Friday, December 22, 2006


FAL$E HOPE$ was a Federal Trade Commission operation announced on December 12, 2006, which cracked down on Bogus Business Opportunities. Coordinated with the Department of Justice, the US Postal Inspection Service, and law enforcement agencies in 11 states, the report contains more than 100 law enforcement actions! (In the interest of full disclosure, these publicity operations solicit previously investigated cases from parties who wish to be included in the press release. Although the Operation was announced publicly in December of 2006, many of the activities had concluded as early as February of 2005.)

DOJ Actions were primarily in Nevada and the South District of Florida, but had some great cases themselves! In just one such case, AmeriP.O.S., individuals were told they were buying the right to mark kiosks for prepaid debit cards, phone cards, and internet access. Eleven defendants were charged and received hard time from between 24 and 135 months! Restitution was also ordered in the amount of $16,659,826.94! Altogether this group will spend 729 months in prison.

The original DOJ Press Release shows this to have been part of "Project Biz Opp Flop". In Biz Opp Flop DOJ documented 4,000 consumers nationwide who lost more than $60 million in these fraudulent business opportunities. AmeriP.O.S. promised that for their $12,000 investment, purchasers would received several Point of Sale terminals and support in establishing their own territory for the business. 1,500 people fell for the scam. Other companies, "Cash Link", "Tel 2 Net", "Pantheon Holdings" and "Global Resources" were offering the same offer. Global Resources advertised on television, the Internet, and by high pressure telephone calls, promising earnings of $6,480 per month (with a $14,000 minimum investment = two month break even!) 150 investors sent Global Resources $2.5 million! Pantheon got $19 Million from 1,500 consumers! Perfumes Unlimited, another case included in Biz Opp Flop, claimed consumers could earn $150,000 per year selling perfume in racks placed in stores. 150 consumers gave them $1.5 Million to invest. Accomplices were recruited to lie about their own experiences with the business as references to the success of the product.

The US Postal Inspection Service provided their Work at Home/Distributorshipos Case Briefs to the FTC which included many work at home schemes such as "Wealth By Mail, Inc", "GTEC", "Armand & Company", and many others, including one in my home town of Birmingham, Alabama.

In that case, "Employment Solutions" advertised a work at home envelope stuffing business, for which he would send a "start-up" kit for $32. Many folks received the start up kits, but they didn't receive the profits he described!

Perhaps the most successful case among the USPIS actions was "National Brochures / AAA Information Center". In this case, Malcolm Lincoln received 10 years in prison, and his wife three years, and were each ordered to pay $28,282 in restitution to 200 victims. Victims spent between $35.95 and $745.95 to receive their work-at-home business kits, and were promised they would earn between $4 and $21.82 per envelope stuffed. No one ever received a payment. In total over 1,000 people were victimized and the defendants earned more than $400,000!

Some of the claims were ridiculous! "EDI Health Claims Network" said that the customers medical billing business would earn as much as $1,200 per month with just one client! After consumers paid their $5,985, they were told their first client could be found by looking in their local yellow pages!

Many of the business opportunities in the FTC report promise returns of more than $1500 per week, and some as high as $150,000 in their first year!

One company, USA BEVERAGES, INC, (see the separate press release: FTC Halts Bogus Business Opportunity Scam) used Voice Over IP and prepaid cell phones to make it seem that they were calling from the local area, when in reality, they were making their pitches for coffee display racks from Costa Rica. Their website claimed it was a 12 year old company in New Mexico. With this 12 year history, the promise that franchisees would make "no less than $1,055.60 per week" if they operated 13 display racks must have seemed legitimate! Investors gave up between $18,000 and $85,000 each to learn that it was not true.

Thursday, December 21, 2006

Pump & Dump: SEC gives us a peek!

We all know that the most annoying spammers on the planet today are the ones who are sending out the image based Stock spam that seems to be most gifted at by-passing every form of spam filter. I frequently get the question: "How do these guys make money?"

This week, the Securities and Exchange Commission website has two interesting cases that give us some details. They illustrate two different methods of pump & dump. Account Theft, and False Profile spamming.

Let's look first at the password thief.

SEC Emergency Action Against Foreign Traders - SEC v. Grand Logistic

The subject of this action, Grand Logistic, is a company owned by Evgeny Gashichev who resides in St. Petersburg, Russia. His company operates in Estonia and is licensed as a corporation in Belize. The company exists to speculate in the penny stock market. The way it works is that Evgeny placed $30,000 in an online brokerage account, and began buying penny stocks. Curiously, these stocks, which had seen almost no activity, began to be bought and sold like mad after Evgeny would purchase them.

The charges from the SEC indicate that Evgeny would buy penny stocks from HIS account, and then would log in using stolen credentials to many other accounts, including E*Trade, ScottTrade, and TD Ameritrade accounts and make large purchases from other people's brokerage accounts - without their knowledge or permission - in volumes ranging from 6,000 to 71,000 shares! Then, when the price had risen sufficiently, Evgeny would liquidate the holdings in that account from his own profile.

So how did he do? Evgeny's initial investment grew from $30,000 to $383,000 in just seven weeks!

For more details see: The SEC's Complaint.

Now let's turn our attention to the Stock Spammer case "Red Hot Stocks". This is a case where we get to see the "end of the story", however, as usual, the question remains outstanding whether or not justice has been served. Still, the SEC is to be applauded for their action.

In the current SEC Final Judgement against Red Hot Stocks defendant Dieter Raabe, Raabe was ordered to pay $489,900 in disgorgement, plus prejudgment interest of $215,110 and post judgment interest of $16,300, and a civil penalty of $110,000, for a total of $831,310.

Wow! $831,310 sounds like a great deal of money! But wait, didn't we establish that in 2002 he had already earned $4 million from his fraudulent trading schemes!?!?

This case goes all the way back to an SEC Complaint in 2002 against Red Hot Stocks, where the SEC filing indicates that the defendant had earned more than $4 million through manipulation of the stock market.

In this situation, subscribers of the "Red Hot Stocks" website received a newsletter which contained a false or misleading statement about the dealings of a penny stock company. One of the biggest problems though, from SEC rulings, is that the profiles were made without disclosing that the author and promoter was personally planning to liquidate a large holding once his objectives had been met. There are rules dictating when an "insider" may sell their stock holdings after public statements are made. Raabe was previously accused with James E. Franklin. Franklin operated the companies "Vector Keel Ltd." and "Initial Public Offering Consultants, Inc." who would buy (or receive for services rendered) the stock. Then "Red Hot Stocks" would create online profiles for the companies, and spam the hell out of the profiles waiting for payday.

The actual Red Hot Stocks website is still available thanks to the WayBack Machine. Here's a link:

Red Hot Stocks (WayBack Machine link to 1998)

Some of the stocks profiled there include:


So, this case brings to a close Pump & Dump activity which occurred through this "free stock tips" newsletter offered more than 8 years ago!

Many examples of similar scams can be found in the archives of Harvard University's CyberLaw archive on Stock Spam. Here is a great resource listing stock symbols touted by spam, produced by Laura Frieder and Jonathan Zittrain:

Stock Touts (From Harvard CyberLaw)

Their excellent paper, just released 16DEC06, is available here:

Spam Works: Evidence from Stock Touts and Corresponding Market Activity