United States Attorney
District of New Jersey
Monday, May 13, 2013
Organizer of International Securities Fraud Ring Sentenced in New Jersey to Prison for Using Hackers to Falsely Inflate Stock Prices
The central organizer of a worldwide conspiracy to manipulate stock prices through a “botnet” network of virus-controlled computers was sentenced today in Trenton federal court to 71 months in prison, New Jersey U.S. Attorney Paul J. Fishman announced.
Christopher Rad, 44, of Cedar Park, Texas, was previously convicted, following a 9-day jury trial, of six counts arising from the fraud scheme: conspiring to further securities fraud using spam; conspiring to transmit spam through unauthorized access to computers; and four counts of transmission of spam by unauthorized computers.
The sentence was imposed by U.S. District Judge Joel A. Pisano, who also presided over the trial.
“Christopher Rad’s use of hackers to drive his pump-and-dump scheme illustrates a trend toward the modern mechanization of old-school scams,” said U.S. Attorney Fishman. “Law enforcement is constantly anticipating and adapting as criminals operate in a more virtual – and more global – world. As a result, Rad will spend years in prison for manipulating our markets to steal his millions.”
According to documents filed in this case and statements made in court:
Rad conspired with stock promoters in a scheme to manipulate the price and volume of dozens of particular stocks, including stocks with ticker symbols RSUV, QRVS, VSHE, SVXA and ASIC, in order to later sell them at an artificially inflated price – a practice known as a “pump and dump” scheme. The scheme began as early as November 2007 and continued through February 2009.
As part of the scheme, Rad organized others to manipulate the stock prices. He sought out and engaged spammers, then sent them precise language to include in their spam campaigns.
The spammers included two individuals who distributed spam through botnets. To create a botnet, viruses were sent out to infect computers around the world, creating a virtual army of hijacked computers. The spammers then caused the botnets to distribute spam to promote the stocks Rad wanted to manipulate. Infected computers were found in New Jersey, Europe, Russia and elsewhere. The botnet was controlled from command and control servers located overseas, including in Russia and China.
Rad, who went by the alias “billy_sack,” communicated with the spammers by Skype, in most instances knowing them only by their aliases. During the 22-month conspiracy, Rad paid the spammers more than $1.4 million, making payments through e-Gold—an electronic monetary payment system—and money wires. Payments intended for a botnet operator in Russia were made through at least eight different countries. The wire instruction notations included false information such as payments for “Dell Monitors,” “touch panels” and “transportation services.”
Rad also agreed with others to engage in bad-faith purchases of RSUV to create the impression among spam recipients that there was active trading in the stock.
At the same time, hackers hacked into the brokerage accounts of third parties, liquidated the stocks in those accounts, then used the accounts to purchase shares of some of the stocks the scheme sought to manipulate. This increased the volume of shares being traded and created an impression that the stocks were worth purchasing.
In all, Rad made approximately $2.8 million from his schemes.
In addition to the prison term, Judge Pisano sentenced Rad to serve five years of supervised release and ordered him to pay a $30,000 fine. Restitution will be determined at a later date.
Rad’s co-conspirators, Doyle Scott Elliott and James Bragg, previously pleaded guilty to securities fraud and transmission of spam through falsely registered e-mail addresses. They await sentencing.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, with the investigation. He also thanked the U.S. Securities and Exchange Commission’s Division of Enforcement, led by Acting Director George Canellos.
The government is represented by Assistant U.S. Attorney Andrew S. Pak, of the Computer Hacking and Intellectual Property Section of the U.S. Attorney’s Office Economic Crimes Unit (ECU); Christopher J. Kelly, Deputy Chief of the ECU; and Erez Liebermann, Deputy Chief of the Office’s Criminal Division in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.