Grand Logistic, S.A., et al.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19949 / December 19, 2006
SEC v. Grand Logistic, S.A., et al., Civil Action No. 06-15274 (S.D.N.Y.)
SEC Files Emergency Action Against Foreign Traders to Stop an Online Account Intrusion Scheme
Defendants Hijacked Innocent Online Brokerage Accounts to Conduct High-Tech "Pump and Dump" Scheme
The Securities and Exchange Commission ("Commission") announced that it obtained an emergency asset freeze to halt an Estonia-based "account intrusion" scheme that targeted online brokerage accounts in the U.S. to manipulate the markets.
In an emergency federal court action filed in the United States District Court for the Southern District of New York today, 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 alleges 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 today 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.
The Commission's complaint alleges 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 U.S. 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 alleges 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.
The Commission's complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and, as permanent relief, seeks permanent injunctions against future violations, disgorgement of all ill-gotten gains, prejudgment interest, and civil penalties.
The SEC's Office of Investor Education and Assistance has issued an investor alert, which is available on the SEC's website, that provides tips for avoiding becoming a victim of an intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm.
The Commission would like to acknowledge the assistance of the NASD in this matter.
