Man pleads guilty to using hack, pump-and-dump botnet

IDG News Service - A Chandler, Ariz., man has pleaded guilty to charges related to his role in a pump-and-dump scam that inflated penny stock prices via spam and hacked computers.

James Bragg, 41, faces five years in prison and a $250,000 fine for orchestrating the hacking and spamming portions of the scheme, which ran between November 2007 and February 2009, according to prosecutors. He pleaded guilty Wednesday in U.S. District Court for the District of New Jersey.

Bragg used a Russian botnet operator, named only as B.T. in court documents, to send the spam and to access hacked brokerage accounts and buy the penny stocks without the victim's knowledge.

The case sheds some light into the murky world of penny stock manipulation, where companies hire shady promoters to boost their stock prices. The promoters appear to be legitimate marketing and public relations firms, but some of them use illegal practices such as spamming to achieve results.

Bragg, for example, was hired by a Texas-based middleman, identified only as C.R., who "acted as a middleman between stock promoters seeking to pump shares of stock, and e-mail spammers," according to court filings.

Prosecutors say that Bragg promoted penny stocks such as RSUV (Remote Surveillance Technologies) and VSHE ( VShield Software). Both companies are now apparently defunct.

It's not clear how much spam was sent or how much was made from the scam, but in a Dec. 20, 2007, Skype instant message exchange with C.R., Bragg described the mail as "runnin [sic] hard hitting inbox on gmail, hot[mail], yahoo, fusemail."

In one case, profits from a month-long pump-and-dump were more than $150,000, but losses to victims of the scam -- who were left holding worthless stock that they'd purchased at inflated prices -- were almost certainly much higher.

This isn't the first time Bragg has faced spam-related charges. He was sentenced to 12 months in prison several months ago in a separate case, filed in U.S. District Court for the Eastern District of Michigan.

Pump-and-dump spam has been around for years, but this is the second time this year that someone has pleaded guilty charges relating to hacked brokerage accounts. In April Jaisankar Marimuthu, of Chennai, India, was sentenced to more than six years in prison by a U.S. judge for his role in a similar hack, pump-and-dump scheme.