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SEC Acts Over Brokerage Account Hijacking

by Glen Shapiro,, New York

21 December 2006

The US Securities and Exchange Commission announced on Tuesday that it has obtained an emergency asset freeze to halt an Estonia-based 'account intrusion' scheme that targeted online brokerage accounts in the US, in order to manipulate the markets.

In an emergency federal court action filed in the United States District Court for the Southern District of New York, the Commission charged Grand Logistic, S.A., a Belize corporation located in Tallinn, Estonia, and its owner, Evgeny Gashichev, a citizen of Russia, with conducting a fraudulent scheme involving the manipulation of the prices of numerous stocks by the unauthorized use of other people's online brokerage accounts (account intrusions).

The Commission alleged that, between August 28, and October 13, 2006, Grand Logistic and Gashichev made $353,609 in unlawful profits by conducting at least 25 separate manipulations, involving the securities of at least 21 companies.

Acting on the Commission's request, the Court issued a temporary restraining order which, among other things, freezes the defendants' assets and orders the repatriation of funds taken out of the United States.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, explained that:

"Account intrusions combine securities fraud, identity theft and hacking. Our action today demonstrates, once again, that the Commission will seek out and stop those who would prey on investors, in whatever manner."

The Commission's complaint alleged that, to effect his "pump and dump" manipulations, Gashichev purchased shares of small, thinly-traded companies, with low share prices, through an online trading account he opened in the name of Grand Logistic at an Estonian financial services firm that has an omnibus account at a US broker-dealer through which the defendants traded.

Often within minutes of the purchase, Gashichev used electronically stolen usernames and passwords to gain unauthorized Internet access to one or more online brokerage accounts (the intruded accounts) for the sole purpose of pumping up the price of the stock he had just purchased at lower prices. He also used electronic means to hide his identity, and mask the means by which he intruded into accounts.

The complaint further alleged that, without the knowledge or consent of the victimized accountholders, and using the victim's own funds, Gashichev placed orders through these intruded accounts to purchase large blocks of the same stock at artificially inflated prices -- often many times the volume of his initial purchases.

These purchases created buying pressure and the false appearance of legitimate trading activity, which caused the price of the stock to greatly increase. Gashichev then sold, at a profit, the shares he had earlier purchased in the Grand Logistic account. The share prices of the manipulated stocks invariably fell sharply, and the victims suffered losses in their accounts.

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