Organized criminal groups based in Eastern Europe and Asia have been engaging in brazen forms of penny stocks fraud. These organized crime groups hack into unsuspecting users online trading accounts and then use the accounts to conduct trades in otherwise moribund penny stocks. The penny stock fraud scheme works in several discrete sections that when added together will have an online investor losing his money into the hands of these organized crime groups.
One part of the scheme involves the crime group’s acquisition of large amounts of very low priced penny stocks. The penny stocks may be purchased legitimately but oftentimes, hacked online trading accounts are used to acquire these stockpiles.
Another part of the scheme is the acquisition of the accounts and passwords in order to access individual user accounts at online stock trading sites, such as TD Ameritrade and E-Trade. The hackers typically use keystroke-logging software that they have uploaded onto public access computers, such as those found at hotels, airport business centers, and internet cafes. Such keystroke-logging software allows all keyed in characters at the computer to be recorded and used anywhere in the world.
The hackers will then just have to wait until the unsuspecting person logs in to an online broker such as E-Trade, and then watch the next few 20 to 30 or so keystrokes, that would most probably include the user’s log in name and access password. In effect, identity theft is committed each time a hacker accesses a new online trading account.
The third part of the scheme is the actual penny stock trading using the hacked accounts. With the acquired online trading site user names and passwords, the organized crime groups use these accounts to conduct trades.
The criminal group typically offloads the hacked user account’s existing stock portfolio, and uses the proceeds of the sale to purchase the penny stocks that the criminal group has stockpiled. Repeated trades are done with these hacked accounts, continuing the cycle of buying, selling, and trading of these penny stocks.
The goal of these organized crime groups is to increase the prices of their stockpiled penny stocks. They do so using hacked accounts, conducting online trades to drive up demand and share prices. This is a more aggressive variation of the penny stocks pump and dump scheme. Instead of spamming the online stock traders into willingly buying these supposedly hot stocks, the fraudsters now take control of the users online trading accounts, dealing exclusively in the trade of their stockpiled penny stocks.
The fourth part of the scheme is the money laundering. The organized crime groups then liquidate the stocks, and transfers the money to series of offshore accounts and layers of dummy organizations, to money laundering operations.
Multinational authorities have been able to monitor the origins of the hackers, with a lot of them based in countries in Eastern Europe, Southern Asia, and Southeast Asia. Online stock trading firms have been cooperating with various regulatory and online security agencies in order to stop such stock fraud, hacking, identity theft, and money laundering activities.
If you are a penny stocks investor, guard your online account details carefully. Better yet, avoid online penny stocks trading when you are using a public computer.