A grand jury in Omaha, Nebraska, has indicted three people on charges of conspiracy, fraud and aggravated identity theft related to a "high-tech" scheme to hijack online brokerage accounts, the U.S. Department of Justice and the U.S. Securities and Exchange Commission announced.
The 23-count indictment, returned in January and unsealed Monday, charges Jaisankar Marimuthu, 32, and Chockalingam Ramanathan, 33, both of Chennai, India, each with one count of conspiracy, eight counts of computer fraud, six counts of wire fraud, two counts of securities fraud, and six counts of aggravated identity theft as part of this "hack, pump and dump" scheme.
The indictment also charges Thirugnanam Ramanathan, 34, a native of India and resident of Malaysia, with one count of conspiracy, two counts of computer fraud and two counts of aggravated identity theft, the DOJ said. Marimuthu and Thirugnanam Ramanathan have been arrested in Hong Kong.
The DOJ has identified more than 60 customers and nine brokerage firms in the U.S. and elsewhere as victims, with one of the brokerage firms reporting more than US US$2 million in losses. This case is the first time that individuals have been arrested overseas in connection with an online brokerage intrusion scheme perpetrated in the U.S., the DOJ said.
In a related action, the SEC filed a civil complaint against all three defendants Monday.
Between July and November, the defendants, operating primarily from Thailand and India, used their personal online brokerage accounts to purchase shares of several thinly-traded stocks, according to the indictment.
They then hacked into online brokerage accounts of others, using stolen user names and passwords, or established new brokerage accounts using stolen identities, the DOJ said. Using these accounts, the defendants made several unauthorized purchases of the same stocks to drive up the market price. Once the share prices were artificially inflated, the defendants sold their own shares for a substantial profit.
For example, Marimuthu placed orders on Aug. 28 through his personal online brokerage account, for 32,000 shares of stock at prices from US$2 to US$3.20 per share, the DOJ said. Chockalingam Ramanathan also placed an order through his personal online brokerage account to purchase 450 shares of the same stock for US$3.20 per share.
The same day, the defendants gained unauthorized access to the online brokerage account of an unsuspecting investor, according to the indictment. They then used this account to illegally acquire 26,000 shares of the same stock at prices from US$2.84 to US$3.40 per share, causing the stock's trading volume to rise to more than nine times its 15-day average.
Marimuthu then sold more than 30,000 shares of the stock at a substantial profit by Aug. 29, the DOJ said.
Marimuthu was arrested on Dec. 20, by Hong Kong police on charges of computer fraud, money laundering and possession of equipment to make a false instrument. These Hong Kong charges are for crimes similar to those in the U.S. indictment. Thirugnanam Ramanathan was arrested by authorities in Hong Kong on Jan. 26, at the request of the U.S. Chockalingam Ramanathan is at large.
The U.S. government will seek the extradition of the arrested defendants to face charges in Nebraska, the DOJ said.
The conspiracy and computer fraud charges in this case each carry a maximum sentence of five years in prison. Wire fraud and securities fraud carry maximum sentences of 20 years and 15 years respectively. Each count of aggravated identity theft adds two years in prison.