U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20030 / March 7, 2007
Securities and Exchange Commission v. One or More Unknown Traders in the Common Stock of Certain Issuers, Defendants, and JSC Parex Bank, Relief Defendant, Civil Action No. 1:07-CV-00431 (D.D.C.)
SEC Obtains Order Freezing $3 Million in Proceeds of Suspected Foreign-Based Account Intrusion Scheme
On Tuesday, March 6, 2007, the United Securities and Exchange Commission filed an emergency action in the United States District Court for the District of Columbia to freeze the assets held in a Latvian-based bank's U.S. trading account being used to conduct a hi-tech market manipulation scheme. The Commission's request for a temporary restraining order and an asset freeze was granted by the Honorable Ricardo M. Urbina, who froze $3 million pending a preliminary hearing.
The Commission's complaint alleges a complex scheme that combines electronic intrusions into online brokerage accounts with a traditional market manipulation. From at least December 2005 through December 2006, one or more foreign-based unknown traders purchased, through four sub-accounts of an omnibus trading account titled in the name of Relief Defendant JSC Parex Bank and held at Pinnacle Capital Markets LLC of North Carolina, shares in 15 U.S.-based Nasdaq-traded companies. These unknown traders then hacked into unsuspecting investors' online brokerage accounts at seven major online broker-dealers and sold off investors' existing securities holdings. They then used the proceeds to buy shares on the open market of the thinly-traded issuers the unknown traders had previously purchased in their own sub-accounts. This illicit account activity artificially heightened the share price and trading volume for each of the thinly-traded issues and enabled the unknown traders to sell their holdings at a substantial profit, realizing at least $732,941 in ill-gotten gains, and possibly more. The unknown traders also used electronic means to hide their identities and mask the means by which they intruded into accounts.
The Commission's complaint further alleges that the unknown traders violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions against future violations by the unknown traders and disgorgement of all the unknown traders' ill-gotten gains, including prejudgment interest and civil penalties. The complaint also seeks a final judgment requiring Relief Defendant Parex to disgorge any assets it may have obtained as a result of the unknown traders' scheme.
The SEC's Office of Investor Education and Assistance has previously issued an investor alert, available on the SEC's website, which provides tips for avoiding becoming a victim of an online intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm.
The Commission acknowledges the assistance of the NASD in this matter.