paloma), Lawrence Kaplan, 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.
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 realized anything illegal was taking place. Medlin, from Paris, France, was one of the people hired by the rest of the gang to send out the spam messages.
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. It is reported that pump-and-dump stock campaigns 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.
"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 e-mail servers but it risks putting the livelihoods of innocent individuals and small businesses in jeopardy."
It is recommended that the public learn to exercise caution when deciding which companies to invest in and must learn to never trust an anonymous Internet tipoff.
Earlier this year, 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 e-mail campaigns.
