Executive Fraud Blog

Many of you may have been exposed to the original online stock scheme where spammers will send out stock picks on penny stocks creating buzz that artificially drives up the price of these worthless stocks. As the price hits the daily high the spammers liquidate their own holdings and walk away with the profits leaving those buyers with the worthless stock. This old fraud scheme has been manipulated and redirected at users of public computers specifically hotel users.

Online criminals have developed software that will track the key strokes of these computers especially when these guests are checking out their online portfolio accounts. By stealing their accounting identity the fraudsters are able to buy large holdings in these penny stocks to drive up the price then they are able to liquidate their position while leaving the stolen account stuck in the those stocks. Companies such as E*Trade and TD Ameritrade have been left with the liability to reimburse investors nearly $20 billion in one quarter. This type of securities fraud is becoming more common with the amount of users of online trading companies tips 30 million. The best way to prevent this from happening to you is to make sure that you have a secure connection to the internet and ensure that you do not have malware on your computer by running virus scans and anti-adware software.

The US Securities and Exchange Commission (SEC) recently filed charges against Shashikant C. Shah, formerly VP for Able Laboratories. While working for the generic drug manufacturer, Shah had made profits of $909,000 in profits from selling his stock in Able on non-public information. During the course of Shah's job as VP of quality control he knew that their testing practices were considered faulty thus the drugs that they were selling where of poor quality. Trading on non-public information such as this is not only insider trading but also is a danger to those allowed to purchase and use these poorly made drugs.

Following these allegations Shah has consented to provisions requiring that for the next five years he can't serve as an executive for any publicly traded company and he must pay back all the insider trading profits from the sale of Able securities. Able has since filed for bankruptcy back in 2005 and has been forced to sell substantially all their assets.

The criminal trial that has followed led to Shah pleading guilty to conspiracy to commit securities fraud and to distributing misbranded drugs. Shah could face up to five years in prison and a fine of up to $250,000. This case is an example of the successful cooperation between government regulation organizations such as the SEC, FDA, FBI, and others.

Michael A. Daly of Danvers, Mass. has recently been arrested for using false identities to fradulently receive replacement computer networking equipment from Cisco Systems. Between the 700 instances of fraud in 39 states and federal wire fraud charges, Daly is facing a maximum of 20 years in prison and up to a $250,000 fine.

This technology fraud was perpetrated by using Cisco's SMARTnet program that allows customers to received replacement parts prior to returning the broken ones. The listing price of these parts ranged from $995-25,000 and total damages from the fraud are estimated to be in the millions.

The unfortunate ends to these fraud schemes are higher prices for consumers and the possibility of ending programs such as SMARTnet for smaller companies. This can result in longer system downtime and overall costs for business operations.

DON THOMPSON
Associated Press

SACRAMENTO - A man who used more than 15 aliases and multiple false addresses to steal $500,000 worth of Microsoft software has been sentenced to 20 months in federal prison for computer fraud.

Between November 1999 and January 2004, federal prosecutors say Darren McWaine, 35, activated more than 179 subscriptions of Microsoft Developer Network Software, Universal Edition. It was used by computer programmers to create products that would work with Microsoft software.

Each of those subscriptions sold for about $2,799 and had to be renewed annually for an additional fee of about $2,299. Microsoft sent legitimate users a 15-digit activation number.

McWaine obtained activation numbers while he was employed at a firm that sold the software and then tweaked them to create new and unauthorized codes. He tried different combinations to see if they would work, said Sacramento County Sheriff's Lt. Bob Lozito, operations commander of the Sacramento Valley High-Tech Crimes Task Force.
If they did, he would download the software, then sell it over the Internet.

"He was selling these things online," Lozito said. "He was making these things available to people through the black market. They were being sold at a discount."

The U.S. Attorney's Office in Sacramento said McWaine also used a number of aliases, including Darren Macwangwala, David Marsh, Dave Watts and Darren McWayne as he obtained the software.

McWaine, who once lived in the Sacramento suburb of Antelope, could have faced up to five years in prison on each of three charges. Two were dropped in exchange for his guilty plea. He was given a lighter sentence because he cooperated with investigators, according to a plea agreement.

He was sentenced Thursday and was ordered to repay Microsoft for its $500,000 in losses as part of his sentence.